Comment: Inflation/Deflation

(See in situ)

In reply to comment: "Money supply" has tripled (see in situ)

Inflation/Deflation

Money supply has tripled but it isn't making it out into the "money
supply." It is locked up in the banks, because the only way it can escape is if the banks lend it, and so far they've been unwilling to do so. So rates are at record lows, and no one can get a loan. If the money can't get out and circulate, there will be no inflation.

It's true that banks are not necessarily lending all of that money so the velocity is not what it can potentially be. However, I'd still argue major price inflation is taking place. I mean, we can look at the price of something that hasn't gone up over the past few years and say "no price inflation here". However, I'd argue that with the amount of unemployment we have right now (I think John Williams measures it somewhere around 15% - using the old calculation methods) that there should be massive DEFLATION showing up everywhere in our economy. So having even a stable price can be a show of price inflation.

Also, I believe in the argument that the US isn't going to be the world's reserve currency for too much longer. As a result, the days of the "petro-dollar" are numbered. Right now countries can still use the dollars we print to buy oil. Once that ends, oil prices in USD are going to sky-rocket. That will make everything we import and have to ship via plane and/or truck a lot more expensive. It will also make things we produce that require oil a lot more expensive.

Plus, once we're no longer the reserve currency, maybe countries will no longer accept USD for their oil. In such a case, that money is going to have to go somewhere. There's a very real chance it will come flooding back into the US, bidding up prices and causing massive price inflation.

When you say that there's deflation in the oil market, by the way, do you mean in the past couple of months? Or do you mean as a larger trend? Isn't the larger trend that oil has gone way up?

What if everyone expects massive defaults on debt? That is deflationary

Doesn't it depend on how we default? If we default via printing money then it will cause massive price inflation, no? If we default in a more honest way ("we're simply not paying" or "you have to restructure our debt") then it would seemingly be deflationary though I would still argue that any form of default will lead to us losing the reserve currency status and causing massive price inflation due to the money flooding in to buy up whatever it can. Remember that China and Japan both hold over a trillion USD. If they can't buy oil with it then what are they going to use it for?