That happens to be the steepest drop on the records (you can go back to 1947 if you like---)Vox calls it 'debt-deflation,' and argues that the chart is a signal for further contraction in 2010. Obviously, that's the reason that Obamamamama has proposed to, ah, "influence" community banks with capital investment from Obamamamama.
IOW, the real concern is not inflation; it's DEflation.
You need not be a genius to see that possibility when you look at this post from Vox on mortgage 'walk-aways.'
Why do you think the Fed. is pumping hundred of billions of dollars into the system, yet the 10 year has barely moved? Year over year CPI is less than 1%.....the list goes on and on. Deflation, ala 1928, has been a worry from the very beginning. You cannot get inflation with major slack in output and employment unless inflation expectations rise. The only way that happens is if people start believing hacks like Glenn Beck. I have more faith in the average investor so I don't believe that'll happen anytime soon.
ReplyDeleteBTW, the idea of "debt deflation" is not a new idea. It goes back a bit further than that.....
Irving Fischer. He learned about it the hard way.
Well, I'm thinking that it IS inflation.
ReplyDeleteI am concerned about the vast quantities of USD now (at least theoretically) in circulation, albeit most of them are held by the Fed in debt-instruments of the GSE's.
That's inflationary, at least in potential.
The 'debt deflation' described by Vox and others, however, is another form of inflation, because the asset held by the banks (housing) is deflating relative to the USDs invested therein; therefore, the USD inflates.
So either way it looks like inflation.