Quote from zdreg:
Quote from noob_trad3r:
Deflation brought the depression. People went to banks to try and take money out and they had non to give to depositors leading to bank holidays. [/QUOTE
deflation does not cause depressions. they may be a symptom of some depressions. germany in the 30's had hyper inflation and the country was in a depression as measured by unemployment and the fall in industrial output.
Well you're right about that at least, deflation in the U.S, or in PIGS, wouldn't cause a depression --that's too mild a word -- it would cause a disaster! Why do you think the Fed is so concerned about inflation dropping too low as well as being to high. Do you think these folks at the Fed are just running around with their zippers open and you are the only brilliant one?
It is wrong to look at currencies in isolation, they have to be considered relative to the currencies of ones trading partners. The EU will be forced to deflate the Euro causing the dollar to rise somewhat. This will be a concern to the Fed. Germany wants what is best for Germany, but what is best for Germany at present is not best for the rest of Europe and Great Britain at present. Merkel will have to compromise. Most likely the ECB will buy PIGS bonds and expand the supply of Euros. If core inflation drops too low in the U.S. the Fed will be forced into QE3.
The best way for the U.S. to exit from this long term inflationary spiral it has entered is to get its fiscal house in order by raising productivity (unlikely) or drastically reducing expenditure in the discretionary budget, i.e., military spending, war on drugs, homeland security. This has to be phased in very slowly or the cure will be worse than the disease. It's up to Congress (which is still the most powerful branch of government in spite of years of dereliction).
