[Question_Assumptions]

Japan has a high savings rate. A high saving rate does not support the consumption and service economy that has to replace a manufacturing based economy if you want to keep people employed. Japan is also seeing deflation. If you want to see where some of the ideas in this article go, look at Japan and bear in mind that Japan still hasn't dealt with all of its problems.

Given the high debt levels in this country, as well as the large amount of money that most people have invested in their real estate, I think that any deflationary scenario would be a disaster. I think the only exit lies through inflation, as painful as that may be. The current weak dollar policy may also help.

[headsonpikes]

"I think the only exit lies through inflation..."

Coincidentally, that will be the only exit the Fed sees, too.

;^)

[Tauzero]

"I think that any deflationary scenario would be a disaster. I think the only exit lies through inflation, as painful as that may be."

Inflation might -- might -- prevent the specific evil widespread of loan defaults. But inflation is a tax on the holders of all dollar-denominated assets, and really isn't any better than deflation, in the long run.

Inflation won't necessarily prevent defaults. It doesn't matter that principal and payments are declining in real terms if you are unemployed, or must devote more and more of your dollars for things like food. Those prices rise *before* the average person's nominal income rises.

And even supposing you are able to stay solvent, *inflating* your debt away is almost as big of a hit to your *bank* as an outright default.

Whether both the debtor and his creditor can survive a large inflation is an open question, IMO.

[Orangedog]

Given the high debt levels in this country, as well as the large amount of money that most people have invested in their real estate, I think that any deflationary scenario would be a disaster. I think the only exit lies through inflation, as painful as that may be.

This is how I also see things turning out. Why? because it's like all government action...it will punish the people who worked hard and saved their entire lives while giving a pass to the idiots who run $50,000 on their credit cards.