Monday, December 17, 2007
It Is the Debt, Stupid!
For those of you who are worried about inflation, the total household debt growth below $300B annual rate will lead to outright deflation within months (inflation always lags). Household debt growth is inflationary in the present and deflationary in the future. Fed has been fighting deflation for the past five years by maintaining elevated rate of household debt growth! Controlled inflation, around 3%, has been Fed's policy for the past 25 years, after Volcker tamed inflation. There is no such thing as "corrosive deflation," Mr. Greenspan; there is only corrosive inflation. The policy of controlled corrosion in purchasing power is a bad one for the American workers and, especially, the poor.