Deflation and Entitlement Programs

[Ash Housewares]

It seems there is some debate about the future direction of the economy; namely, whether the recession we face will be inflationary or deflationary. For example, Mish had a good dialogue with Schiff:

part 1: http://www.safehaven.com/article-9083.htm

part 2: http://globaleconomicanalysis.blogspot.com/2007/12/not-your-fathers-deflation-rebuttal.html

part 3: http://globaleconomicanalysis.blogspot.com/2007/12/peter-schiff-replies-to-deflation.html

The deflation advocates seem to be winning. Minyanville is also on the deflation bandwagon from several articles I’ve read there.

I had always assumed that the recession would be inflationary, and my reasoning was something like “inflation is the ONLY way we can pay our debt commitments, most notably social security and medicare”. Not too sophisticated, I know, but it made sense at the time.

So my question is, since we now appear headed for deflation, how on earth are we going to pay our obligations?

[nostradamus]

Well if what’s going on at Victoria’s Secret, Pier 1 Imports, and Macy’s is any indication it is a deflationary recession. Or it might just be the holiday sales season. 😉

[nostradamus]

Well if what’s going on at Victoria’s Secret, Pier 1 Imports, and Macy’s is any indication it is a deflationary recession. Or it might just be the holiday sales season. 😉

[nostradamus]

Well if what’s going on at Victoria’s Secret, Pier 1 Imports, and Macy’s is any indication it is a deflationary recession. Or it might just be the holiday sales season. 😉

[nostradamus]

Well if what’s going on at Victoria’s Secret, Pier 1 Imports, and Macy’s is any indication it is a deflationary recession. Or it might just be the holiday sales season. 😉

[nostradamus]

Well if what’s going on at Victoria’s Secret, Pier 1 Imports, and Macy’s is any indication it is a deflationary recession. Or it might just be the holiday sales season. 😉

[Eugene]

The problem with Mish is his Austrian bias. Same goes for many other deflation advocates. Whenever you hear someone saying “the Fed is a private business”, or using the word “malinvestment”, or demanding to “flush bad debt from the system”, or accusing the government of understating the CPI for its evil purposes, that’s a dead giveaway.
When it comes to interpreting (and predicting) actions of the Federal Reserve, not to mention their possible outcomes, Austrian bias is a big obstacle.

On Minyanville, half the articles talking about deflation are written by Mish.

Peter Schiff isn’t much better. His economics views are very shallow.

I don’t recall seeing any good articles discussing inflation vs. deflation with enough attention to details. Such as: the distinction between tradable and non-tradable goods and the realization that American economy is 80% services and non-tradables; interplay between exchange rates, trade deficits, long-term interest rates, money supply, and Bretton Woods II; Phillips curve (unemployment vs. inflation); whether inflation = money supply = CPI, if not, why; monetary and fiscal tools available to the government beyond simple rate-fixing.

inflation is the ONLY way we can pay our debt commitments, most notably social security and medicare

Social security and medicare are indexed to inflation.

[Eugene]

The problem with Mish is his Austrian bias. Same goes for many other deflation advocates. Whenever you hear someone saying “the Fed is a private business”, or using the word “malinvestment”, or demanding to “flush bad debt from the system”, or accusing the government of understating the CPI for its evil purposes, that’s a dead giveaway.
When it comes to interpreting (and predicting) actions of the Federal Reserve, not to mention their possible outcomes, Austrian bias is a big obstacle.

On Minyanville, half the articles talking about deflation are written by Mish.

Peter Schiff isn’t much better. His economics views are very shallow.

I don’t recall seeing any good articles discussing inflation vs. deflation with enough attention to details. Such as: the distinction between tradable and non-tradable goods and the realization that American economy is 80% services and non-tradables; interplay between exchange rates, trade deficits, long-term interest rates, money supply, and Bretton Woods II; Phillips curve (unemployment vs. inflation); whether inflation = money supply = CPI, if not, why; monetary and fiscal tools available to the government beyond simple rate-fixing.

inflation is the ONLY way we can pay our debt commitments, most notably social security and medicare

Social security and medicare are indexed to inflation.

[Eugene]

The problem with Mish is his Austrian bias. Same goes for many other deflation advocates. Whenever you hear someone saying “the Fed is a private business”, or using the word “malinvestment”, or demanding to “flush bad debt from the system”, or accusing the government of understating the CPI for its evil purposes, that’s a dead giveaway.
When it comes to interpreting (and predicting) actions of the Federal Reserve, not to mention their possible outcomes, Austrian bias is a big obstacle.

On Minyanville, half the articles talking about deflation are written by Mish.

Peter Schiff isn’t much better. His economics views are very shallow.

