[FoRK] inflation / deflation etc. (resp. to Andre)

Jeff Bone jbone at place.org
Sun Sep 27 11:17:29 PDT 2009


> Actually, no, I don't think you are even close to hyperinflation  
> because it is actually not easy to get to that. Being Brazilian, I  
> lived through very high inflation for most of my life. In our last  
> year of extremely high inflation, 1994, the inflation rate was of  
> 40%... per month. It was not pretty, but it was possible to live  
> through and it is possible to fight with monetary policy. A  
> deflationary spiral is another story.

It all depends on what you mean by "close."  ;-)  I didn't say we were  
close to it, I actually said that I thought the chance of heading that  
direction in the next couple of years was maybe 15%-20% --- and that  
only slightly greater than the chance of a significant deflationary  
cycle.

In both cases, the effect is non-linear --- so it "starts quickly" and  
escalates in a non-linear fashion.  The economy is always at a kind of  
dynamic chaotic equilibrium, just like an ecosystem.  This is both a  
great strength (often surprising resiliency) and --- when we start  
meddling with things without understanding potential consequences  
(which we *do not* --- no economist truly understands macro) --- a  
great weakness (often unexpected, though expectable, fragility.)  So  
handicapping which direction it'll head if it loses stability is a  
crapshoot.  My own "estimates" only place hyperinflation slightly  
ahead of deflation due to two factors:  our reliance on imports and  
the stated bias of our central bank.

And, as mentioned, you're going to see a mix of both effects ---  
deflationary and inflationary impact --- as both processes occur  
simultaneously.  If one gets substantially ahead of the other, though,  
we'll have the makings of a truly horrific scenario.

And yes, South America is an interesting case (rather, cases) in point  
--- but perhaps not as germane as other hyperinflationary scenarios in  
history.  (To be honest, though, *nothing* comes close to being a  
valid analogy to what we're seeing here today.  It's just too unique  
in too many ways.)

jb




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