Wednesday, Jul 18, 2007
Inflation v deflation
The Telegraph: Is M3 money warning of an inflationary blow-off in the US?
Japan lived through this in the 1980s when it allowed property and stocks to mushroom out of control, mistakenly thinking the effects would be benign because retail price inflation was low. (The US did much the same in the 1920s but the collective mind in Washington and New York seems to forgotten that).
Great comments at the bottom.
I go for deflation as the debt in the economy means IRs don't have to go that high to break the consumer. Also there is no sign of a wage price spiral.
Posted by sold 2 rent 1 @ 07:54 AM (178 views) Add Comment
2 Comments
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1. Stoatgobbler said...
Excellent piece, and I suspect the trigger to the higher rates may well be the Bear Stearns debacle which is unfolding today. I love the Ponzi scheme description by AE (an excellent economist, and former colleague) - just watch the feathers fly.
2. uncle tom said...
The US M3 measure is a strange concoction that includes elements that are only loosely linked to the health of the US economy - consequently, it is not terribly informative.
Whilst it was forgiveable for the Fed to give up on this statistic, it left a gap that needs to be filled.
It would make enormous sense for them to publish an M4 statistic, formulated in exactly the same way as the BOE stat.
- But the Americans seem to hate following our lead..
As Churchill once wrote "You can always rely on the Americans to do the right thing - after they've tried everything else.."