Comments on: Inflation or Deflation? The Great Debate Continues http://www.behindbluelines.com/2009/06/28/inflation-or-deflation-the-great-debate-continues/?utm_source=subscriber&utm_medium=rss&utm_campaign=rss Samizdat from the Blue Northeast Fri, 10 Feb 2012 04:02:20 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Scott http://www.behindbluelines.com/2009/06/28/inflation-or-deflation-the-great-debate-continues/comment-page-1/#comment-449 Scott Mon, 29 Jun 2009 04:10:07 +0000 http://www.behindbluelines.com/?p=5709#comment-449 Compelling argument, though I still see one missing piece of the puzzle. Unlike Japan, the US is the world's reserve currency which is very important to the price of oil. If the US economy implodes, the dollar will free-fall causing the price of oil to soar. A falling dollar will mean higher real interests rates which will further squish the economy . . . and so on and so on down the toilet bowl. Also, keeping in mind that the CPI fall is currently being driven by lower energy and food prices (which likely correlate highly). A reversal in oil prices will quickly change that dynamic. I still think that a "stagflation" scenario is currently the most likely mid- to long-term outcome. Stagflation is pretty darn destructive too. But with unprecedented government interventions occurring almost weekly, I'm pushing up the odds of a different sort of calamity--call it the "Dark Ages." Compelling argument, though I still see one missing piece of the puzzle. Unlike Japan, the US is the world’s reserve currency which is very important to the price of oil. If the US economy implodes, the dollar will free-fall causing the price of oil to soar. A falling dollar will mean higher real interests rates which will further squish the economy . . . and so on and so on down the toilet bowl.

Also, keeping in mind that the CPI fall is currently being driven by lower energy and food prices (which likely correlate highly). A reversal in oil prices will quickly change that dynamic. I still think that a “stagflation” scenario is currently the most likely mid- to long-term outcome. Stagflation is pretty darn destructive too.

But with unprecedented government interventions occurring almost weekly, I’m pushing up the odds of a different sort of calamity–call it the “Dark Ages.”

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