Inflation vs. Deflation vs. Stagnation---Which is Worse for the US?, page 1

reply to post by MOFreemason

Nothing is worse then Hyper-Inflation .. this is by far the worse possible thing that can happen to a currency. It's essentially oddly worried, because an inflated dollar has deflated demand. This was the problem with the Dollar all through the Bush administration up until September actually.. The Dollar inflated so much that it's purchasing power decreased, boosting corporations, but causing a credit lapse due to a stretched budget....

HOWEVER

Why the US did not see hyper inflation quite simply is because there was such a void of debt, that every dollar created seemed to be sucked up by this void.. corporations where throwing billions at each other, buy personal wages did not increase.

If the money supply of the people vanishes, stagnates, you see deflation.

There are two types of deflation.

One is personal income deflation .. where your dollar is worth less because of increased money supply, but you don't recieve an increase in said money supply, leading to cut backs on budgets, which in turn leads to

Consumer deflation

Which is the drop in consumer prices.

Inflation of monetary funds for individuals is a sign of a healthy economy so long as it is not excessive.. the more money we bring home the more we buy the better off our GDP the stronger our dollar.

Inflation of Corporate funds means decreased value of our dollar, and less purchasing power.

CREDIT:

The extension of credit can help make up for a lack of proper monetary inflation.. however if wages deflate (2000-2008 average household income has dropped, per inflation, been dropping since the 1980's) and credit is used as a sole means of monetary expansion, seeing as consumerism is such a massive part of our GDP, it will create a credit over extension.

The credit overextension is one of the major causes of the great depression, once credit contracts, and deflation sets in because buying power plummets leading to supply and demand causing prices to bottom out, it will lead to a Depression.

We have seen only two contractions of credit on a massive, global scale. 1929 and 2008.

The reason for bailouts, tax breaks, simulus plans etc, is the governments method of saying hey, if credit disappears by god we are in a depression .. so lets make up the credit void with new cash, sacrificing the currency for the economy through inflation, however, banks consumed the cash, credit contracted, crashed world wide economies, tanked every major currency, and we ended up with the largest credit contraction in our history.

S&P closed at 1997 levels today.

The damage done is phenomenal, honestly, we have been in a recession for 14months now, and we will not see economic growth for some time.. 2010 at the earliest.

So to answer your question .. inflation can lead to stagnation which can lead to further inflation which can cause a contraction to create consumer deflation that can f** your economy up real good.