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Much more deflation to come?

Here is a graph of the inflation-adjusted Dow:


- before 1929 we see a huge credit bubble
- 1929 to 1932 deflation
- 1932 to 1964 another bubble forms
- 1964 to 1983 deflation
- 1983 to 1996 another bubble (there's not any more data after that but I assume it goes up further)

Every time there is a bubble, it is followed by a deflationary correction. So doesn't it make more sense that there will be more deflation before inflation? It's only been a couple months since the bubble burst. When has deflation only occurred for a few months after a giant bubble bursting?

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Republicae's picture

In a fiat monetary economy

In a fiat monetary economy you will always have two opposing forces butting heads, one is the market force that seeks to correct the inflated boom, the other is the central bank attempting to artificially re-inflate the deflating boom. The push, of course, is for the central banking system to inflate as much as possible to reverse the market forces of correction. As the head of the Bank of England recently said, to paraphrase: We have an unlimited amount of money we can create to combat deflation. There in is the danger, not only in the amount of liquidity created, but in the timing of it also.


I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater


"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun


nice chart I bookmarked it.

"We can see with our eyes, hear with our ears and feel with our touch, but we understand with our hearts."

The bubble burst a year or

The bubble burst a year or so ago. Now we are seeing the deflationary effects of that bursting. How long will it last? Who knows....

That's my whole point though

Everyone here is saying it will go up again within this year and inflation will soar. But the bubble just burst so isn't it going to deflate for a long time just like all the other bubbles?
"We will never give up. We will never give in." - Dr. Ron Paul

"We will never give up. We will never give in." - Dr. Ron Paul