For those of who believe an economic apocalypse is unavoidable, there is disagreement as to what the end looks like. Some very bright people disagree whether the end is the hell of hyperinflation or death by freezing in the depths of deflation. To understand this issue better, two points are important. First, inflation (or deflation) is always and everywhere a monetary event. Second, monetary factors, at least in a fiat currency system, are not exogenous variables. That is, monetary factors are controllable. The amount of money does not mysteriously grow or shrink. The supply of money is the result of policy variables controlled by the monetary authority. In this sense, inflation or deflation is not an economic event but a policy choice. Or, to put it more strongly, inflation or deflation, while affecting economic outcomes, is a political event. To determine whether or not this economic crisis ends in inflation or deflation is not an economic forecast but a political one....(Read Full Post)