Another talking head on the financial tv with 100% nonsense
Jim Grant argued that deflation is a good thing. Really.
No Jim.
- Jim said deflation would be good for consumers. You mean those consumers in the middle of repairing their balance sheets, Jim? With combined debt (both public, but much more so private) levels near four times GDP, guess what deflation would do to those balance sheets?
- Guess what the consequences of that rise in real value of outstanding debt would be? More de-leveraging, meaning less spending, more forced asset sales, which would create a nice self-reinforcing negative feedback loop, or vicious cycle, as it would lead to even lower asset prices, higher unemployment more people (and banks!) with over-extended balance sheets, leading to, well, more deflation, etc. etc…
- Deflation in this environment of high leverage and highly extended balance sheet is about the worst thing that could happen right now. The worst.
We have seen it all. Finance guys should stay out of macro-economics. We see so many examples, it’s unreal. People arguing, with zero evidence, that world-wide austerity in the middle of a liquidity trap and depressed economy, with near zero interest rates, and no consumers on mars to pick up the slack would actually be expansionary..
There is zero evidence for that.
