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11/21/2010

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adamatari

I've been reading Bob Herbert for a while, and I'm convinced he's both the smartest and the most grounded in reality of all the big columnists. The fact he isn't as famous as Krugman or Tom Friedman shows, to me, just how blind our society is to its problems. He's been writing articles like this for years (I seem to remember more articles about the problems of the black underclass back before the economy self-destructed, but that too is a sign of falling empire) yet somehow barely gets noticed. I'm glad you found him, and I sure hope he finds you.

Jason

Wow has the inflation deflation debate received thorough discussion. Yet, semantics drives the disagreement. We should be clear that "inflation" is an increase in the supply of money and credit relative to available goods and services. "Deflation" is the opposite. Prices just follow. In a deflation, as there is less money chasing goods and services, people tend to hold onto money and only buy necessities (e.g., food and energy). Therefore there is a real increase in prices of necessities and a fall in non-necessary things.

We all have the same idea in mind, but the terms used are confusing. When Janszen says: "That means that even though unit sales volumes are up, inflation is up even more", I think he means real prices are up, which can be seen in a deflationary environment depending on the thing being sold.

We are clearly in a deflation because trillions of dollars in credit has vanished - the Fed can "print" money all its wants, but its going to be a long time before all that vanished credit can be replenished and inflation (e.g., an increase in the money supply relative to available goods/services) returns.

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