sdduuuude I can add some color to the commentary. Most people who are deflationists look at deflation as a monetary event. If you will accept that in our system, money and credit are fungible, two that the last seven years have seen a huge run-up in the creation of that credit and finally that much of that credit is or will be destroyed you probably are a deflationist.
Most people though by no means all who are inflationists believe we can print our way out of the current problem, we can’t for several reasons. If deflation is a monetary event, so is inflation (forget rising prices thats just a symptom of inflation at times.) The inflation has already occurred via all of the lending that has been done against the collateral available (mostly houses.) Now that the collateral is over-encumbered, much of that debt is being destroyed as the borrowers default.
The problem we have is that debt is being destroyed through default faster than the Fed can get money injected into the system. The TAF and the newer spiffier bank bailout are just mechanisms to get money into circulation to stimulate spending. Furthermore the Fed cannot make banks lend. Since most of the collateral that banks would normally lend against is over-encumbered, or not worth what is already lent against it, they are scared to lend except at ever higher rates. That is why even though the Fed keeps lowering (an inflationary tactic if the money has nowhere productive to go) mortgages and consumer credit are getting more expensive. The Fed could just print. It can in fact do that (I was wrong in thinking that it couldn’t), but that would quickly cause an exodus from the dollar, something we have already seen but which would accelerate.
Furthermore how all of the collateral became over-encumbered is through the magic of fraud. Wall street convinced itself and others that you really could slice and dice risk and make it go away. The fact that it has turned out to be a disaster is why the nobody trusts the ratings assigned to all sorts of debt and so people with money refuse to buy the debt.
So the inflation of the last few years is leading to deflation, and the whole kit and kaboodle was based on the fraudulent idea that you really can squeeze 3 nickels from a dime. All of this was all too willingly aided by the hard slacking American consumer who was too dumb to, “do the math.”
