Inflation or Deflation?

[Billybus]

So which is a bigger risk at present, inflation or deflation? Why?

A far bigger risk is inflation, especially since world governments are basically printing money. Worse, I feel that the world can no longer experience growth and falling prices. Resources are harder to find, making competition even more fierce. In the U.S., I think we will experience inflation for sometime to come.

[North Wiedna]

So which is a bigger risk at present, inflation or deflation? Why?

A far bigger risk is inflation, especially since world governments are basically printing money. Worse, I feel that the world can no longer experience growth and falling prices. Resources are harder to find, making competition even more fierce. In the U.S., I think we will experience inflation for sometime to come.

Where?

[Norstal]

Umm...both are equally bad in the U.S, assuming that's what ur talking about

[Billybus]

So which is a bigger risk at present, inflation or deflation? Why?

A far bigger risk is inflation, especially since world governments are basically printing money. Worse, I feel that the world can no longer experience growth and falling prices. Resources are harder to find, making competition even more fierce. In the U.S., I think we will experience inflation for sometime to come.

Where?

Does it matter? The global economy is very interconnected.

[Cameroi]

word games vs how many hours work buys a pair of shoes that last how many months.

[Chrobalta]

Deflation would pose a massive problem. Inflation is not a problem unless it occurs at too high a rate.

[Conserative Morality]

word games vs how many hours work buys a pair of shoes that last how many months.

And Inflation and Deflation influence that. Get with the modern world, Cameroi.

[South Lorenya]

Severe inflation is bad --just ask anyone in Zimbabwe.

Deflation is also bad, as people will literally become richer by not spending.

So best would be mild (1% or so) inflation.

[Hydesland]

I think the US is definitely more at risk of deflation, and that is more undesirable than high inflation, if you want to know why, look at Japan's recent history.

[NotnotgnimmiJymmiJ]

Deflation is both more likely to occur and more harmful when it occurs. I would like to see at least 4% inflation until we get back to trend. But Bernanke has already rejected the idea of anything over 2% inflation.

[Vittos Ordination]

I think the US is definitely more at risk of deflation, and that is more undesirable than high inflation, if you want to know why, look at Japan's recent history.

I would contest that deflation is a lesser danger than higher inflation. Japan's economic downturn preceded the extremely low levels of inflation, and ultimately, outside the Great Depression there really is no trend linking deflation with depression. I would also say the predictions of a deflationary spiral are based on a very narrow understanding of human behavior and there is really no way to predict such a thing.

Oh yeah:

http://www.minneapolisfed.org/research/sr/sr331.pdf

[NotnotgnimmiJymmiJ]

I think the US is definitely more at risk of deflation, and that is more undesirable than high inflation, if you want to know why, look at Japan's recent history.

I would contest that deflation is a lesser danger than higher inflation. Japan's economic downturn preceded the extremely low levels of inflation, and ultimately, outside the Great Depression there really is no trend linking deflation with depression.

Why should there be? A fall in real GDP only leads to deflation if there is an even larger corresponding fall in the money supply or the velocity of money.

I would also say the predictions of a deflationary spiral are based on a very narrow understanding of human behavior and there is really no way to predict such a thing.

And what narrow understanding of human behavior would that be?

[Sibirsky]

Considering how our monetary system is set up, deflation indeed is bad on a long term basis. If we did not have debt based money however, I see it as the more favorable of the two options.

[Kreanoltha]

Considering how our monetary system is set up, deflation indeed is bad on a long term basis. If we did not have debt based money however, I see it as the more favorable of the two options.

Better yet, if our money was based on something like gold or silver deflation would be desirable.

[Sibirsky]

Considering how our monetary system is set up, deflation indeed is bad on a long term basis. If we did not have debt based money however, I see it as the more favorable of the two options.

Better yet, if our money was based on something like gold or silver deflation would be desirable.

Ya, more favorable=desirable. In my ideal society the money supply is constant. With rising productivity you have falling prices. A state of constant deflation. You don't get raises, you get lower prices. I guess over time you may want to increase the money supply based on population growth, but that is getting into dangerous territory.

[Vetalia]

Deflation. The simple truth is that there is no real threat of inflation despite the rampant government spending and loose monetary policy over the past two years (indeed, the past decade if we look at the US); so great was the destruction of wealth caused by the financial crisis that it will take a while before things return to that level. At the same time, the absolute need for many countries to rein in spending will lead to higher taxes, tightened spending, and reductions in debt that will constrict the money supply and put significant pressure on both growth and inflation. Rising interest rates in countries suffering debt troubles will also further constrict it as will ongoing conservatism in financial firms unwilling to lend out money due to their concerns over potential risk.

If anything, it's pretty disturbing that two years of complete exhaustion of monetary and fiscal stimulus measures haven't materially increased inflation...that's a sign the hole created by wealth destruction in 2008-2009 is very, very deep and will take much longer to recover than is anticipated.

