definition

• Inflation is a net expansion of money and credit.
• Deflation is a net contraction of money and credit.
• Hyperinflation is extreme expansion of money and credit leading to complete collapse of faith in the currency.

More From Door Number Two

Eric Janszen continues with a discussion of a May 2005 article I wrote called Deflation is in the Cards. The correct/incorrect determinations of my scenario were made by Janszen (in red).

• Wages continue to fall due to outsourcing, mergers, and global wage arbitrage (no, they are starting to rise due to inflation)
• Home prices level off then fall sharply (correct)
• Home equity loans stagnate as result of stagnating home prices (correct)
• Home building stalls because affordability finally starts to matter (correct)
• Trade jobs fall with falling home starts (correct)
• Expansion of Walmarts, Home Depots, etc. stops with the slowdown of new home subdivisions (correct)
• Retail expansion peaks and stalls (correct)
• Consumer sales slow with the slowing economy (correct)
• Bankruptcies increase (correct)
• Consumer lending based on rising home prices falls flat (correct)
• Credit growth declines (correct)
• The US goes into a recession (correct)
• Layoffs in the financial sector increase (correct)
• Layoffs in the real estate sector increase (correct)
• Credit is destroyed in more bankruptcies (correct)
• Deflation is finally recognized in hindsight (No. The dollar weakens further as these events occur, leading to further inflation.)
• Hyper-inflationists throw in the towel (No, this is a straw man argument. The choice is not between a US 1930s style deflation spiral and a hyperinflationary spiral that ends with a complete repudiation of the currency. The rate of decline of the dollar is buffered by foreign central bank holdings.)

Actually, that looks like a pretty good success rate. I might also point out that with the sole exception of home prices, prices were not mentioned..