This is a guest post by Joseph Y. Calhoun at Alhambra Investment Partners. His post starts off with this quote by Stanley Fischer, Fed Vice-Chair in a speech before the National Association for Business Economics.
Says Fischer “We may well at present be seeing the first stirrings of an increase in the inflation rate — something that we would like to happen.”
I dispense blockquotes using a guest post format.
Is Inflation About To Make A Comeback? by Joseph Y. Calhoun
Anyone renting an apartment over the last few years might well wonder what rock Mr. Fischer has been residing beneath – and whether it was rent controlled. Certainly not all prices have been as reluctant to rise as the CPI itself which has been running quite a bit beneath the Fed’s target the last few years. But relative price changes, where the price of one good or service rises as another falls are not inflation by any definition. And so despite the rapid increase in rents the even more dramatic drop in the price of oil and other commodities means that the CPI and the other measures of official inflation have not risen as fast as our monetary minders would like. They would like us to be impoverished at a more rapid clip apparently. I’ve never really understood the economic profession’s fear of deflation. It is, after all, the very evidence that capitalism is all it’s cracked up to be. Improving productivity, the very definition of economic growth, is deflationary.
In any case, when I speak of inflation I don’t really care much about the CPI or the other government sponsored price measures. Price indexes are nothing more than attempts – inevitably flawed – at measuring the value of the currency, the US dollar in the case of America. What the CPI or the GDP deflator or the PCE deflator attempt to measure is the purchasing power of the dollar. I prefer to observe the value of the dollar more directly. The various dollar indexes provide us with information about the dollar’s value versus other currencies. Gold provides an indication of the value of the dollar as do general commodity indexes. So when I ask if inflation is about to make a comeback, what I’m really wondering is if the value of the dollar is about to fall. I prefer these measures not because they are more accurate – although I think they generally are – but because they are more timely. Prices will follow the value of the dollar eventually but the impact on investments is much quicker.
The movements of the dollar can have a dramatic impact. Just witness the incredible changes in the energy industry over the last two years as oil prices collapsed. The explanations for that collapse are myriad and some of them conspiratorial but there seems little doubt the dollar played a major role. It is not mere coincidence that the dollar started to rise strongly and oil started to fall at the same time in mid-2014. I suppose one might argue about causation – the fall in oil prices may have caused the rise in the dollar – but that the two were linked seems beyond question. It might be that causation ran both ways but frankly I’m not sure it matters; the dollar value will impact the price of oil and other commodities. There may be other supply/demand fundamentals having an impact on individual commodities but when they rise or fall together, the culprit is always the dollar. And in this case it wasn’t just oil that was falling.
The rise of the dollar and the fall in commodity prices over the last two years has had a dramatic impact on the global economy and markets. South America is in the midst of one of its periodic bouts of stagflation as capital flees and currencies collapse (Chile as usual an exception). Japan’s devaluation – the flip side of the dollar rise – produced rapidly rising Yen profits for Japanese corporations and a bull market in stocks even if the economic results left a lot to be desired. That’s probably because the rest of Asia felt obliged to let their currencies fall against the dollar as well. The fall off in emerging market growth, a function of capital outflows and lower commodity prices, offset any advantage Europe gained by going first in the global currency war, the Euro falling from 150 to 125 before the Yen even peaked in early 2012.
The stronger dollar also had an impact right here at home as lower oil prices pressured the energy industry. The collapse in oil prices and the deterioration in shale companies’ balance sheets pushed credit spreads wider as investors fled the junk bond market. That has had an impact on all lower rated companies trying to get financing in that market and has likely had an impact on growth at the margin. GDP growth has been weaker than expected, the long awaited acceleration deferred again. Capital spending has remained subdued, consumption has grown only slowly as inventories built and individuals opted for more saving. Manufacturing is in recession and profits are down for three straight quarters. In short, the US economy has been a big disappointment.
It is in that now reduced growth outlook that one must look for clues about the future course of the dollar. A brighter growth outlook played a role in attracting capital to the US and driving up the value of the dollar. As that growth outlook has dimmed so has demand for dollars and US investments. The dollar index peaked a year ago and even emerging market currencies have recently been rising against the greenback. The outlook for Fed policy has moved in a dovish direction as rate hikes keep getting pushed out. Global growth expectations are equalizing, something I started anticipating a year ago, and as they do the relative strength of the dollar wanes.
