i would summarize the matter below, re argentina [posted by fred in another thread] by saying that disinflation/deflation happened very slowly, then inflation happened all at once.
i sent the following in an email to some friends earlier in the week:
my latest thinking, fwiw:
there's a well known quote from a hemingway story about a man who said he went broke very slowly and then all at once. the current global political shift away from stimulus toward austerity will likely exacerbate deflationary forces, undermine the already weak global "recovery," increase and prolong unemployment, and INCREASE deficits in the oecd nations, because of their welfare states' automatic deficit-producing stabilizers. increased deficits will mean that accumulated sovereign debts will grow so that they compound faster than even potential - let alone actual- gdp growth. cb's will be forced to monetize the deficits in ever larger qe interventions. this will produce a sudden explosion of unmoored liquidity. so the mild deflation will be extended, but the new inflation will not be a repeat of the '70s, i.e. it will NOT be a prolonged period of ever escalating inflation with trailing ineffectual tightenings by the fed. instead it will be like what happened in argentina. a sudden, sharp spike up in rates accompanying a very rapid currency devaluation. very slowly, then all at once.
implications- prepare early; you won't have time when you need it.
fred's material from "is the u.s. argentina?" thread:
Argentine Inflation 1995 - 2009
In the year before the bond default in December 2001 and ending in late 2003, CPI inflation increased from -4% deflation to 120% inflation on an annual basis. Here at iTulip we call this process a “Ka-Poom” of deflation and inflation.
The Argentine peso, un-pegged from the U.S. dollar, collapsed by 73% in a few months, and over the next two years inflation wiped out savings and erased all debts.
Argentine Exchange Rates 1995 - 2009
The bond market disintegrated.
Argentine Bond Market 1995 - 2009
A U.S. bond crisis will never get this bad, but then it doesn’t need to for bond holders to lose most of their money.
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