January 29, 2009
Two takes on Inflation/Deflation
First, there's the 'OMG! There's too much money in the system! Inflation!' argument, followed by Mish's elegant and short takedown.
Honestly, Hamilton's argument is dependent upon ignoring the fact that credit and cash (M0) are both measures of liquidity (which Mish points out) and that velocity is a massive consideration in determining if there really is too much money in the system. In the end, the only thing that's clear from Hamilton is that he's blithely ignoring some very critical pieces in his analysis.
I will bite on one point, that we've seen a real shrinkage in supplies of goods and services... just on it's face, anyone who has been shopping in the last two months knows that's not true. There's a true deflationary case to be made in terms of oil because there has actually been real demand destruction. And it continues which sets up an aggressive case for a lack of inflationary pressure.
Posted by mcblogger at January 29, 2009 09:12 AM
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