It is frankly hard to see a reason for the US dollar to weaken significantly. US growth may be disappointing but it is still positive and better than most of the rest of the world. Interest rates here are at least positive, something increasingly rare in our upside down world. And while the Fed may be pushing out rate hikes they still seem intent on moving in that direction. So, why would the dollar weaken here? Why would someone prefer Yen or Euros or $A or $C right now, much less Brazilian Reals or Colombian Pesos?
It may be as simple as relative values – asset prices outside the US, especially in emerging markets, are cheap. Maybe China’s economy isn’t in as much trouble as everyone seems to believe. Or maybe they will go on another fiscal borrowing and spending binge. Maybe Europe is ready for a cyclical upturn even if negative rates and QE haven’t accomplished much. The arrest of Lula may mean the Brazilian Petrobras scandal is nearing an end. Is the political change in Argentina a harbinger of better political outcomes in other parts of South America?
A fundamental explanation for renewed dollar weakness may come from closer to home. The US economy is not performing well and bond markets are pointing to continued weakness. Real interest rates have recently slipped into negative territory. Credit spreads have improved over the last few weeks but the trend is still negative. Earnings just logged their third straight negative quarter and Q1 2016 looks to make it four. While a recession probably shouldn’t be the base case for the US, it certainly can’t be ruled out. We probably shouldn’t discount politics either in this election year. The leading candidates – for now anyway – don’t inspire much confidence and most of them seem intent on offending as many foreigners as possible. Not exactly the way to encourage capital inflows that might bolster the dollar.
The markets are already moving toward a more inflationary future. The dollar index peaked a year ago and has been trading in a roughly 8% range since. Gold is up 20% since early December and gold stocks are up quite a lot more. TIPs have suddenly found a bid after trailing the rest of the bond market, up over 3% since mid-December. Copper is up 15%. Crude oil is up a stunning 46% from its low. The SPDR Metals & Mining ETF is up 65% since mid-January. The Materials ETF is up 16%. Even the general commodity ETF, GSG, is up over 17% from its low. The move into weak dollar investments has been rapid and probably reflects more short covering than real investment buying but buying it is.
Inflation expectations, fears, are rising and markets are responding. Markets are not infallible and it could be that these moves are quickly reversed as the deflationary fears of the last few years return. But I have my doubts. It has always seemed inevitable that the aggressive monetary policies of the world’s central banks would end in inflation. We may have finally reached the point where everyone looks askance at fiat currencies, preferring to hold their capital in real assets rather than ones that depend on confidence in economists and politicians. Considering the track record of economists and their models and the current crop of Presidential candidates the only wonder is that it has taken so long.
I like many of Calhoun’s observations, especially this one:
“I’ve never really understood the economic profession’s fear of deflation. It is, after all, the very evidence that capitalism is all it’s cracked up to be. Improving productivity, the very definition of economic growth, is deflationary.”
Bingo: Productivity improvements are inherently price deflationary. Central banks are hell-bent on stopping a true benefit of capitalism.
Calhoun says the CPI is fatally flawed. I agree. In fact, all attempts to measure inflation by measuring prices are flawed by individual preferences as well as an impossibility to measure some prices precisely.
For those who own a home, rising prices does not seem inflationary. For those who don’t own a home and want to buy one, price inflation is a huge problem. And renters see things quite differently than homeowners.
Also, some prices are more nebulous than others, such as the price of a home. And some people believe home prices should be in the CPI and others don’t.
Calhoun says “I prefer to observe the value of the dollar more directly. … So when I ask if inflation is about to make a comeback, what I’m really wondering is if the value of the dollar is about to fall.”
In effect, he is coming up with his own version of the CPI, measuring things he believes ought to be in it.
I receive emails all the time regarding personal inflation measurements. The number one complaint is health care. But those over 65, on Medicare, don’t complain as much.
Direct observation will yield a different measure for each observer.
Someone in the Eurozone, looking at what a Euro buys, probably sees deflation now. Then again, someone in Spain sees things differently than someone in Greece or Germany.
I prefer to view inflation and deflation in terms of credit expansion and contraction.
I picked credit expansion or contraction marked-to-market as that is what will influence stock prices, bank lending, hiring, and a host of other factors.
Others see things solely in terms of money supply expansion as measured by “True Money Supply”.
But as long as one defines their measure, we can discuss it.
In light of my own definition, we have been in an inflationary period since March of 2009 or so.
