Does Recession Mean Inflation or Deflation?

[Mike03]

I'm in the process of readjusting my Disaster Strategies, and I really don't grasp the economic technicalities of recession, and whether it leads to inflation or deflation.

In order to really designate a good strategy for the next couple of years, it would probably be helpful to understand what the future holds.

Any opinions or advice would be appreciated.

[Fredda Weinberg]

1. Deflation would be an extreme recession. It's what we're

seeing now with dropping real estate values.

Inflation: too many dollars chasing too few goods. Deflation ... feels worse.

[billbuckhead]

2. Something called stagflation which came into play when Bush 41 was in decline

Higher prices with no growth.

[Fredda Weinberg]

7. It meant to signal an end to Keynesian theory ... otherwise, it makes

no sense to the "layman". According to Lord Keynes, and experience proved him right, government could spend out of recession at the cost of inflation. Stagflation meant that stimulus wasn't effective anymore.

A terrifying prospect and the reason Paul Volker took us into the deepest downturn he could engineer. It reset expectations for generations.

It's also the reason I have a bachelor's in economics. I had to know why so many were sacrified.

[Warpy]

10. As I recall, Volcker blamed unions and high wages for inflation

and got away with it, although OPEC had been the real problem. I don't think Volcker's Draconian policies killed runaway inflation as much as Carter's Strategic Oil Reserve opening and killing OPEC's ability to hold this country hostage to embargo and tripled prices did. Remember, the Oil Reserve got OPEC's prices down for three decades. They'd have stayed down had Stupid not decided to throw the dollar into the crapper by his ridiculous tax cuts and then start wars he had no way to pay for in countries with oil reserves. Every time he opens his piehole about Iran, the spot market goes up a buck or two.

They sacrificed so many of us because they've always considered us all expendable.

[Fredda Weinberg]

12. Volker couldn't control OPEC ... and you're right, we were sacrificed

But understanding helps ... and it helped me survive.

[Mike03]

4. Thank you

I am definitely going to keep an eye on the responses here; I recognize that the distinction here is crucial.

All opinions are appreciated.

[TheMadMonk]

3. It means you (joe average) can't afford fairly basic luxuries.

Depression is when you can't afford what you need.

[Mike03]

5. Ditto from above, and thanks

I am definitely going to keep an eye on the responses here; I recognize that the distinction here is crucial.

All opinions are appreciated.

[Make7]

6. I would suggest you post your questions in the 'Economy' sub-forum.

http://www.democraticunderground.com/discuss/duboard.php?az=show_topics&forum=114

People that post there are likely to be more knowledgeable about the subject.

- Make7

[MannyGoldstein]

8. Neither

Recession means the economy is getting smaller (GDP is shrinking).

Inflation or deflation can occur during a recession. Generally, deflation is seen in worse recessions (I think).

[Zywiec]

9. Definitely time to panic

Dow closes on 2/14/08 - 12,376.98

Dow closes on 2/14/07 - 12,765.01

It's down 388 points from last year!!!

[Extend a Hand]

11. Simultaneous Inflation and Deflation are Not Possible

http://globaleconomicanalysis.blogspot.com/2008/01/minyan-mailbag-trends-in-inflation-and.html

Simultaneous Inflation and Deflation are Not Possible

TIF, in order to have a meaningful discussion, participants must agree with definitions.

According to Austrian economic theory inflation is a net expansion of money and credit. Deflation is the opposite, a net contraction of money and credit. If one accepts those terms, then it is impossible to have inflation and deflation at the same time, in aggregate.

If one chooses to separate the components, then yes, we can have inflation in money supply and deflation in credit. In fact those are the exact conditions I expect to happen. That is also an extremely good environment for gold.

There is no way consumer debt loads can be paid back given falling asset prices, and rising unemployment. Increasing foreclosures and rising defaults on credit cards are proof. Debt that cannot be paid back will be defaulted on. That is deflationary.

It is important to note that credit dwarfs money supply. In deflation, credit will contract at a far greater rate than the Fed prints. This happened in Japan and this also happened in the great depression. I expect it to happen again.

This article provides the best explanation I've run across.

[The Inquisitive]

13. Doesn't have to mean either

a recession is marked by a drop in real output which will have all sorts of negative impacts on the country due to the way our economy is configured.