Deflationary recession or Hyperinflation?

[xieu...@gmail.com]

My comment: The orthodox theory tells that the next step would be
hyperinflation. In particular once we see the unprecedented amount of
liquidity that the Fed, and now other central banks are "throuwing" to
the market. Under such theories, after hyperinflation, we should
suffer deflationary recession. Since some weeks ago, some people are
starting to argue that we could skip the hyperinflation step and jump
directly to deflationary recession from, and caused by, this financial
crisis.

Deflation is a decrease in the general price level, exactly the
opposite to price inflation. The last big deflationary period in US
economy was between 1930 and 1933. It was not after an hyperinflation
period over there, but that period happened in Germany and other
European countries and by contagion it passed to USA.

It is an spiral as hyperflation is. I mean it is as bad as
hyperinflation and that spiral is as difficult to break as the
hyperinflationary spiral.

The consequence of deflation is a general collapse of investments,
consumption, trade, etc. I mean a giant recession. For people it means
giant unemployment levels. During the great depression in the 30s it
peaked 25% in USA and above 50% in many countries in Europe. This time
it would be worse in USA than in Europe.

Deflationary recessions use to last a decade more or less, let us say
between 5 and 20 years.

I would not post that theory if I did not see that a certain indicator
(called the Baltic index) shows that international trade is falling
very fast. Even after I have watched it, I hope that this process does
not accelerate and we can pass trough the hyperinflationary period as
we expected before. Anyway, today I am starting to consider it as
posible..

U.S. Retail Sales Slump 1.2%, Most in Three Years (Update2)
http://www.bloomberg.com/apps/news?pid=20601087&sid=axCzcG1d.YTg&refer=home

[Xi Ling]

Evolution of the Baltic Dry Index last months. Special attention at its fall in October.

Source:

http://www.bloomberg.com/apps/quote?ticker=BDIY%3AIND

Peace and best wishes.

Xi

[xieu...@gmail.com]

My comment: Not sure if you have access to this article as it is in a
partly pay-per-read site. In case you have troubles and you want
further reading about it, please tell me and I will produce an
abstract of his work. As you all know, N. Roubini has become one of
the popular gurus of this crisis. I do not share many of his thoughts,
but about this topic in particular (stagnflation vs. deflationary
recession) I share his perspective, we cnnot discard the risk of
facing a deflationary recession instead of hyperinflation.

A group in Beijing has suggested the posibility of a new economic
phenomenon for this crisis. Hyperinflation in food and other
commodities and deflationary recession in financials and other high
end goods and services. Simultaneous deflationary recession and
hyperinflation would be a situation that no economy ever experienced.

Peace and best wishes.

Xi

The Coming Global Stag-Deflation (Stagnation/Recession plus Deflation)
Email PrintShare. (Nouriel Roubini)

http://www.rgemonitor.com/blog/roubini/254148/the_coming_global_stag-deflation_stagnationrecession_plus_deflation

Last January – at a time when the consensus was starting to worry
about rising global inflation - I wrote a piece titled Will the U.S.
Recession be Associated with Deflation or Inflation (i.e.
Stagflation)? On the Risks of “Stag-deflation” rather than
“Stagflation” where I argued that the US and other economies would
soon have to worry about price deflation rather than price inflation.

>  baltic_dry_index_october.gif
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