Monday, October 06, 2008

The case for deflation

Sunday's post discussed the chemical conditions for hyperinflation, but deflation is probably quite likely. We have an asset-backed economy rather than a gold-backed economy, so when stocks and real estate fall by 30%, it is like removing a third of the gold in a gold-backed economy. The problem is that the monetary tools available to fight deflation could trigger hyperinflation.

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