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The world economy is in trouble, the US has leadership issues and China has declining growth. Inflation will soon strip away any gains in growth. Hold onto your

The world economy is in trouble, the US has leadership issues and China has declining growth. Inflation will soon strip away any gains in growth. Hold onto your seat.

toss1 5y ago
Yes, except this type of event is massively DEflationary. Creation of more debt is creation of more money, increasing supply, and is inflationary. Conversely, destruction of debt destroys money, and is deflationary, in this case, deflationary to the dollar. Also, selling of dollar-denominated assets also decreases the dollar-value of those assets and so increases the value of the dollar. But it is inflationary for the Chinese currency. This is why with the Fed's QE programs since the 2008 crash everyon ehas been yelling "Inflation!!" for over a decade, yet there was none-negative until this year, and even that is arguably transient. So much money was destroyed in that crisis that they have been ever since then trying to fill in the (deflationary) hole. To the extent that that debt is denominated in dollars and is about to be destroyed, it will be dollar-deflationary, not inflationary.
- mywittyname 5y ago
  To add to this, inflation is manageable. The USA isn't experiencing anything close to worrisome levels of inflation, it's more like normal levels of inflation after a long period of below normal levels. Deflation, even in small amounts, can be devastating. It's a contagion that can cause a deathspiral, that if left unchecked. When businesses and people lose income, they can't keep up with debt payments, causing their assets to be liquidated, which causes the assets of others to suffer further depreciation, causing more losses and bankruptcies.
  - ford_o 5y ago
    I have seen this opinion presented multiple times without any supporting facts. When did deflation in history lead to collapse of society? Japan is in deflation for a long time and the life goes on. On the other hand, the inflation in Germany lead to WW2, inflation was also at least partly responsible for the hunderd year war in Europe and the fall of the Roman Empire.
    - mensetmanusman 5y ago
      Great depression when relying on gold. E.g. when the value of your money will always be worth more the longer you wait, everyone tends to wait at the same time and everyone loses.
    - toss1 5y ago
      As another poster pointed out the Great Depression is a good example of deflation, and it is generally recognized that this was only cured by the massive expenditures of WWII. Also Inflation vs Hyper-Inflationyper is a key distinction. Ordinary inflation is relatively harmless, and the NET returns available tend to equalize at the actual growth rate of the economy. E.g., if inflation is 5%/yr the stock market is likely growing at 7.5%/year, yielding the same returns as if it were growing at 2.5%/year in a 0-inflation environment. Hyper-Inflation is the killer - when inflation gets out of control, people lose confidence in the currency, which leads to the vicious cycle of needing to print more, which leads to lower confidence, etc.. Obviously, this is to be avoided nearly as strongly as deflation. It's why Volker raised the Fed Funds Rate to up to 18%, to killed the '70s inflation that threatened to run away. But even in the following decade it was typically 3-4%, as low as 1.1% and as high as 6.1%. Yet we're now seeing 3-4%, likely transient, and people are squawking like it's the end of the world.
  - toss1 5y ago
    Yup, inflation can be annoying and a popular complaint topic for whiners, but it tends to net out with management — rates rise and fall with it so net ability to earn returns still exists, and as usual, you need to work for those returns. Inflation only becomes a problem when the money-printing (incl. debt creation) is so prolific that people lose confidence in the currency — that's when you get hyperinflation, which absorbs almost everyone's full attention. It's pretty wild to see live in person, but it is still survivable. But you're right - DEflation is really dangerous, which is why the Fed, ECB, and other central banks are working so hard to avoid it.
- peter_retief 5y ago
  Inflation was kept in check with consistent Chinese growth over the last +-50 years. Destruction of debt in Zimbabwe was not deflationary at all? I appreciate the debate but disagree with what you say.
  - toss1 5y ago
    How does China keeping inflation in check for the last 25 years (a quick look at a historical chart showed 25%/yr inflation around 1990) with consistent growth say anything about the topic other than that the supply of money in China roughly tracked the growth? Keeping money supply fixed would be highly deflationary with fast growth. I don't know how much debt vs assets were destroyed in Zimbabwe, but it seems that most of the inflation was due to the govt printing insane quantities of money to finance it's involvement in wars in neighboring countries -- when they are printing and distributing individual notes in denominations of 100 trillion Zimbabwe dollars, when that currency started above par with the USD, it doesn't seem like debt has much to do with it; do you have some details I'm missing?
- peter_retief 5y ago
  BREAKING: Inflation has officially hit 6.8%.

