Please, doom&gloomers only: Post-credit collapse, inflation or deflation?

[tallrick]

They do not know that deflation is not possible for an unbacked, fiat currency like ours. Inflation is the norm, and has been since 1971. No deflation when your national debt is higher than all assets!

[bale002]

I voted "dunno" because it appears the most realistic scenario is "simultaneous oscillation".

For example, during, roughly, the 2003-2006 period we had hyperinflation in non-tradables, most noticeably housing, and deflation in many tradables, though not energy.

Now we have deflation in some non-tradables, notably housing in many markets, while inflation is now the concern in tradables, and not only food and energy, but possibly also in merchandise tradables, we'll see.

Overall, however, for the reasons tallrick points out, the trend is clearly inflationary, but not so much because of the fiat currency system, as because consumption outpaces production, and we have a monetary policy that exacerbates the situation.

Our most likely destination, at least in the short-run, the next year or two, is stagflation. If the new government applies the wrong policies (say more spending and an increase in taxes), then we could have stagflation for four or more years.

Perhaps a blessing in disguise: if we experience a stagflationary slump (call it a depression if you like), it may be a catalyst for a complete overhaul of our economic policy mix, with a shift in emphasis from overconsumption to subsidize globalization, back to saving and investment to retool domestic manufacturing, from good old shoes & socks to renewable energy systems.

[JohnVosilla]

Originally Posted by bale002

I voted "dunno" because it appears the most realistic scenario is "simultaneous oscillation".

For example, during, roughly, the 2003-2006 period we had hyperinflation in non-tradables, most noticeably housing, and deflation in many tradables, though not energy.

Now we have deflation in some non-tradables, notably housing in many markets, while inflation is now the concern in tradables, and not only food and energy, but possibly also in merchandise tradables, we'll see.

Overall, however, for the reasons tallrick points out, the trend is clearly inflationary, but not so much because of the fiat currency system, as because consumption outpaces production, and we have a monetary policy that exacerbates the situation.

Our most likely destination, at least in the short-run, the next year or two, is stagflation. If the new government applies the wrong policies (say more spending and an increase in taxes), then we could have stagflation for four or more years.

Perhaps a blessing in disguise: if we experience a stagflationary slump (call it a depression if you like), it may be a catalyst for a complete overhaul of our economic policy mix, with a shift in emphasis from overconsumption to subsidize globalization, back to saving and investment to retool domestic manufacturing, from good old shoes & socks to renewable energy systems.

Great post. I think what you describe is very likely in a sustained peroid of stagflation and dollar devaluation with populism more in vogue again helping bring a real economy back and hopefully more real old fashioned values again. It is the only way out as there is no way we will follow the policies of the Hoover administration. You can see what GWB and company immediately did after the post 9/11...dotbomb crash world when risks were even higher than today's mortgage and housing meltdown..It unfortunately is inflate or die at this point with no turning back to the disinflationary high productivity gains of the 1981-2000 period along with what can be viewed by J6P as the negative byproducts of shipping jobs overseas and record wealth disparity..