Counterpoint to Oban’s post on the deflationary world

When reading anything pertaining to the financial world, such as the views of Oban about deflation in the post below, it is imperative to note that there are two kinds of financial commentators: one that predict and one that merely explain. It is always easier to explain, and it can be done with much greater accuracy given the benefit of hindsight, than it is to predict. Mere extrapolation of recent trends was alright in an another time but in the current dynamic world, with multitude of inflection points, it is the wrong approach.

The question, are we in a deflationary is the wrong question when examining options related to things such as real estate assets as mentioned in the second point. A more relevant question is, will we see inflation or deflation in the future?

The price deflation argument is simple. It rests on the assumption that current outstanding debt cannot be repaid and will be written off which is a significant contraction of money supply.

The price inflation argument is based on the current Quantitative Easing (QE) which Bernanke has extended out to infinity. This has led to money supply expansion that look like this and has the kind of hockey-stick graph to would make any global-warmist proud.

Given the above why hasn’t inflation take off? Because the money velocity looks like this.

Inflation or deflation? You decide.

As for the statement “The immediate remedy: tax those earning $250K and 500K much more, rather than much less. Income transfers to them are not generating greater wealth.”, it is important to examine the point of moochers and looters in the context of a transfer state. Most of the people earning that kind of money these days aren’t there to generate wealth and in fact are there to impede the generation of wealth. They are the private sector army of government bureaucrats and consists of lawyers, accountants and consultants whose sole purpose is to “help” the wealth creators navigate the shoals of red tape enacted by the government. Of course they are not there to generate wealth. That is exactly why in the last election Obama won majority of the vote in eight of the ten wealthiest counties. Looters are out in full force and of course they want to protect their livelihood.