Comments (6)

• Sherry

  I enjoyed reading Sean Gabb's Christmas post, but I would also like to read your comments. The beginning of the post went out in the feed, but it doesn't seem to have been archived. Any chance of seeing " Be of Good Cheer: Christmas Greetings from Sean Gabb" in full?

  Thanks.

  Published: December 28, 2008 10:53 PM

• fundamentalist

  The thing that worries me is the Japanese experience. The Japanese central bank tried to boost the money supply, too, but businesses and banks wouldn't cooperate because of the enormous level of uncertainty the state had created by bailing out failed banks. Isn't it possible that banks could hold on to these excess reserves for many years out of shear fear? And businesses might not want to borrow money until some of the uncertainty created by the government dissipates.

  Published: December 29, 2008 9:04 AM

• Matthew

  As someone who has publicly taken a "deflationary" stance, I'm still of the view that Professor Higgs' analysis is basically correct, but that it does not adequately address the timing of his predictions. His commentary, to me, suggests that hyperinflation (or some such thing) is imminent. In my view, we have not yet hit a bottom in contraction of credit and (a top in) demand for dollars. Assuming my view is the correct one, that means that there is still room for the general price level to go down, or at least stay well under the pace of base money creation. To some, that would constitute "deflation."

  I recommend reading a blog post by Mike Shedlock on this topic, which cuts through all the semantic entangelements and gets to the substance of what we're actually discussing here. Particularly, see the chart toward the end "A Practical Look At 'Flation'".

  http://globaleconomicanalysis.blogspot.com/2008/12/humpty-dumpty-on-inflation.html

  Published: December 29, 2008 1:31 PM

• fundamentalist

  Matthew, Nice article on inflation, which I agree with. Deflation always happens near the end of the business cycle according to Hayek. Why would we expect it to be different now? Hayek suggests in “Monetary Theory and the Trade Cycle” that we look at the volume of business loans instead of the money supply in order to see the next boom coming. The money supply tends to lag behind loan creation because loan creation doesn’t cause the money supply to increase until workers deposit pay checks.

  Published: December 29, 2008 2:27 PM

• Beta Hater

  Great stuff. I also recommend reading Robert Murphy's article "Why Aren't the Fed Injections Leading to Massive Price Inflation?" He says there are enough excess reserves in the system to increase demand deposits by 1400%!!!

  http://consultingbyrpm.com/blog/ ... scroll about halfway down to find the article

  Published: December 29, 2008 9:02 PM

• newson

  bank credit doesn't suggest deflation of note, and mzm is still increasing:

  http://www.federalreserve.gov/releases/h8/current/

  http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=MZM&s[1][range]=5yrs

  Published: December 29, 2008 11:08 PM