Are We in Inflationary or Deflationary Economic Environment?If you look at things from the traditional economic viewpoint – you would have to say that the set of circumstances that confronts us as an economy are deflationary. We are in the midst of a “balance sheet recession” - which is a different way of saying that as a society we have lived beyond our means and we cannot service our debts.The normal way that one would get out of that, would be to stop consuming and start earning and paying down debt. Or situation where there would be a lot of defaults and foreclosures. That’s clearly deflationary. But we do not live in a pure economy. We live in a political economy. And the government’s control over the economy is even larger than their percentage of spending as a function of the GDP. If you look at inflation vs deflation in the context that matters, which is - benefit to politicians - then what you find is that politicians have no benefit whatsoever form deflation. Politicians, who support a policy that steels from people slowly, are the ones who might get into an office next time. And politicians who preside over unemployment and foreclosures are politicians who get kicked out of office. Therefore our conviction on the going forward basis is always to inflation as a function of benefit to politician. Inflation always wins in the end. 
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Return from Inflation or Deflation to About Inflation
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