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

Andre Uratsuka Manoel andre at insite.com.br
Sun Sep 27 11:52:13 PDT 2009


On Sun, Sep 27, 2009 at 15:17, Jeff Bone <jbone at place.org> wrote:
>
>> 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."  ;-)

By close, I mean have a likelihood of the possibility of having an
inkling of thinking about the possibility of you having
hyperinflation.

> 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.

It's easier to cause a recession and stop price inflation than to get
out of a depression. You will probably have some inflation in your
future, but hyperinflation is very hard to engender. It took us almost
20 years and we still didn't get to full-blown hyperinflation. Only to
super-inflation.

> 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.

The stated bias of your central bank will change in the future. I
remember a time a couple of years ago in which they were accused of
tightening too much. Then, in 2008 they were being accused of
loosening too much, so I don't think you can accuse them of having a
persistent bias toward high inflation.

> 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.

I agree with that. But just remember that the inflationary part is
there for a reason: to counteract the deflationary part. At any other
time, a deficit of over 10% of your GDP would've been a disaster.
Today, it is not even enough to take you to zero growth.

> 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.)

Indeed.

Andre



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