Gold, Crude, the Dollar
Crude is up 46% but gasoline prices are up half that. Gold is up 20% or so, but is that in anyone’s price basket?
It’s important to be consistent. If we are to measure inflation by observation of recent weakness in the dollar and the surge in the price commodities like crude, gold, and copper, then we just came through one of the most deflationary periods in history!
Did we just have a massive bout of deflation? If Calhoun is consistent in his observations, apparently we did.
I am a deflationist and I don’t see it that way. However, I do expect another deflationary credit bust based on declining asset prices.
Calhoun concludes “We may have finally reached the point where everyone looks askance at fiat currencies, preferring to hold their capital in real assets rather than ones that depend on confidence in economists and politicians. Considering the track record of economists and their models and the current crop of Presidential candidates the only wonder is that it has taken so long.”
I sympathize, but it’s not quite that easy.
Take a look at housing. Prices are capped by what millennials can and will pay. Oil is capped or at least slowed by China’s rebalancing. So are base metals.
What about home prices in China, Australia, Canada, and the UK? Are we about to witness a rush into those assets or did we already have that rush?
Some real asset prices are capped by debt and currently dependent on the “greater fool”.
Are Interest rates headed to the moon?
I don’t think so. Those who do think interest rates are headed to the moon and the dollar will collapse into oblivion need to explain negative rates in Europe and five other countries, and the massive debt-to-GDP ratio of Japan.
Guess what hard asset is left, one with no debt or associated liabilities?
Mike “Mish” Shedlock
Tony Bennett said:
“Inflation expectations, fears, are rising and markets are responding. Markets are not infallible and it could be that these moves are quickly reversed as the deflationary fears of the last few years return. But I have my doubts. It has always seemed inevitable that the aggressive monetary policies of the world’s central banks would end in inflation.”
Deflationary fears are only in the early innings….. The Bust just beginning.
I totally agree. I lost my business of over forty years, my city in Illinois was 44% manufacturing and lost over 10,000 such jobs in the 1990s.
For years I competed on every project based on Quality, Service and Price. Then, the internet made PRICE the only factor that mattered to my customers (all manufacturers) when cheaper foreign labor and online items from everywhere became available.
I believe we are now in the beginning of a global economy which is vastly oversupplied with workers, each underbidding all other.
Adding to the equation are robots and an ever expanding lifespan.
The as we seek a common denominator, big time deflation is coming to everyone.
Exceptions: Those products and services people where people have no choice…
Hole in "Moderm Monetary Theory" said:
JIm Rogers agrees with you for the future of food (agriculture.) He is investing in it. He is quite a successful investor.
Food in many countries outside the US is much cheaper in dollars. I have not tried to calculate if it is so in the local currencies or for labor hours.
Why do you state food when much is imported? Is it because the consumer buys it near home? Other reasons.
I will agree with you there also , but with a reservation . The US currency has a stability that is brought about by its international acceptance and use , that and the US remaining able to produce its primary necessities . If you look at countries that lack those circumstance , choose south America for example , and hyperinflation does occur when the state takes the reigns and tries to monetize the economy into working . That is possible for the US also , a socialistic breakdown of society and productive order – I don’t need to give current examples as they are obvious enough . The US is fortunate to have a certain amount of diversity and the ongoing ability of states to take their own path and compete each other into recognition of some basic economic realities , but even that is not a full guarantee . Having watched centralized financial tentacles able to reach out and manage nations in Europe , it would seem obvious that this might be as possible within a single country .
Historically this is so.
However…We are no longer a republic (I doubt 5% of our population knows what that is).
We have gradually shifted to a top-down governing with federal mandates seen as acceptable—our schools HEW), our hiring (racial and gender quotas). My city is not allowed to declare bankruptcy (we are virtually) and must finance state mandates.
Perhaps the biggest difference, many corporations are no longer US centric, but international. Thanks to the internet and clickability.
I believe the USD will last the longest, but with no actual value other than faith, in time it will succumb.
I forgot to mention another federal mandate. We have a vast number of vacant houses due to job losses and people unable to sell, have walked away.
A house near me was bought for $161,500 n 2008, vacated, then sold for $73,000 in 2013.
Yet, we under HUD, are being forced to allow “fair housing” to be built at a cost of $240,000 per unit.
Gold in your pocket. Gold ensconced inside the walls of your house. Gold submerged under a rock in the pond near the cabin.
