[quote=briansd1]CA renter, a lot of what you write is wishful thinking. Do you want deflation? Or do you truly believe that deflation will be the economic outcome?
I think that all else being equal, inflation is the more likely outcome. We won’t have runaway inflation but we will have moderate targeted inflation of maybe 3% in a low-interest rate environment as long growth is slow.
CA renter, some of your writing is inconsistent. Sometimes you argue that you are predicting deflation. But when someone mentions higher interest rates, you say something like “finally I’ll get a higher return on my money.”
Think about it, if you have $1 million sitting the bank, what’s better for you? Low inflation like we have now, or deflation?
As I’ve said before, inflation spreads the pain more evenly because you have to keep on working and being productive, otherwise, your wealth gets inflated away.
The extra liquidity made available by the Fed goes to the top economic classes because they have better connections and they work the system better to access that money to earn more money.
With inflation, the rich cannot sit on their wealth and do nothing. They have to work to keep up with inflation. Deflation is perfect for old money.
That’s the way our system works.
I would rather have a fiscal stimulus and WPA program to put the unemployed back to work. And I would rather have tranfer payments to the poor so they can get out of debt and improve their lives. I would also want to restrict the fees that can be charged to borrowers with low credit scores. But is all that going to happen? I doubt it.
Will the government limit real estate purchases to US citizens as you wish? I don’t think so.
I believe that it’s important to separate wishful thinking from what is likely to happen.[/quote]
It’s not a matter of whether or not I want deflation, or if I think deflation will be the outcome. Deflation IS the outcome, and has been since the bursting of the stock market bubble in 2000/2001. Some would say that deflation has been the undercurrent for most of the past 30 years, or so.
They’ve tried to mask deflation by creating the credit bubble, but that only made it worse. Then, they tried to mask deflation (and the damage they wrought by their wrong-headed “solution” of the credit bubble) by “stimulating” the economy, artificially supressing interest rates/propping up asset prices, and bailing out the very entities who caused the S to HTF when the credit bubble burst. Now, they’re talking about QE3, as if that will somehow solve the problem. At what point do they reassess, and try to determine if they are even defining the problem correctly? (Because it’s obvious that they are not.)
How many trillions will they burn up, in an effort to create a false bottom for our economy? For as long as they are directing it at the top of the economic pyramid, it will not only fail, but it will make the ensuing deflation even worse than it would have been if they had done nothing.
Asset price inflation, in the absence of wage inflation, does NOT create a sound economy, especially if it’s the result of massive leverage.
When the top is not investing in expanding productive capacity (and why would they, when the problem that ails us is a lack of demand?), they are limited to “investing”/speculating on the demand side as they try to stay ahead of inflation, which exacerbates the imbalances that are causing the problems in the first place.
