Quote Originally Posted by maladroit
questions:

deflation is really bad if it's coupled with a depression, no?

if the fed is dramatically increasing the money supply, why isn't inflation rising?

is $10 trillion in spending over 2008 - 2009 possible? do you think his projection that $10 trillion will be needed to avoid a depression is accurate? with that kind of spending, obama might double the national debt

1.) Deflation is just as bad as inflation. Most people would think that lower prices is a good thing, and it is. The other side of that coin is that lower prices will eventually translate into lower wages. As wage deflation takes hold, that is when things get very bad. Wage deflation will cause a recession.

2.) Even though the fed has filled the reserves of banks to the max, they are not lending. Click to see excess reserves As you can see, at the end of August, the "credit crunch" was born, and lending became scarce.

To put it into even greater prospective: With a required reserve ratio of 1/10, you have a money multiplier of 10. The amount of excess lending capacity (how much banks can actually lend out) in July of 2008 was about $20 billion, and as of November 08, it was (theoretically) over $5.5 trillion. Yet with deflation setting in, their holdings will actually increase in real value. Why risk a potential default when prices are still falling (the $'s value is still rising)? This is what is commonly described as a liquidity trap.

So as they are increasing the supply of the money, it has yet to be released. Cash is king, people are taking their money out of the economy, and therefore no matter how much money the fed pumps into the bank reserves, until its lent out it is not in the economy.

Prices continue to fall due to a decrease in aggregate demand. If nobody is demanding goods, the only way to create revenue is to decrease prices.

3.) I believe Mr. Browne was referring to the next 4 years or so. As stated before, the national debt is not as scary as some make it out to be. With that said, as long as foreign holdings do not increase relative to overall debt it is nothing to worry about. This seems to be Keynesian approach to recession alleviation, as Japan floated their debt to gdp at 130%, and the US @ 120% after WWII.

Which is why i believe him to be correct, that it is the only way to avoid a full scale recession. An increased $10 trillion in debt will put our debt to gdp over 142% give or take, so that is not at all out of the realm of possibilities if things do in fact get desperate.
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As i said before, with the FFTR approaching zero, they might be able to alleviate future inflation possibilities.