The debate is over: deflation is here

CPI just declined a full 1% in October. This means we have had -1.5% deflation in the last three months. The Panic of 2008 is officially the first deflationary bust in almost 60 years.

As I have explained previously, every time there has been 1.5% deflation or greater, going back almost 100 years, we have been in a deflationary recession.

The good news is that year over year inflation is 3.7%, a decline from 5.6% in July. Producer prices have declined more dramatically, from 9.8% to 5.1%. Both of these should continue to decline for the next couple of months (due to predictable seasonal factors plus continuing declines in Oil). Per historical patterns of how recessions end, IF money supply continues to expand, and PPI continues to decline more than CPI, we will more likely than not see a recovery by July 4, 2009.

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Deflation is the Present - Is Inflation the future?

EP has been suggesting deflation for some time. RGE also.
The open question is whether a big killer inflation tsunami will follow. This inflation tsunami depends on the torrent of liquidity now frozen, to be thawed.

Credit thaw seems almost a political inevitability but not so fast. The Japanese had 10 years of zombie banks stuffed with liquidity and making no loans in ths 90's. The Obama regime likes the light touch regarding business regulation. So the relations between Treasury and Fed may be some form of status quo with Hanky and Spanky (he won't say where the loans are) today.

Some time soon, the pressure from Congress or the people will build and the torrent will be unleashed from the banks.
The credit reflation will take the size and shape of the liquidity bubble formed this fall. This bubble is larger than Greenpondscum's bubble from late 1987 (around $250 Billion).

Burton Leed

Burton Leed

Overreaction could cause another bubble

Here's what it looks like to me: Whenever the financial sector tries to take over everything else, it becomes overleveraged and causes debt-destroying deflation.

Any government that tries to avoid the deflation (by printing money) will cause an inflationary bubble. IF they attempt this before enough debt has been destroyed, then they only delay the inevitable- and cause more problems.

Obama and Bush Administrations both have the potential to overreact in this way. Doing so will cause an inflationary bubble, yes, but it will be followed with more drastic deflation when the bubble pops.

Maximum jobs, not maximum profits.

NDD you nailed it again!

Damn! Not that this is good for the economy but so glad you are here swimming against the current consensus. I thought for sure that massive spending would immediately bring dollar deflation and I know I'm not alone out there, so hello, dead wrong!

Cycle of Weimar Republic 1918 to 1933 not U.S 1929 to 1932

A deflation followed by an massive inflation followed by a collapse is the Weimar Republic from 1918 to 1933. The exception cited of retiring debt is not worth considering in the U.S. for many years. The last shot at retiring debt came in 1996 to 2000. Those days are definitely over for a long while.

Ruinous monetary aggregates will be created in the next few years as current debt levels are monetized. Does anyone believe these U.S. debt levels will be paid off soon?

Burton Leed

Burton Leed

there is a bill in the Senate

To stop the rest of the bail out. $350 billion. I think they should pass it and stop this taxpayer giveaway right now and save it for a HOLC type of structure as well as public works funding.

I find it amazing that the big 3 are getting blasted for $25 billion while AIG gets ?? I think now it's $150 Billion/. Each financial institution got $25 billion so why would they fuss over the big 3 which they just gave away to the financial sector way more money than that...for what?

How about letting some of these banks go into Chapter 11?

I don't believe that US debt levels will be paid off soon

But I do believe that the current Demopublican oligarchy is stupid enough to keep printing money until the original debt is worth less than a loaf of bread.

The question is will the final collapse happen before then or not.

Maximum jobs, not maximum profits.