Inflation vs Deflation

Question

I am surprised as to how this topic hasn't garnered any interest here. So let me start off.

What are your views....which camp do you belong and why.

orsang8 · Answer

What does this school means under your profile?
 NY Stern, CBS, Columbia, Kelloggs 
did you get accepted from all of them?

snipertrader · Answer

Haha..i wish. My target schools.

trader1 · Answer

can i belong to both camps? :lol:

snipertrader · Answer

Haha...actually i am in that camp. More than welcome to join.

Just like in a crucible where two opposite reactions can co-exist, we have having inflationary and deflationary pressures.

Janet Tavakoli made an compelling case for deflationists. A must read

trader1 · Answer

have to read Tavakoli's latest... But, here's a good defense of the "i'm a member of the inflation/deflation double whammy combo camp": https://www.zerohedge.com/article/guest- ... be-missing

snipertrader · Answer

Yes i read that one. Whats your take on the sky high gold prices ? Signs of inflation on the horizon ? Disclaimer : I am a gold bug :-D

bilalamjad3 · Answer

i remember my college days.
nice topic.
inflation means rising of prices.
and deflation
means decline of price.

trader1 · Answer

more importantly, what are the causes behind inflation/deflation?

many people still don't get it right...

DrSatisfaction · Answer

money supply? purchasing power?

been a long time since i sat in a class lol. time to brush up for the mba next yr.

strikethree · Answer

Not sure what the question is...

Anyway, I don't see the Fed raising interest rates anytime soon. Plus, you have all those huge sums of money that banks aren't lending out. (Well, they're lending to the Tres.) With all these "free money" in the system, sooner or later (once banks start lending), there will be inflation problems. Healthy inflation counts for 2-3% a year so if you believe in the recovery, we might see at least that.

This whole Greek/Euro fiasco has led investors in a flight to safety towards the dollar. Yields go down making it less profitable for banks to buy treasuries.

Than again, if we see a double dip, that might lead to deflation. Perhaps stagflation?

Definitely arguments for both sides.

bsd_lover · Answer

There is usually a 1 year lag between monetary policy changes and these policies' effect. I belong to neither camp at the moment, I think the US had done an excellent job by injecting liquidity in the system which is being used by banks to recapitalise (instead of this money flowing into circulation).

snipertrader · Answer

My thoughts precisely. We are going to have a ZIRP for a long long time. Defalation is around the corner (some might argue, we are in one) and so is QE 2.0.

More money printing!

Isaac · Answer

Hi dear,
Inflation is the increase in price level and the decrease in value of money.
Deflation is the decrease in the price level and the increase in the value of money.
Now a days there is a huge inflation all over the world, which is a very dangerous condition for the economy.

Esuric · Answer

Here's my theory:

The artificial deflationary pressure that has characterized the last few years is really the result of proactive, intentional FED policy. In other words, this pressure is not the result of fundamental macroeconomic fluctuations, such as an elevated demand for money and/or a contraction in the supply of it, but is almost entirely due to the fact that the FED is paying interest on reserves and therefore constricting velocity. Their intention is to essentially 'trap' the trillions of dollars in high-powered money within the financial sector and banking system in order to (1) recapitalize failed institutions, (2) stabilize expectations, (3) reduce the pressure of growing deficits (ease crowding-out effect) and (4) stimulate the wealth effect without simultaneously elevating interest rates and causing torrential inflation.

Unfortunately for the FED, it must and will fail in this endeavor. Velocity is naturally picking up as the economy recovers and begins the re-structuring process. Once velocity rises, the trillions of dollars in high-powered money that the FED has injected into the financial system will enter circulation and prices will therefore inevitably rise. Inflationary expectations will take hold and investors will flee out of the bond market leading to a major spike in interest rates.

The FED cannot counter-act this process by pursuing a counter-inflationary policy because open-market sales will only put additional pressure on already rising interest rates, and due to collapsing bond prices, it can only succeed in sucking out a mere fraction of the high-powered money that it injected into the system.

JamesSmith091 · Answer

I'm amazed this topic hasn't sparked any interest yet. Allow me to kick things off. What are your opinions? Which side do you align with and why?

Inflation vs Deflation

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards