says:
Thursday, December 27, 2007, 9:51:07 AM
“<i>Many arguing the classic deflation case often point to Japan as an example of what will happen here. However Japan is the world’s largest creditor. The United States on the other hand is its largest debtor. The Japanese have high savings, are extremely productive, have enormous trade and current account surpluses, and loan money all over the world. In contrast Americans have practically no savings, our industrial based has been hollowed out, we have huge trade and current account deficits, and we borrow money from just about every other nation on earth. To expect our experience to be anything like Japan’s when our circumstances are so completely different is ridiculous. If you want a more accurate historical comparison to another nation which had similar circumstances try looking at Argentina. </i>
Peter, once again you present a deflationist argument. The very fact that the US has all of this consumer debt (and consumer debt here is the key), is deflationary. This makes the case for deflation in the US, STRONGER not weaker. You yourself have admitted the debt cannot be paid back. The bigger the debt that cannot be paid back, the bigger the deflation.
Comparisons to Argentina are simply invalid. Argentina owed money denominated in US dollars. The US owes money in its own currency. More importantly US consumers owe money to US creditors in US dollars. That is what will be defaulted on and that is anything but inflationary.
By the way, care to send me a copy of your book to see if you can convince me otherwise?
Mish
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