I don’t recall seeing any good articles discussing inflation vs. deflation with enough attention to details. Such as: the distinction between tradable and non-tradable goods and the realization that American economy is 80% services and non-tradables; interplay between exchange rates, trade deficits, long-term interest rates, money supply, and Bretton Woods II; Phillips curve (unemployment vs. inflation); whether inflation = money supply = CPI, if not, why; monetary and fiscal tools available to the government beyond simple rate-fixing.

inflation is the ONLY way we can pay our debt commitments, most notably social security and medicare

Social security and medicare are indexed to inflation.

[Eugene]

The problem with Mish is his Austrian bias. Same goes for many other deflation advocates. Whenever you hear someone saying “the Fed is a private business”, or using the word “malinvestment”, or demanding to “flush bad debt from the system”, or accusing the government of understating the CPI for its evil purposes, that’s a dead giveaway.
When it comes to interpreting (and predicting) actions of the Federal Reserve, not to mention their possible outcomes, Austrian bias is a big obstacle.

On Minyanville, half the articles talking about deflation are written by Mish.

Peter Schiff isn’t much better. His economics views are very shallow.

I don’t recall seeing any good articles discussing inflation vs. deflation with enough attention to details. Such as: the distinction between tradable and non-tradable goods and the realization that American economy is 80% services and non-tradables; interplay between exchange rates, trade deficits, long-term interest rates, money supply, and Bretton Woods II; Phillips curve (unemployment vs. inflation); whether inflation = money supply = CPI, if not, why; monetary and fiscal tools available to the government beyond simple rate-fixing.

inflation is the ONLY way we can pay our debt commitments, most notably social security and medicare

Social security and medicare are indexed to inflation.

[Eugene]

The problem with Mish is his Austrian bias. Same goes for many other deflation advocates. Whenever you hear someone saying “the Fed is a private business”, or using the word “malinvestment”, or demanding to “flush bad debt from the system”, or accusing the government of understating the CPI for its evil purposes, that’s a dead giveaway.
When it comes to interpreting (and predicting) actions of the Federal Reserve, not to mention their possible outcomes, Austrian bias is a big obstacle.

On Minyanville, half the articles talking about deflation are written by Mish.

Peter Schiff isn’t much better. His economics views are very shallow.

I don’t recall seeing any good articles discussing inflation vs. deflation with enough attention to details. Such as: the distinction between tradable and non-tradable goods and the realization that American economy is 80% services and non-tradables; interplay between exchange rates, trade deficits, long-term interest rates, money supply, and Bretton Woods II; Phillips curve (unemployment vs. inflation); whether inflation = money supply = CPI, if not, why; monetary and fiscal tools available to the government beyond simple rate-fixing.

inflation is the ONLY way we can pay our debt commitments, most notably social security and medicare

Social security and medicare are indexed to inflation.

[mrwrong]

This topic comes up from time to time. The inflation camp believes the only way to get out of our current mess is to inflate the debt away. The deflation camp acknowledges the inflation attempt, but argues it will fail. They point to Japan as a proof. Central bank there cut interest rate to zero. Deflation still took hold and has lasted for more than a decade.

Personally I’m not convinced either way. I’m assuming the truth is somewhere in the middle, in which he FED will try to slowly inflate the debt away without causing runaway inflation. Not easy to accomplish to say the least, but the longer they can drag on this process, the better the final outcome will be for everybody.

Mr. Wrong

[mrwrong]

This topic comes up from time to time. The inflation camp believes the only way to get out of our current mess is to inflate the debt away. The deflation camp acknowledges the inflation attempt, but argues it will fail. They point to Japan as a proof. Central bank there cut interest rate to zero. Deflation still took hold and has lasted for more than a decade.

Personally I’m not convinced either way. I’m assuming the truth is somewhere in the middle, in which he FED will try to slowly inflate the debt away without causing runaway inflation. Not easy to accomplish to say the least, but the longer they can drag on this process, the better the final outcome will be for everybody.

Mr. Wrong

[mrwrong]

This topic comes up from time to time. The inflation camp believes the only way to get out of our current mess is to inflate the debt away. The deflation camp acknowledges the inflation attempt, but argues it will fail. They point to Japan as a proof. Central bank there cut interest rate to zero. Deflation still took hold and has lasted for more than a decade.

Personally I’m not convinced either way. I’m assuming the truth is somewhere in the middle, in which he FED will try to slowly inflate the debt away without causing runaway inflation. Not easy to accomplish to say the least, but the longer they can drag on this process, the better the final outcome will be for everybody.

Mr. Wrong

[mrwrong]

This topic comes up from time to time. The inflation camp believes the only way to get out of our current mess is to inflate the debt away. The deflation camp acknowledges the inflation attempt, but argues it will fail. They point to Japan as a proof. Central bank there cut interest rate to zero. Deflation still took hold and has lasted for more than a decade.

Personally I’m not convinced either way. I’m assuming the truth is somewhere in the middle, in which he FED will try to slowly inflate the debt away without causing runaway inflation. Not easy to accomplish to say the least, but the longer they can drag on this process, the better the final outcome will be for everybody.

Mr. Wrong

[Author]

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