Inflation vs. deflation
Posted December 2nd, 2008 by 1440 minutes
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I understand the reasons give for coming inflation: the Fed's printing of excessive dollars, which devalues the dollar -- the essence of inflation. What I don't understand is: how is inflation sustainable if massive numbers of people are unemployed, the economy slows down, wages are stagnant, and no one can pay higher prices? Is that what causes a depression: worthless currency along with high unemployment, a slowing economy, and stagnant wages? Could we face a depression rather than hyperinflation, or both?
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Well, the description you
Well, the description you are giving when inflation is high along with high unemployment along with stagnate wages and economic down turns is exactly what was experienced during the 70s and 80s, it was called stagflation. Stagflation was something, according to official economists, that could never happen, but it did and the economists were scratching their collective heads. In fact, many still are scratching their Keynesian heads to this day trying to explain how it could happen because it simply didn’t fit any of their econometric models.
It is important to remember that today, unlike the 1930s, our money is total fiat and the economic structure was drastically transformed beginning in 1934 and again in 1971. In fact, few realize just how much of our economic structure was completely transformed during those periods.
Now, hyperinflation is always a deflationary event, it always happens during either a deflationary depression or deep deflationary recession. Read my thread on hyperinflation. Such an event always strikes at the very worst time because the general economy is flattened out by deflation when hyperinflation takes hold. A deflationary depression would be similar to that we suffered during the Great Depression, but remember during that time our money was still backed by gold, that is no longer the case.
So, there is always the possibility of a purely deflationary depression, but there is also a possibility of a hyperinflationary depression. On the other side of the equation there can be an inflationary depression, all of which share the fact that they are destructive, but a hyperinflationary depression destorys the monetary system completely along with any and all things associated with that monetary system.
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