Tuesday, May 26, 2009

Economy and inflation

Some on the right have been squawking that inflation would be rampant in a short while. That we'll be seeing inflation the likes of which have not been seen since pre WWII Germany. Nothing is further from the truth. It occurred to me that with the deleveraging of Wall Street, the losses in housing as well as the debt racked up by the past administration that almost no amount of spending will cause prices to go up any time soon. But to get a real picture of why there won't be inflation anytime soon I turn to a fellow blogger Invictus and his mentor Bondad. Invictus is like me in that he gives a general down to earth summary of what's going on in the economic world. Bondad is more focused on the technical charts and graphs but he too can give you a clear picture of what's happening in terms we mear mortals can understand. With that in mind Bondad goes a bit deeper into the process of money supply with a good and simple explanation:


We could be in for a double dip recession if things don't start turning around shortly but as I may have mentioned the Recovery Act doesn't even begin to kick in until July 1. After that we'll see how consumer spending goes. I think it will increase but not like it did in the past. This lag time I assume was to give banks enough time to clear out a bunch of debt from the books and get in a better position for growth. The savings rate which had been at historic lows is now increasing thereby helping to ease credit. Also there should be some pent up demand to replace things like worn out appliances and cars on their last legs that people have kept patched together waiting for better times.

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