Inflation vs. DeflationThe recent inflation of the past few years have been incredible. Anyone who fills up their vehicle with fuel or buys groceries knows what I am talking about. Suddenly in July of 2008, oil and gas prices peaked and have tumbled incredibly since. Everyone was talking about inflation then - now we are hearing about deflation. Which is in our future? Ever since the economic crisis hit in the fall of 2007, I spent a majority of my "free" time researching how we got where we are and the next potential direction. I found some great information that supported two totally separate ideas of where things are headed. One source supporting the hyperinflationary situation we could be facing and the other a deflationary situation on the horizon. These sources are at absoutely opposite ends of the spectrum. They both suggest the same overall conclusion - a major economic depression, but they get there from totally different places. Perhaps the truth lies somewhere in between - or perhaps its a matter of which happens first. The fall of 2008 started showing signs of deflation. Of particular interest is whether the government and the Fed can push deflation away - something it failed to do during the 1930's. Ben Bernanke addressed the National Economists Club in Washington, D.C. on November 21, 2002 with a talk entitled, "Deflation: Making Sure "It" Doesn't Happen Here". I think you will find it interesting to see what Mr. Bernanke laid out as his theoretical solution to fend off deflation - and how much of that theory has already been put into action. Notice the number of actions Bernanke suggesting could be taken even when the federal funds rate hit zero. Where is the federal funds rate now? Looks like it is almost zero. Also check out a great article that directly addresses the question, "Inflation vs. Deflation?"
Hyperinflationary ViewIf you want to learn about the money supply and the Fed's manipulation of the money supply, vist John Williams site, http://www.shadowstats.com. I learned more about money supply than maybe I cared to know. Make sure and visit the Alternate Data page to see what Mr. Williams calls a truer view of economic numbers than the goverment puts out.It is truly fascinating stuff. Now, if you want to get knee deep in the hyperinflationary view, read a special article Mr. Williams published in the spring of 2008, "Hyperinflationary Special Report". Also, if you want to follow inflation via the Consumer Price Index, visit, http://cpiwatch.com.
Deflationary ViewIrving Fisher (no relation that I know of) proposed in a 1933 paper, Econometrica, "The Debt-Deflation Theory of Great Depressions". It is a great place to start to understand what causes deflation.Not many have heard of the Kondratieff Cycle, but it describes a season (winter) which we may well be in now that supports the idea of deflation. The cycle is named after it's discoverer, Nikolai Kondratieff, who in 1926, published his findings in a report entitled, "Long Waves in Economic Life". The cycle basically defines four different stages of human mood changes that affects the economy. Click the link for a brief overview of the Kondratieff Cycle. The best interpretation of current events and how they fall into the Kondratieff Cycle are on Ian Gordon's site, The Long Wave Analyst. For an excellent description of how Mr. Gordon interprets the current Winter phase he believes we are now in regarding the Kondratieff Cycle, read, "This Is It!" - a Long Wave Analyst Special Edition. Robert Prechter, one of todays leading propoponents of a deflationary situation published "Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression" in 2002. You can download 5 chapters of the book free by clicking the link: "Conquering the Crash". Also, check out other information from Prechter at Elliot Wave International.
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