[Natapoc]

word games vs how many hours work buys a pair of shoes that last how many months.

And Inflation and Deflation influence that. Get with the modern world, Cameroi.

Cameroi understands the world quite well I suspect.

[Conserative Morality]

Cameroi understands the world quite well I suspect.

He chooses not to understand how it works. He chooses to 'choose' alternatives that have little or nothing to do with the way the world works, or the way people work.

If he understands the world, he's hiding it pretty well.

[Vetalia]

I would contest that deflation is a lesser danger than higher inflation. Japan's economic downturn preceded the extremely low levels of inflation, and ultimately, outside the Great Depression there really is no trend linking deflation with depression. I would also say the predictions of a deflationary spiral are based on a very narrow understanding of human behavior and there is really no way to predict such a thing.

Ultimately, I'd say the key part is whether or not deflation is driven by debt reduction; if prices fall because of competition, technological innovation, or increased supply of inputs, it's another matter. However, if deflation is being driven by the reduction of debt, that's a problem because it means investment and consumption are both constricted, putting a drag on growth; that's basically what happened in Japan, especially with the collapse of the asset-price bubble that left both individuals and firms under water with overvalued debt.

[New Ziedrich]

word games vs how many hours work buys a pair of shoes that last how many months.

I don't know about you, but I can get two or three years out of a cheap pair of sneakers.

[Lacadaemon]

Since 2007 the risk has always been deflation. It's a far worse outcome since it pretty much guarantees the failure of the banking system given the level of personal debt. (Unless it's really mild, which is unlikely). Also it can lead to all sorts of unpleasant Hitler type outcomes as people start to get really really pissy about the current political set up.

The Fed - under Bernanke at least - won't allow it though, and will go to any length to stop it including capping treasury yields and buying any assets it can, so I doubt it will happen absent some kind of political trigger - which is not out of the question.

[Vetalia]

It's also important to note the primary driver of inflation in the developed world during the 2000's was the commodities bubble, a phenomenon based not on reality but on speculation as opposed to inflation driven by economic growth and resource utilization In the United States,for example, the labor market simply never recovered to its pre-recessionary level despite what the headline numbers said. Similarly, capacity utilization in industry remained below its inflationary threshold during the expansion (ironically, it briefly surpassed that threshold in the late 90's when inflation was at very low levels). Similarly, monetary and fiscal policy were gradually tightening from 2001 onwards, putting further pressure on inflation.

Once the commodities bubble burst in mid-2008, there was nothing really propelling inflation forward and now the situation has worsened further thanks to the financial crisis. As I previously mentioned, the very fact that there is no inflation despite record fiscal and monetary stimulus is concerning...it's the same predicament which befell Japan, except on a global scale. That's not to say things will turn out the same way on a global scale, but it's still a major cause for concern for the developed world since we lack the same resources developing nations due to revive their economic performance.

[Caninope]

Considering how our monetary system is set up, deflation indeed is bad on a long term basis. If we did not have debt based money however, I see it as the more favorable of the two options.

Better yet, if our money was based on something like gold or silver deflation would be desirable.

Ya, more favorable=desirable. In my ideal society the money supply is constant. With rising productivity you have falling prices. A state of constant deflation. You don't get raises, you get lower prices. I guess over time you may want to increase the money supply based on population growth, but that is getting into dangerous territory.

Yeah, a constant money supply isn't always best over time. The US has grown from under 4 million to 310 million people. What would have happened if the money supply was constant?

[Vetalia]

On that note, I just saw a graph of oil prices up to Dec. 2008 (of course, it's recovered since then), but the progress of this chart compared to the Nikkei or NASDAQ bubbles is an interesting, surprisingly identical correlation, especially leading up to the top in 2008. I personally believe oil will be at the same nominal price in 2020 (i.e. $70-80/bbl) as it is today based on how this bubble is deflating, if not lower. It may very well follow its previous deflationary path as seen from 1983-1998, further pressuring inflation downward going forward.

http://images.angelpub.com/2009/03/1606 ... -12-09.png

[Sibirsky]

Considering how our monetary system is set up, deflation indeed is bad on a long term basis. If we did not have debt based money however, I see it as the more favorable of the two options.

Better yet, if our money was based on something like gold or silver deflation would be desirable.

Ya, more favorable=desirable. In my ideal society the money supply is constant. With rising productivity you have falling prices. A state of constant deflation. You don't get raises, you get lower prices. I guess over time you may want to increase the money supply based on population growth, but that is getting into dangerous territory.

Yeah, a constant money supply isn't always best over time. The US has grown from under 4 million to 310 million people. What would have happened if the money supply was constant?

Incomes would have dropped as well. I did mention that population growth is an issue. Of course if you look at historical US price levels, all you see is little spikes during wars and then a return to normal for 250 years. Then you see the Fed and a constantly rising price level. I don't see how that is healthy. I guess one way to do it would be to base the money supply on the population. But the point is to get away from some central planners planning the economy.