Tuesday, May 19, 2009

So Broke We Can't Afford Inflation

I'm on the other end of the inflation versus deflation debate. I'm with Mish who maintains that as long as banks don't do any lending, and hoard all of the newly-created money supply, then it's just like printing a bunch of money and then burying it in your back yard. That is, Mish and I believe that the only way that inflation is going to happen is through the ever-increasing federal deficit, which could be exacerbated by falling tax revenues due to rising unemployment. That would create commodity-based inflation through a weaker dollar made by the requirement of higher interest payments because of the federal debt. Commodity-based inflation plus weak demand could be our future. High prices ON TOP OF unemployment. But as you recall, the weakness in demand is what brought mighty oil down from almost $150 a barrel to what it is now. What makes us think that that weakness in demand has changed? In short, we could be so broke, we can't even afford the inflation that we would normally get. :)

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