Inflation and Deflation

Spinal Tap? I have no idea, but maybe Kad barma does. At any rate, the Blogger, R S McCain, who bills himself as an award winning columnist, comments on the proposal by Nobel Laureate Robert Kuttner to spend $2 Trillion on stimulus actions. That is two trillion US dollars. (President Bush's FY2009 budget, as submitted, was only $3.10 Trillion.)

The post from Mr McCain is here.

The post includes a short video of an interview of a member of Spinal Tap talking about his amplifier, where the scale goes to 11, rather than the normal 10, thus suggesting that it has more power than normal amplifiers. The blogger's point is that even if the scale goes to 15, the power is still only what it is rated for.

For this blogger, the real issue is inflation. Mr McCain quotes the Ace of Spades blog site:

And once confidence in the currency is damaged enough... well. Ask interwar Germany, ask Zimbabwe. Ask a dozen Latin American countries which turned on the printing presses to "satisfy" their debts.

Inflation like interwar Germany is something to be really afraid of. The cost of things were changing daily and the Middle Class was wiped out. And, it helped pave the way for the Nazi rise to power. It was hyperinflation and hyperinflation is a truly ugly event. The flip side is deflation, which is what the US experienced in the early 1930s. As a result of deflation and the poor performance of Presidents Hoover and Roosevelt in dealing with it (See Amity Shlaes's book, The Forgotten Man:  A New History of the Great Depression), credit dried up and some locations went to printing their own script.

The trick is knowing when inflation switches to deflation and visa versa. The experts in this area could probably hold a convention in a small broom closet.

Regards  --  Cliff