Without resorting to vollumes of economic theory, what scenario do you see pertaining to inflation or deflation? Would deflaton be the better (?) scenario? Will both happen at different times in an economic colapse?

-- churchorganist (swedemusic@webtv.net), November 29, 1999

Answers

Churchorganist,

When I asked my daughter (the economist in the family) the same question back in 1997, her answer was "Why not both?"

Makes sense: deflation for the non-essential goods that are still being churned in (Y2K-compliant) factories, but which nobody can afford to buy...

combined with inflation for the essential goods (food, shelter, durable clothing) that may be disrupted by Y2K problems, but which people will pay almost anything to acquire...

Thus, your local bakery, dairy farmer, and manufacturer of work boots and flannel shirts may enjoy(?) the benefits of inflation for their products ... while your manufacturer of Furbie dolls, fashion-clothes, and cheese whiz junk-food might suffer from the effects of deflation.

No guarantee that this scenario is correct either, but I think it's important to remember that not everything has be answer in an "either- or" fashion.

Ed

-- Ed Yourdon (ed@yourdon.com), November 29, 1999.

http://www.gold-eagle.com/editorials_99/peters112999.html

TRY THIS RECENT DISCUSSION, AND DECIDE FOR YOURSELF!

-- profit of doom (doom@helltopay.ca), November 29, 1999.

Think Stagflation!

Think 1970s oil crises.

Stagnating economy with inflation.

If it gets bad, then you eventually would have deflation, but it would still take a while.

-- nothere nothere (notherethere@hotmail.com), November 29, 1999.

I think its called retardation...

-- Doug (Doug@itsover.com), November 29, 1999.

Nothere expressed my thoughts exactly. Slowdown in economic activity because of supply chain and/or oil disruptions, but everything getting more expensive for the same reasons--plus the incremental losses of efficiency as automated processes go manual. All those non- critical systems, you know.

-- Thinman (thinman38@hotmail.com), November 29, 1999.

My pat answer is: massive inflation if the banks stay up. Deflation if the banks go down.

-- David Holladay (davidh@brailleplanet.org), November 29, 1999.

I cannot relate to deflation. However, I saw an example of hyperinflation a few years back when visiting San Antonio.

I took my family for a drive down to Mexico. When we were coming back to the U.S., we stopped to pay to cross the bridge at Nuevo Laredo and I asked for change in Mexican money because my kids wanted to see some. The change was 50cents American but he gave a huge hand full of Mexican money.

Back in Texas, that same Mexican change was worth less than sand. No one would even offer an exchange for it.

Scary stuff.

-- the Virginian (1@1.com), November 29, 1999.

I have seen reasonable arguments for inflation, deflation or stagflation (low growth high inflation). Any oil crunch would be inflationary. All of the oil based plastics and the oil used in transportation. This is even more pronounced because just in time inventory has traded warehousing cost with shipping costs. The federal reserve has also been pumping tons of money into the system to keep the stock market bubble afloat. This free money flow is also inflationary.

But just when I'm about to put all of my chips into inflation there is that nagging reminder that emperor Bill "re-financed" the national debt from long term fixed debt to shorter term (adjustable - kinda) debt. Any inflation would stagger the government with huge increases in the amount of money to keep paying interest on the national debt. Of course by that time it will somebody elses problem and Bill could sit back and blame the poor sap that follows him into office.

My final bet is on short term inflation to about May 2000, followed by deflation as the federal reserve tightens up just as all those half remediated companies start going bankrupt.

-- squid (Itsdark@down.here), November 30, 1999.

I suspect politics will play a big role. Many Americans are overextended, having mortgages on overpriced homes and huge credit card bills. If the economy slows enough to create lots of unemployment, this debt will be unsupportable. Lots of personal bankruptcies will just hurt creditors, like banks.

Similarly, the government welfare programs like Social Security and Medicare (and ordinary welfare) will become much harder to fund with lower revenues. And debt will be harder to sell in a world possibly leaving the dollar.

One of the ways out of this would be lots of inflation, which devalues debts, both private and public.

-- You Know... (notme@nothere.junk), November 30, 1999.

At this point a Global Depression seems the *best* we can hope for.

-- Dan G (earth_changes@hotmail.com), November 30, 1999.

Short term: inflationary - simple undersupply and/or bare faced profiteering.

Mid term: what Ed said. As businesses go under - but before their competitors can expand to take over their markets - things will be wierd. Never mind Furbies (psst, it's Pokemon this year, Ed), who's going to want an electric can opener if the power is unreliable?

Long terms: as businesses recover, inflationary again. Why? Well, if SME's are indeed in a bad state, then it'll open up the markets to the big players. No competition == charge what you like, and that applies even to "nice" companies. No? Why did the price of Apple Mac's suddenly plummet towards parity with PC's when MS Windows 95 finally became a real competitor for MacOS?

I wonder what next year's wage negotiations will be like?

1) Sure, I'd like to invest in the company mutual fund, let's all jump on that stock market rocket.

2) Screw the pension plan and stock options, just put cash in my hand.

3) Zog want three rabbit each week. Green paper bad. Rabbit good.

;)

-- Colin MacDonald (roborogerborg@yahoo.com), November 30, 1999.

If we have an economy, we're lucky!!!!!

-- Mara (MaraWayne@aol.com), November 30, 1999.

Ed's scenario sounds the most plausible. It will always be supply in demand no matter what. However, I can see how the underground market will double in size for clothing, cigarettes, and alcohol. Between me and my sister, I do believe we could open up a TP, toothpaste and shampoo stand.

-- bardou (bardou@baloney.com), November 30, 1999.

The "pat answer" someone else gave a little earlier was pretty darn close to the mark: if the banks stay up we get inflation, if they go down, we get deflation.

Here's why:

Inflation/deflation mostly depend on the supply of money vs. the supply of goods and services. Most people understand where the supply of goods come from: farms and factories. As it happens, banks are the main supplier of money, in the form of loans.

It is easy to see how Y2K could put a severe damper on the productive side of the economy (at least temporarily), so that fewer goods can be made and fewer services can be delivered. So, if that happens and the banks stay more or less unaffected, we'll have the same amount of money as today chasing fewer goods and services. Inflation. At least at first.

If a lot of banks fail due to Y2K problems, but the economy can still function (more or less), then the money supply will dry up faster than the supply of goods and services. Deflation.

These two conditions could conceivably follow one another, or overlap to some extent.

My own best guess is that a mild to moderate Y2K outcome produces stagflation and a recession. A relatively severe Y2K outcome produces deflation and a depression. I do not personally think that Y2K will produce a catastrophic outcome. If it does, duck!

-- Brian McLaughlin (brianm@ims.com), November 30, 1999.