INFLATION AND DEFLATION (IN A TOXIC MIX)
Linda says:
(Or how the cost of food and money goes up, whilst the assets you own are going down!)
The infamous sub prime mess and credit crunch is actually a markedly deflationary event!!! This statement may cause you to wonder, because your bills are not going down at all. But it actually is, because large amounts of money have been destroyed by greed, recklessness and speculation. The huge amounts of money lost, by banks and others, are no longer there in the system to lend to any one else.
In a simplified form, more money in the system tends to lead to rising prices and asset values, whilst less money tends to lead to a fall in prices. Without intervention by governments and central banks, DEFLATION would be a likely consequence of the American stock market and credit problems, similar to what happened in Japan in the 1990’s.
But that is not what people are seeing. The cost of everything is going up, especially food and fuel, in a contradictory fashion!!! It does not appear to be making any sense!!
And that is because a silent war is being waged; by governments and central banks, to prevent the onset of Japanese-style, deflationary slump.
To make up for the money that has been lost by the Wall Street operators, shonky lenders, and others, governments are printing money at a great rate. The only two notable exceptions are Switzerland and Japan. Mr Bernanke, in the United States, is printing dollar bills furiously, to bail out the US economy. His boss, the Texas cowboy, is throwing $150 billion around to stimulate the economy.
In the land that gave the world fast food, and has masses of debt-laden consumers, inflation is preferable to deflation. Deflation is a lot more politically unpalatable, because it triggers insolvency in householders and businesses that have large borrowings. And a certain government, with a known fondness for expensive foreign military adventures, is also tempted to pay its debts via the printing press!
The battle is going to rage on with an uncertain outcome………
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