Effor.com

I was aimlously surfing tonight when I found this:

In a credit-based economy, a fall in money supply leads to markedly less lending, with a further sharp fall in money supply (since debt is money), and a consequent sharp fall-off in demand for goods. Demand falls, and with the falling of demand, there is a fall in prices as a supply glut develops. This becomes a deflationary spiral when prices fall below the costs of financing production. Businesses, unable to make enough profit no matter how low they set prices, are then liquidated. Banks get assets which have fallen dramatically in value since the (mortgage) loan was made, and if they sell those assets, they further glut supply, which only exacerbates the situation. To slow or halt the deflationary spiral, banks will often withhold collecting on non-performing loans (as in Japan, most recently). This is often no more than a stop-gap measure, because they must then restrict credit, since they do not have money to lend, which further reduces demand, and so on.

Sound familar?  To me it sounds like what’s beginning to happen in the US right now.  The above text is from:

http://en.wikipedia.org/wiki/Deflation_(economics)

Yup, it’s about deflation.  I keep wavering about if we’re heading down the deflationary road, or if we’re setting up for a round of hyper-inflation.  Anyone care to enlighten me?

gk