The following is commentary that originally appeared at treasurechests.info for the benefit of subscribers on Tuesday, August 24th, 2010.
The title a quantum physics enigma likely best captures (as opposed to ‘ A Parallel Universe, etc.’) the essence of describing two things occupying the same space at the same time, as is the case with both inflation and deflation within the matrix of our sordid economies. Because this topic is of growing interest at present with deflation spreading into increasing sectors, it does in fact appear timely to take a good look at the condition our condition is in, where parallels in central bank policy compared to the 30’s can be made in the sense it might be a ‘Fed mistake’ (lack of inflation) that sparks the next Great Depression. Of course if central banks do respond to the risk of deflation spreading across the larger economy with further quantum leaps in quantitative easing (QE), better known as hyperinflation, the nature of the present depression could be quite different from the last, a hyperinflationary depression that would go full circle, so why bother. (i.e. because the bureaucracy will attempt to preserve itself.)
So the great inflation / deflation debate rolls on, with inflationists stuck on the belief the government / central banks will respond to the threat of deflation taking control of the macro conditions, possibly leading to hyperinflation at some point, which in fact will likely occur in response to collapsing asset values, something that appears to be accelerating as we speak. Because we have arrived – arrived at the tipping point of acceleration in the demise offractional reserve economies – which in the reverse, will bring about a return to a gold standard. Of course some (deflationists) believe gold would eventually succumb to a wider deleveraging in the larger economy. For ourselves, we are not so sure this will be the case, at least not on a lasting basis considering participation rates in precious metals amongst the greater population are still so low.