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To: Petronski

Yes, and in the case of the US “Great Depression” what people must remember is that once it got going (brought on the the banking melt-down in 1930 to 1931), we were in a deflationary environment, not an inflationary one. We’re still seeing inflation; given the banking environment just now, this isn’t a bad thing at all.

Things could be MUCH worse. We’re seeing banks tighten lending standards and hoard capital. These are two very important actions that helped start the deflation of asset valuations during the Great Depression. I have yet to understand why the Fed is so worried about ‘inflation’ when it is clear we’re watching a deflation in house prices pick up speed pretty quickly - and that with sufficient stupidity on the part of the banking system, this deflation could start to spread.

Central banks can do almost nothing to stop deflations. They can make borrowing attractive, but they cannot force people to borrow. They cannot force companies to float a bond and expand. For the Fed during the Depression, once the deflation got started, monetary policy changes were like pushing on a rope.

People who have not read up on the Great Depression need to do so to understand that, as you say, that word has a specific meaning. We’re nooooowhere near a Depression. We might be in a recession - might be, not certain yet - but we are NOT in a Depression and there has not been anything like a Depression since, well, the Depression.

The Carter years were miserable because Jimmah wasn’t inspiring as a leader and we had high unemployment and high inflation - something the Keynesians tell us shouldn’t happen at the same time. While it was a really unpleasant situation, it was NOT a Depression. Not even close. Banks would still lend money — they wanted your first born for the interest rates, but they would lend.


251 posted on 01/22/2008 10:13:31 AM PST by NVDave
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To: NVDave
I have yet to understand why the Fed is so worried about ‘inflation’ when it is clear we’re watching a deflation in house prices pick up speed pretty quickly - and that with sufficient stupidity on the part of the banking system, this deflation could start to spread.

Home values aren't counted in the inflation figures; instead, the "rental equivalent" for homes is used in this calculation.

There are good reasons for this, and there are interesting aspects to this that come into play. For one thing, many people who used to complain that the Federal government was underestimating inflation during the run-up in residential real estate will now see that the Federal government was right all along. Massive increases in the prices of homes was not indicative of inflation at all, just as the ongoing slide in home prices is not indicative of deflation at all.

260 posted on 01/22/2008 10:37:30 AM PST by Alberta's Child (I'm out on the outskirts of nowhere . . . with ghosts on my trail, chasing me there.)
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To: NVDave
Re: Deflation.

Also consider the fact most people in the US and abroad have tapped out their 'bank of last resort' i.e. mortgaged their property. Because of this consumer spending is bound to continue its decline for the foreseeable future. And then add the Boomers retiring to the equation....

269 posted on 01/22/2008 11:30:00 AM PST by Justa (Politically Correct is morally wrong.)
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