[P2P-F] inflationistas vs deflationistas vs hypgerstagflationistas

Sun Mar 13 04:46:47 CET 2011

where do you stand on this debate,

this is the deflationary position from steve keen,
http://www.chrismartenson.com/blog/straight-talk-steve-keen/47466

my own hunch is that, since the deleveraging and destruction of debt money
has been so much greater than the pump-priming, and especially in the
context of austerity budgets, deflation, with pockets of food and oil
inflation, is the most likely ..

3. What is your rebuttal to the (hyper) inflationists? What data would you
need to see to reconsider your position? Does the recent news and market
reaction to QE2 affirm or challenge your position?

 *Steve: *The hyper-inflationists basically argue that government money
creation will cause hyper-inflation. In this I think they’re unwittingly
relying on the “Money Multiplier” model of money creation: the government
prints $10, a depositor puts this in a bank account, the bank hangs onto $1
and lends out the other $9, which is deposited in another bank, and so on.
Over time you turn $1 of government money into $10 total, which drives up
demand for goods and services and causes inflation.

The Central Banks themselves are relying on the same model—especially
Bernanke with QE1 and now QE2. So if the model actually worked, both Central
Banks and the hyper-inflationists would be right: inflation would result and
our current debt-deflationary crisis would become an inflationary one. The
only difference is that the Central Banks think they can control and
moderate the rate of inflation, and the hyper-inflationists think it will be
a runaway process.

The trouble is, as I showed in the “Roving Cavaliers of
Credit<http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/>”
post, is that this “deposits create loans” model isn’t how credit money is
actually created. Instead, as good empirical work by Basil Moore and other
Post Keynesians (and even staunch neoclassicals like Kydland and
Prescott<http://en.wikipedia.org/wiki/Money_multiplier#CITEREFKydlandPrescott1990>)
has confirmed, “loans create
deposits<http://en.wikipedia.org/wiki/Endogenous_money>”,
and government money creation largely follows credit money creation, rather
than the other way around.

Ironically, this fallacy gives the hyper-inflationists and the Central
Bankers—in particular Bernanke—something in common: they both appear to
believe that Central Banks can cause inflation easily, and that the Great
Depression was the fault of the US Central Bank. Bernanke goes to great
lengths to assert this in his Essays on the Great Depression, and even
famously remarked to Milton Friedman and Anna Schwartz at Friedman’s
90thbirthday party<http://www.federalreserve.gov/boarddocs/speeches/2002/20021108/default.htm>that:

“Let me end my talk by abusing slightly my status as an official
representative of the Federal Reserve. I would like to say to Milton and
Anna: Regarding the Great Depression. You’re right, we did it. We’re very
sorry. But thanks to you, we won’t do it again”

His main evidence was the collapse of M1 under the Fed in the 1930s, which
he said turned a mild downturn into the Great Recession, and on Friedman’s
data, this did indeed happen.

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