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SW Ontario | Thanks John. That is a nice summary of the two possible eventual outcomes. However I am not sure that I believe in the domino effect that you describe when a deflationary spiral occurs. I also think that a period of severe inflation will not result in destruction of the currency.
I do not pretend to be a student of the Great Depression but I think the currency was preserved in most countries during this time. There were a lots of defaults and some banks did go broke. The same thing would happen today but we are on much better financial footing in terms of overall intrinsic wealth. There is lots of intrinsic value in both assets and value of profitable businesses; e.g farms and real estate that is paid for, businesses with extremely low leverage ratios etc. This value can be used for future leverage, therefore if deleveraging occurs, new loans can quickly be made. The money supply will not deflate to nothing. The central bankers have convinced us that collapse was imminent following the financial crisis of 2008. I have never bought into this notion. Yes, some big banks would have failed causing reverberations in many sectors. But that is the rebalancing which is required and to what I referred to in previous post. It is by no means catastrophic like central banks lead us to believe. Central banks are merely looking after their banking friends and making sure no bank ever fails. That is really their mandate these days. Not really a recipe for a healthy long term economy in my opinion.
Hyperinflation is a much scarier scenario for me but that is the course we are currently on. Deflation has occurred before and our ancestors got through just fine. It is my preference of the two outcomes you describe. | |
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Loans make deposits II
