Saturday, December 13, 2008

Is Deflation Inevitable?

London Banker (via Naked Capitalism) writes: "The result of discouraging domestic and foreign creditors and investors must be inevitable deflation as debt levels become increasingly hard to finance and ultimately contract."

Surely the U.S. can do what Zimbabwe is doing - and Zimbabwe is not encouraging domestic and foreign creditors and investors? So deflation is not inevitable; it depends on choices that the U.S. government and federal reserve make, from hereon in. Maybe we'll get deflation; maybe we'll get deflation then inflation; maybe we'll get inflation then deflation. But I don't think any is inevitable, at least not yet.

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