There are three categorical sources of new money entering the economy:
Fiscal deficits especially if monetized put new money to chase a reasonably fixed amount of goods and services. Thus wars typically funded by deficits (takes the heat off politicians) often lead to inflation.
The change in bank debt as credit to the private sector is a one to one change in money supply. Recently this term in Steve Keen’s demand relation has dominated total money supply. When credit collapsed in 2008 we had stunning deflation. Astonishingly pro’s like Paul Krugman still insist private credit is irrelevant because for every lender there’s a borrower so aggregate balance sheets cannot change. Thus he absurdly says a Richard Koo type balance sheet recession cannot happen. Just Wow.
Recently Keen added a third term to money supply which is realized capital gains. The huge paper gains enjoyed by
us boomers are supported by money loaned into existence by banks over the last 30 years. This asset wealth is collateral banks think will protect them in a crisis and it’s wealth we plan to live on in our old age. We both may be seriously disabused of this notion soon.
Total debt is currently slowly growing (inflationary). Fiscal deficits are quite large (inflationary). Realized gains by investors so far are positive (inflationary).
The problem is these interact. If credit falters asset values plunge and with next recession soaring fiscal deficits might be proscribed. Then, deflation.
Keen and every other economist who is not also a student of accounting in general and aware of the subset of cost accounting and its economic implications are missing the most underlying cause of inflation, namely the fact that as a flow businesses create more costs than they simultaneously create in individual incomes….with which to liquidate such costs. As every enterprise is bound by the cost accounting convention that ALL COSTS MUST GO INTO PRICE…the economy, even completely unregulated and left entirely to itself IS AND REMAINS INHERENTLY COST INFLATIONARY. Keen has only recently discovered the importance of accounting, but is still splashing around on the surface of debits and credits attempting to sort out stock/flow inconsistencies, and even with impassioned calls by myself to go to the 3 and 4 dimensional level (in other words the real time non-abstract and theoretical level) of the subset of double entry bookkeeping known as cost accounting….doesn’t seem interested in doing so. So much for his thoroughgoing iconoclasm. Seems like orthodoxy hides even in the most unorthodox economist’s minds. And conservative/libertarian economists and pundits? They apparently are so conditioned to BELIEVE in general equilibrium, which to his credit Keen has thoroughgoingly debunked, that you couldn’t get them to actually look at the above realities even if you put a gun to their head let alone try to get them to do so with mere words.
Economics is the science of confusing stocks with flows?
Keen’s main contribution is his approach to modeling. It is rigorous, and it is dynamic. As you note it is not currently as detailed as some might like. All models are toy economies to some extent. The impressive thing Keen shows is even trivial three agent models (banks, firms, and labor/consumers) rigorously dynamically modeled exhibit many behaviors we have seen. The correlation between unemployment and the acceleration in debt is .94 here and .92 in Japan over the trailing decades. That’s a pretty good agreement between model and data especially when Krugman insists it is zero. More elaborate models of firms, banks, and consumers are quite possible and doubtless will reveal more. I’m a big fan of his for these reasons. Go Steve!
Tony Bennett said:
“As every enterprise is bound by the cost accounting convention that ALL COSTS MUST GO INTO PRICE…the economy, even completely unregulated and left entirely to itself IS AND REMAINS INHERENTLY COST INFLATIONARY.”
Have you ever heard of write offs?
Costs get written off (the balance sheet) all the time by going concerns … or else bankruptcy.
“Have you ever heard of write offs?
Costs get written off (the balance sheet) all the time by going concerns … or else bankruptcy.”
These write offs are basically “one off”, individual/anecdotal and do not come close to approaching total excess macro-economic costs ever increasing throughout the entire productive process from resource extraction on through to retail sale.
But you are correct that unless businesses are lucky/cut throat enough to garner sufficient revenues to be profitable….despite the inherent scarcity of total individual incomes in ratio to total costs….they WILL go bankrupt. This basic and powerful economic reality and metric is the primary reason why a large percentage of business start ups go bankrupt within a few years.
Oh I give Keen his due. I have complimented his iconoclasm and even suggested that it was deserving of a Nobel prize, but I still have to speak truth to power regarding his missing of the dynamic nature and flow of excess costs in ratio to incomes continually and simultaneously produced.
Tony Bennett said:
“If credit falters asset values plunge and with next recession soaring fiscal deficits might be proscribed. Then, deflation.”
