Minyan Mailbag: Questions for Inflationists
Editor's Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interacrtive dialogue among the Minyanship. We share this next discussion with that very intent.
Here is one of my recent articles on deflation that triggered email responses from inflationists.
I am not holding my breath waiting for a response from Puplava...
Most gold bugs are also Austrians - they (rightly) hate the state and fiat currencies. They believe, falsely in my view - that ALL business cycles and error clustering by entrepreneurs are a function of fiat currency inflation. They lend no weight whatsoever to, say Kondratieff cycles (which are borne from a collective psychological cycle of optimism and pessimism) which show, empirically, that inflation and deflation have cycles in which one or the other dominate. That cycle is independent of the monetary system in place (that is not to say that it cannot be attenuated or exacerbated by that structural monetary system however).
Thus the reason the gold bugs/Austrians view inflation as inevitable is because they think the State drives inflation SOLELY. It is my contention that they do not: the underlying collective psychology of risk-taking or risk-aversion (see Kahneman and Tversky) drive the cycles and the monetary regime (pure fiat, semi-gold backed, pure gold backed, etc.) exacerbates whatever the underlying trend is (up if inflation, down if deflation).
We just happen to be entering a kondratieff winter where the deflationary forces are actually gathering steam. I suspect the Fed's actions will - in the end - exacerbate this deflationary trend as well...setting the SEEDS of eventual hyperinflation (the next Kondratieff cycle) but those seeds are not likely to be sown until the forces of deflation are fully vetted..
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