Five Things Podcast, The Transcript: Hyperinflation vs. Deflation-Minyanville

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Five Things Podcast, The Transcript: Hyperinflation vs. Deflation

Kevin Depew Oct 24, 2008 4:10 pm

Five Things Podcast, The Transcript: Hyperinflation vs. Deflation


		It's just like the Five Things You Need to Know Podcast, only quieter.

Kevin Depew: Absolutely it will. The difference between the now and when entered its deflationary period was that the Japanese consumer was operating from a very relatively high level of savings. So their deflation wasn’t as -- they didn’t have the perfect storm that we have now. They didn’t have a lot of debt as a society. They had banks that had a lot of debt, and so it became a bank debt problem but it wasn’t a consumer debt problem.

And that’s the crucial difference that I wish everybody could understand here is that not only do we have a bank debt problem that the government is in the process of trying to bail out and alleviate. On top of that, the 70% of GDP that is consumption, we have a consumer debt problem. And that is the primary structural deflationary force that is going to be with us for a long time.

By the time we get to the stage where we’ll be able to again expand credit to the extent that it could kickstart inflation, people will view the threat of inflation as something unimaginable, the way that over the past five, six years they’ve viewed the threat of deflation as something imaginable.

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Cory Bortnicker: Okay. So last question. What is going to break the cycle of the savings and deflation? What will break that?

Kevin Depew: Well, here’s the best part about all of this, is that we don’t go over the cliff and then never hit something.

Cory Bortnicker: Right.

Kevin Depew: We’re going to reach a bottom somewhere.

Cory Bortnicker: Okay.

Kevin Depew: The best part is that the most productive bull markets, the most exciting times to be an investor and the most exciting times economically are those times when savings have built up enough to be redeployed in other enterprises, as opposed to what we’ve had over the past decade or more, which is credit-induced production and growth. That credit growth is what has fueled all kinds, all manner of enterprises. And many of them are poor choices because interest rates have been forced so low as to make them seem synthetically attractive when they’re not.

Once we develop a large base of savings, that’s when we’ll have exciting, productive growth and a strong economy. It’s going to be a much stronger economy, but it’s going to be very hard for much longer than people imagine.

Cory Bortnicker: Okay. Well, on that high note, thank you very much, Kevin, and we’ll pick this up again next week. Again, if you have any questions or comments or any suggestions for the podcast, feel free to email us. There’s a link on the page. Thank you so much for listening.


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Comments (13)

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Dan Keys

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10-25-2008, 10:38 am
With the distinction of savings and investment being blurred ( craziness like FDIC guarantees of MM funds), how do we know if the money we put in the bank isn't being invested- I.e. we are taking the same risk as buying investments like comerc Read More

Jeff Burke

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10-25-2008, 10:18 pm
Take the S&P highs from years when things were 'normal', before inflation and financial shenanigans, 1965 to 1983 and extrapolate them: S&P 576. Read More

Michael C

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10-26-2008, 5:58 am
As I understand it, you can reach a point where the helicopter approach doesn't work because you give people money and they don't spend it, they save it. If you think prices are going to be lower tomorrow you won't spend or invest t Read More

Gerry Turner

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10-26-2008, 11:53 pm
Great educational article! I just got a Credit Union loan for a car. They have strict rules of lending and seem very prudent. Keeping my money with them feels secure vs. under the mattress. I closed the Wells Fargo accounts as the per Read More

William Ramseyer

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10-27-2008, 11:12 am
Kevin shows again that he is one of the finest commentators on the web, with a tremendous knowledge of history, philosophy, economics, and the â��real worldâ�� of today. I have some questions for Kevin and any commentators, and while I h Read More


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