The world economy is in trouble, the US has leadership issues and China has declining growth. Inflation will soon strip away any gains in growth. Hold onto your seat.

toss1 5y ago

Yes, except this type of event is massively DEflationary. Creation of more debt is creation of more money, increasing supply, and is inflationary. Conversely, destruction of debt destroys money, and is deflationary, in this case, deflationary to the dollar. Also, selling of dollar-denominated assets also decreases the dollar-value of those assets and so increases the value of the dollar. But it is inflationary for the Chinese currency. This is why with the Fed's QE programs since the 2008 crash everyon ehas been yelling "Inflation!!" for over a decade, yet there was none-negative until this year, and even that is arguably transient. So much money was destroyed in that crisis that they have been ever since then trying to fill in the (deflationary) hole. To the extent that that debt is denominated in dollars and is about to be destroyed, it will be dollar-deflationary, not inflationary.

mywittyname 5y ago
To add to this, inflation is manageable. The USA isn't experiencing anything close to worrisome levels of inflation, it's more like normal levels of inflation after a long period of below normal levels. Deflation, even in small amounts, can be devastating. It's a contagion that can cause a deathspiral, that if left unchecked. When businesses and people lose income, they can't keep up with debt payments, causing their assets to be liquidated, which causes the assets of others to suffer further depreciation, causing more losses and bankruptcies.
- ford_o 5y ago
  I have seen this opinion presented multiple times without any supporting facts. When did deflation in history lead to collapse of society? Japan is in deflation for a long time and the life goes on. On the other hand, the inflation in Germany lead to WW2, inflation was also at least partly responsible for the hunderd year war in Europe and the fall of the Roman Empire.
  - mensetmanusman 5y ago
    Great depression when relying on gold. E.g. when the value of your money will always be worth more the longer you wait, everyone tends to wait at the same time and everyone loses.
  - toss1 5y ago
    As another poster pointed out the Great Depression is a good example of deflation, and it is generally recognized that this was only cured by the massive expenditures of WWII. Also Inflation vs Hyper-Inflationyper is a key distinction. Ordinary inflation is relatively harmless, and the NET returns available tend to equalize at the actual growth rate of the economy. E.g., if inflation is 5%/yr the stock market is likely growing at 7.5%/year, yielding the same returns as if it were growing at 2.5%/year in a 0-inflation environment. Hyper-Inflation is the killer - when inflation gets out of control, people lose confidence in the currency, which leads to the vicious cycle of needing to print more, which leads to lower confidence, etc.. Obviously, this is to be avoided nearly as strongly as deflation. It's why Volker raised the Fed Funds Rate to up to 18%, to killed the '70s inflation that threatened to run away. But even in the following decade it was typically 3-4%, as low as 1.1% and as high as 6.1%. Yet we're now seeing 3-4%, likely transient, and people are squawking like it's the end of the world.
- toss1 5y ago
  Yup, inflation can be annoying and a popular complaint topic for whiners, but it tends to net out with management — rates rise and fall with it so net ability to earn returns still exists, and as usual, you need to work for those returns. Inflation only becomes a problem when the money-printing (incl. debt creation) is so prolific that people lose confidence in the currency — that's when you get hyperinflation, which absorbs almost everyone's full attention. It's pretty wild to see live in person, but it is still survivable. But you're right - DEflation is really dangerous, which is why the Fed, ECB, and other central banks are working so hard to avoid it.
peter_retief 5y ago
Inflation was kept in check with consistent Chinese growth over the last +-50 years. Destruction of debt in Zimbabwe was not deflationary at all? I appreciate the debate but disagree with what you say.
- toss1 5y ago
  How does China keeping inflation in check for the last 25 years (a quick look at a historical chart showed 25%/yr inflation around 1990) with consistent growth say anything about the topic other than that the supply of money in China roughly tracked the growth? Keeping money supply fixed would be highly deflationary with fast growth. I don't know how much debt vs assets were destroyed in Zimbabwe, but it seems that most of the inflation was due to the govt printing insane quantities of money to finance it's involvement in wars in neighboring countries -- when they are printing and distributing individual notes in denominations of 100 trillion Zimbabwe dollars, when that currency started above par with the USD, it doesn't seem like debt has much to do with it; do you have some details I'm missing?
peter_retief 5y ago
BREAKING: Inflation has officially hit 6.8%.