That is, there are many who see a deflationary rather inflationary setting ahead.
The key arguments made by deflationary thinkers are not to be mocked or disregarded.
Their primary argument in favor of deflation boils down to one simple idea, namely: When economies and markets stall (or even collapse), this leads to dramatic slow-downs in consumer demand, and hence dramatic falls in consumer pricing—ie. deflation.
Needless to say, current economic conditions are anything but robust, which favors a deflationary premise.
By the turn of 2020’s in general, and during the global pandemic in particular, the world witnessed extreme levels of excess capacity (i.e. surplus rather than demand) in labor, manufacturing, retail and commercial real estate.
Banks this year, for example, are already telegraphing that in a post-COVID world, they will require 40% less office space as more and more systems have since been put in place to manage operations outside of traditional office settings.
All of these factors of excess capacity, from retail to commercial office space, one could sanely argue, point toward continued deflationary rather than inflationary forces going forward…
As to the staggering growth of the money supply unleashed by global central banks printing trillions of fiat currencies at record levels since 2008 in general, and the 2020 COVID period in particular, the deflation camp can further (and sanely) argue that such extreme money creation has not led to rising inflation, including hyper-inflation.
This, they legitimately argue, is for the simple reason that all those printed fiat currencies never enter the real economy, but remain contained within a closed-circuit loop of Treasury departments, central banks and Wall Street—not the real (i.e. Main Street) economy where money velocity truly can do its inflationary damage.
In short, so long as central banks act as insider-lenders of last resort to government treasury departments and overpaid CEOs, all that printed money is safely contained behind a Hoover-like dam of commercial and central bank balance sheets, not the real economy where such levels of money growth would and can do their inflationary damage.
Fair enough. Good points.
In fact, these deflationary views, make logical sense, and it would be arrogant to simply discount them.
That said, there are some key mistakes, I contend, in the premises behind such logic.
In short, let me now switch hats from a deflationary defense to a deflationary prosecutor…
- Source, KWN, read the full article here
