Hi all!
What do you reckon? Will the bailout prove to be deflationary or inflationary?
I've read arguments on both sides of the coin. Either scenario seems plausible. I have to say that I think the net impact here will be inflationary, because inflating away debt seems to be a savvy way to get rid of it. Bernanke's comments seem to indicate that the fed may well reduce interest rates at the next meeting, indicating to me that reigning in inflation is going to be a secondary concern given the current crisis.
That said, with a general consumer slowdown looking likely, and with unemployment and the rest looking to rise, deflation might well be a plausible scenario too. Japan's experiment seems to indicate that deflation might be ont he cards too.
There seem to be powerful and competing forces on both sides.
What do you reckon?
And as a bonus question for you deflation fans - do you still see room for the POG to increase in a deflationary scenario?
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