I’ve recently heard speculation on Lew Rockwell’s podcast with Ron Paul and Jeffrey Tucker (I think) that the federal reserves responses to the current situation is more of the same and could potentially lead to high inflation. I understand that even if this is what happens it isn’t instantaneous. H…

My view is that it means that people are not spending or taking loans as aggressively as they have been while the central bank is busy creating lost of currency thus making the non-spenders poorer. People are not spending because they are worried about the future where money is increasingly worth le…

Maybe I’m wrong but my understanding is that the overall price level is determined by the quantity of good and services in the market place vs the quantity of money in circulation. If that is true does it not follow that for the price level to drop either the quantity of goods and services have to i…

The price “deflation” is due to a bubble being burst, i.e. the realization that various investments were in fact malinvestments due to a lack of real credit to finance them. Banks are now unwilling to extend credit, even with adequate reserves, which in effect is, as far as my understanding goes, a …

But isn’t the problem with FRB as well? Banks give out multiplied ammount of credit based on deposits, so when a crisis hits and people start to default, the money supply contracts. Do I have anything wrong with seeing it like that? Admittedly I still don’t quite understand how central banks work.

Yeah, I think you’re right. My knowledge on how central banks work is admittedly limited, but that seems correct to me.

I think it’s largely the result of numerous businesses and individuals selling their assets to pay their debts after losing easy access to credit, plus a significant decrease in consumption to respond to the prospects of a nasty recession. The bursting of the housing and credit bubbles also play a m…

You are right and there is nothing wrong with seeing things that way. However, you should take things a step further by asking What permits the banks to use fractional reserve banking? I believe the answer is the government by virtue of its insurances, bailouts and guarantees against failure. Gr…

Not really. It existed way before insurance, bailouts and guarantees.

Not really. Banking has always worked in partnership with government. See (or rather hear) What is Banking - Robert LeFevre

What is the cause of the current deflation?

Economics Economics Questions

sheepmoney November 27, 2008, 6:04am 8

I posted something relevant here: Why Deflation is Bad...

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What is the cause of the current deflation?

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