Yes. Until the massive GLOBAL debt overhang dealt with either thru paydown/write down there will be no sustained inflation. The servicing costs on $200+ trillion of global debt sucking the life out of economy.
Where the economy becomes ruined , productivity falters , and due to scarcity prices may then increase . Under a certain circumstance it does not matter how little the average person earns if there is scarcity and competition for basic goods – I guarantee you the price of bread will rise steeply if there is a shortage of wheat , and it does not matter if someone is earning 1 instead of 100 , they will be subject to it . For now people have been competing in debt to stay at the top , if creation of new debt slows or reverses , there should also be price deflation , but somehow I do not think it will be quite that simple , I think that there is and will be a call to maintain prices as otherwise the existing pyramid of debt collapses . When companies go bust because they cannot account for their previous debt at lower prices , the economy may disintegrate or be absorbed by the state (directly or indirectly) . It is ironic that the monetary procedures designed to uphold and support the economy may actually create one that is much less resilient .
Hole in "Moderm Monetary Theory" said:
And in 2008 I saw some one giving congressional testimony mention a phrase. That assets go from weak hands to strong hands. One can look it up.
chdr said “regarding his missing of the dynamic nature and flow of excess costs in ratio to incomes continually and simultaneously produced”
A product or service won’t be produced unless it can be sold for a profit. Thus, selling price = “total costs to produce” plus “markup” to obtain profit. Keen does talk about profit coming from “markup”, but it is unclear to me how he accounts for this in his models. I think chdr is alluding to this dilemma?
When looking from the point of view of one firm, in order for that firm’s profit to be realized, value must be generated somewhere else in the economy in order to pay for it. Or newly generated debt could pay for it. The system has to have an inflationary/expansionary bias in order for things to balance out.
This I think is the point first made by Schumpeter that for economic growth to occur someone has to “go first” in creating the new money to capitalize new production. Keen shows that one way create this money is government (or God) can inject a dollop of cash into the economy day one and growth can proceed until a steady no growth state is reached once that initial money just passed from savers to borrowers (Krugmans exogenous money assumption). Another perpetual path to growth is for banks to perpetually and continuously create new money by lending. This works quite well but only if said lending produces GDP growth in excess of credit expansion. That is, if debt/GDP stays bounded as GDP grows. Our experience has been exponential growth in debt/GDP. This is disastrous as debt service crushes the life out of your economy. Oops.
Yes, profits and savings are also a part of “the Gap” between costs/prices and individual incomes. Douglas said that 90 years ago. Now I hasten to add that this does not mean profits and savings themselves are evil or something like a reactionary socialist might claim, but the fact remains that the economy left entirely to its own normal operations…IS STILL SYSTEMICALLY/INHERENTLY COST INFLATIONARY. And apparently Keen misses the point that for continuous growth via continuous borrowing….DOES NOT RESOLVE THIS INHERENT CONDITION BECAUSE IT INCLUDES ADDITIONAL COSTS. Now interest is not the basic problem either which is the “scarlet woman” of monetary cranks, it is merely an additional cost. There are all manner of additional costs and diminutions from the circular flow that create “the Gap”, but the original and most basic economic cause is probably depreciation costs which are obviously additional to any financial costs, and as a modern economy becomes more and more capital intensive and less and less labor intensive…..the gap between costs/prices and individual incomes becomes wider and wider.
“And so despite the rapid increase in rents the even more dramatic drop in the price of oil and other commodities means that the CPI and the other measures of official inflation have not risen as fast as our monetary minders would like. They would like us to be impoverished at a more rapid clip apparently.”
Yes. Yes they would. Problem is, when it’s gone, it’s gone. And not everyone will use credit; The smart ones will go without.
Sort of on topic:
Can I point out that “credit” is such a wrong way to describe debt? I know it makes it sound nice and all, but only morons cannot see it for what it is. I never understood how people couldn’t see through the fog that is financial doublespeak.
Credit and debt are two sides of the same coin
I have stated so many times
Gee Mish, are you suggesting that we seek some degree of salvation in he acquisition of gold:)
Mish, I run several stores online and we have see an explosion in our costs to purchase and process goods for shipment. Both FedEx and UPS have increased their rates an average of 5% to 8% each year for the past 4 years. They even put a fuel surcharge increase on this year. The post office just jacked the priority rates 20% killing a lot of small businesses that are forced to ship for free due to competition from the likes of Amazon.
