Friday, April 3, 2009

Inflation--Why is it So Misunderstood??

Yesterday I was the guest blogger at INO's Market Club. My post about inflation received far more than the recent average of comments on their site. There was some great debate in the comment section. I decided that I would post direct questions aimed to debunk the "deflation" argument and see what kind of responses we get. We want serious debate, not unrelated criticism so keep it focused.

1) Many have argued that every dime of TARP,TALF, Bailout, Handout will go to rebuild the banks balance sheets. If this is your position, is it also your position that we will not see any new lending for a long period of time? That banks will refuse to lend and hence seek to only generate revenue through fees?

2)Do you believe that wage pressure must be present first for there to be true inflation? (there was a comment to this effect yesterday on market club) If so, how would you explain the rise in oil, milk, and other prices last year during the beginning of the worst economic downturn in recent history?

3)Is it your position that none of the other areas of the massive government spending bill will have enough impact on our economy to increase the money multiplier?

4) Do you really believe that a rising money multiplier will not provide incentive for banks to begin lending again.

5)Do you believe that the current level of personal savings rate will increase over time? That fear will get worse? That individuals posses the power to contract the economy through savings while the government is borrowing and spending?


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