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THE MONEY MULTIPLIER IS STILL CALLING FOR DEFLATION

30 October 2009 by Cullen Roche 3 Comments

Although many are protecting their portfolios from inflation the M1 money multiplier is still giving off the same deflationary signals from 2008.  As we continue to see banks hoarding cash, loan growth well below historical levels and consumer deleveraging it’s clear that the risk to this economy lies not on the inflationary side, but the deflationary side.

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Cullen Roche

Cullen Roche

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Comments
  • Rob

    Oh my Go(l)d, helicopter Ben is losing the fight?

    10/30/2009 at 6:21 AM
  • AWF

    Consider this:

    Banks may not be lending because they believe the borrower has less/no ability to pay back ??

    Consumers may be deleveraging because they are uncertain about their jobs and
    they lack of confidence in the economic future of the US economy.
    They are hunkering down and protecting what they have.

    Inflation/Deflation do not play a part in these decisions.

    10/30/2009 at 7:50 AM
    • BleakoEcobamics

      >Banks may not be lending because they believe the borrower has less/no ability to pay back ??

      Yup, this is a supply problem more than a demand (although both are having problems) — default and delinquent numbers are bad, obviously the banks are aware of them. And new loans granted at a coverage level akin to old loans would fare no better. So it’s disingenuous when banks say they “want” to loan but people aren’t applying. The credit standard is so high now, most people know they have no prayer of qualifying.

      But I disagree with your second comment somewhat. Just because the average American likely doesn’t even have a clue how to define xflation, doesn’t mean the effects don’t work themselves through in very stylistic patterns, different in inflation vs. deflation …

      10/30/2009 at 11:31 AM