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Mish on misused definition of deflation

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April 17, 2009 – Comments (3)

Mish did a post on deflation using the commonly used wrong definition of deflation, which he has clarified right at the beginning.

I liked the discussion at the end of the post regarding all the wrong things blamed for the depression when it was caused by real estate asset price inflation and over leverage of credit, the same conditions the world economy is facing right now.

 

3 Comments – Post Your Own

#1) On April 17, 2009 at 8:27 AM, MikeMark (29.63) wrote:

Mish has uncommon clarity.

Interestingly, deflation is only bad if you need asset appreciation vs money, or if you are someone (a government or bank) that gains by creating money for their own use or to lend at interest. If you are a hard working saver, deflation is great! Your savings become more valuable. You can purchase more of what you need for less.

In relation to that, creating money without basis is considered to be fraud (essentially it is counterfeiting ) in a truly law abiding society. So the current monetary systems in place are basically fraudulent. Moral hazard (fraud in this case) is the foundation of the system.

In order to remove moral hazard, you need to remove central banks and go back to 100% reserve banking. Growth becomes slower but consistent and depressions basically cease to be a problem because everyone concentrates on saving first, then on investing and consuming.

May we get back to that kind of prosperity soon (or at least something closer to it).

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#2) On April 17, 2009 at 8:30 AM, angusthermopylae (39.58) wrote:

I've been contemplating the idea of writing a "In/De flation 101" article for this reason.  A lot of people are tied up in the debate over which will happen (or in what order, or to what extent), but I think there are a lot of assumptions over what the terms mean...and possibly false belief on what the effects can be.

...but then, maybe that's just me:  Just because a guy uses a term or phrase that I believe I understand, doesn't indicate that we are talking about the same thing...

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#3) On April 17, 2009 at 11:55 PM, edbbear (< 20) wrote:

When I read the Great Crash a couple months ago one thing that struck me was reading about real estate speculation in Florida.  People were buying undeveloped land and quite a bubble developed in it.  It seemed like we had made the exact same mistakes all over again. 

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