Quote Originally Posted by Down Under View Post
However, I think iTulip would've been better served by simply stating no 'deflation spiral' instead of using the word disinflation
The (in/de/dis/hyper/.../flation) controversy serves our understanding poorly in my view.

Moderate price changes in the cooked CPI numbers do not tell us the major points we need to know.

We are not fundamentally dealing here with too much or too little fiat money in circulation. Prices are mostly moving only moderately one way or the other, depending on production volume (lower volumes require higher per-unit prices to cover fixed costs), financing availability and balance sheet health (weak balance sheets and limited financing options require higher prices to stay out of bankruptcy), and various other shifting factors. Meanwhile asset prices are either shell shocked (real estate) or on Plunge Protection Team steroids (stocks.) Personal incomes are either holding steady (no raise) or devastated (out of work), with no more "ATM machine" to fund the difference from one's increasing home equity.

The essential problem is that an absolutely monstrous pile of derivatives was built on top of a huge pile of debt, temporarily masking huge systemic risk. That Debt and Derivative Death Star is imploding, leaving black holes on the balance sheets of many individuals, corporations, governments (local, state and national), GSE's (Fannie, et al), pension funds and hedge funds, and leaving potholes in most of the remaining balance sheets. The stunning increase in the size of the Federal Reserve's balance sheet (and related off-book balance sheets, such as I presume behind the curtains at Maiden Lane, Goldman, JPMorgan and Blackrock) does not represent some vast influx of circulating currency in the economy. Rather it is evidence of the double entry bookkeeping shenanigans being done in an effort to fill in these black holes and potholes.

The idea that the major event going on is that the Fed is printing fiat dollars which are causing strongly rising inflation, risking hyperinflation is missing the point (at least for now.)

Companies are raising prices a little and reducing quality and package sizes a little more, mostly in an effort to keep from going belly-up in the face of declining sales volumes, devastated balance sheets and tight commercial lending.

We may get to some serious fiat money inflation or hyperinflation, or not. This may happen sooner or later. We live in stormy financial times. But that's not where we are now (outside of a few isolated places such as Zimbabwe I suppose.)