Wednesday, April 1, 2009
Hyper-inflation or hyper-deflation?
I hesitated to post this because it is too apocalyptic. However, I believe it has something intelligent to add to the inflation vs deflation debate. It concerns the cost of holding debt. If you have a profitable business taking on debt to expand can be profitable. But there is a point where more debt is no longer profitable. That point has now been reached; we are "eating our seed corn". More debt now actually harms the economy. Growing government intervention causes debt to grow. The only profitable investment speculation now is goverment bonds. Money printed is needed to pay off debt and does not go into circulation. Money printed during quantitative easing (buying up government bonds) causes the economy to contract; a vicious circle causing asset and commodity prices to fall-deflation