The inflation is coming on running the business and the deflation is in the profit margins. The squeeze is getting worse because our wonderful government just increased the tariff free amount from China to $800 from $200. If you are importing in small amounts, you are doing well. If you have to compete with the importers, you are probably not selling much. We import from Switzerland and get murdered on all costs due to their strict rules and unreasonable tariffs on this end. Many distributors are leaning out their inventory levels because of the cash flow risk. Just walk into a Walmart and check the shelves. Everyone is being more cautious about buying inventory because they see the real economy. Real wages are way down and the cost of just about everything is way up. Everything is going in the wrong direction and if it continues, we will see thousands of small businesses gone in the next year.
Tariffs are killing you?
What kinds of things you import from Switzerland? I was not aware of applicable tariffs from that country
MISH: “Direct observation will yield a different measure for each observer.”
The truth in your observation is exactly why central planning, and social engineering in general, always fails. The system is filled with too many differences that shift over time. There cannot possibly be a one-size-fits-all solution.
An individual tends to observe that which is most relevant to himself. His deductions are perfectly valid as he lives with the direct responsibility of his own reaction to them. Central planners are supposedly observing on behalf of their subjects, but their decisions are not even traceable to the reality they create for others given the complexity of causes and effects. There is no basis for argument in this respect as an individual is not a collective , and yet we are obliged to individually accept decisions made for the collective without argument. It is no wonder people become confused, they are expected to identify with something that they are not and adapt or foresake their individuality to suit it.
“They would like us to be impoverished at a more rapid clip apparently. I’ve never really understood the economic profession’s fear of deflation. It is, after all, the very evidence that capitalism is all it’s cracked up to be. Improving productivity, the very definition of economic growth, is deflationary.”
This says everything. Could be a whole article in itself. Capitalism is the enemy of the status quo. So, of course governments and central banks and the economists they employ would hate true capitalism and its deflationary effects that alter the balance of power (the status quo). Capitalism of the free market variety is a threat to the status quo, pure and simple. Logic 101.
Capitalism practiced by merchants has historically been a force fostering freedom. Hence, governments, central banks and their economist employees benefiting from an authoritarian or totalitarian state must by virtue of their position be against true free market capitalism (and freedoms & forms of deflation deemed non-advantageous). It is all part of a whole, like an ecosystem. Hence, along with fighting deflation, the crackdown on cell phones and private communication (as well as freedoms in general, including such minutiae as decisions to purchase or not purchase health insurance). Perhaps I am wrong in my ecosystem analogy, and all these happenings are just coincidence or random chance.
The ECB and other central banks often claim deflation drives or allows their QE policy to remain and is central to their ability to stimulate. The moment inflation begins to take root or becomes apparent much of their flexibility in policy is lost. The 2% inflation target central banks have deemed optimum is not valid.
In the past I have put forth the idea that inflation could rule the day even if central banks are unable to keep the wheels on the bus and the economy collapses. This powerful force also known as stagflation can devastate those improperly invested. The article below explores the basis of this theory.
Nope. Wrong. Calhoun & Msih “don’t get it”. Calhoun & Mish fail to understand that deflation is actually very detrimental for corporate profits. And it’s actually very simple.
Let’s assume that the input costs for a corporation are $ 1000 and that this corportation sells their products for say $ 1200. With PRICE deflation the price of the products sold drops to say $ 1100, $ 1000 or even $ 900. and that eats into the profits of that company. That then is a reason to reduce the amount of employees or – even worse – for that company to go “belly up”.
Hey Willy – You need to think.
This is what You don’t get.
In deflation the price the corporation pays for its imports also drops. In fact, commodity prices dropped so much that input prices fell more.
Moreover, the lower the price, the easier it is to get consumers to buy them. Sales rise.
It is only the debt and inventory considerations that are negative.
And it is the Fed, attempting to stupidly spur inflation that encourages debt and excess production.
– Nope. Even without debt (!!!) corporations have socalled “Fixed Costs”. Costs that have to be paid whether one produces zero, 10, 100 or 100.000 units. If one can’t even earn back those fixed then a corporation is in deep trouble.
– Another misconception. Rising interest rates are EXTREMELY DEFLATIONARY. Falling rates are INFLATIONARY because then the VALUE of CREDIT rises. And Hyperinflation is actually VERY deflationary, as well.