Inflation vs. Deflation
By Colin Twiggs March 26, 2009 5:30 a.m. ET (8:30 p:m AET) These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use . There are two competing views of global markets. One is driven by the rapid contraction of the money supply following collapse of the debt bubble. This points to a protracted deflationary spiral, with falling prices fuelled by debtors attempting to reduce their exposure by selling off assets. The outcome would be high unemployment, low commodity prices, low stock prices and a low gold price. The second scenario is where the Fed and other central banks expand the money supply, fuelling inflation. Purchasing bonds to expand the monetary supply may be easy, but as the Japanese discovered, this does not necessarily translate into rising prices — bank credit continued to contract throughout the 1990s. Monetary Base We have already w...