If you love economics, Deflation Is Going To Cause A Scary New Kind Of Debt Crisis article is a must read. It once again takes a look at where we are in terms of inflation vs. deflation debate.
I have been a strong proponent that the US economy has been in a “stealth” deflationary environment since at least the early 2000’s. I know there are a lot of people running around screaming inflation, but we must first define what inflation and deflation is. While there are many definitions, mine is …..Inflation is expansion of credit while deflation is contraction of credit. It is as simple as that.
The reason most people believe we are experiencing or will experience inflation and/or hyperinflation is due to the FED’s massive infusion of credit into our financial system over the last 10 years. Without it, we would have already seen concrete evidence of deflation throughout most sectors of the economy.
Here is the situation. Deflation is destruction of credit and subsequent decline of prices due to defaults, overcapacity and the looping trend that it generates. We have already started the process of deflation in two very important areas as per % of GDP. Financial and real estate sectors. In 2000-2003 and 2007-2009.
However, due to the FED’s criminal insistence on inflation at any cost, thus far, they have been successful in papering over any signs of a deflation by infusing massive amounts of credit and money supply into the US Financial system. As the article above confirms, such a move didn’t fix anything. Instead, it made matters worse and the upcoming recession more severe. With credit velocity now slowing down, more defaults and an all out deflation is unavoidable.
