Saturday, January 1, 2005
Are Recessions Deflationary?
View graphOr, falling supply will magnify general price inflation that is currently being caused by the vast quantity of dollars, pounds and euro's being printed to bail out the banks. Highly leveraged assets like houses and stocks may well fall as a result of the repricing of risk. However, assets subject to unleveraged speculation, e.g. gold, wheat, oil, rice, etc will rise, with goods and services paid for in cash, as a result of the continued monetary expansion, which caused the bubbles and underpricing of risk in the first place, correction of which is bringing down giants, currently being bailed out, that caused the problem in the first place.