Sunday, February 22, 2009

1930

In response to the collapse of stock prices, the crash of major banking institutions and a freeze-up of global lending, millions become unemployed and millions more see their incomes fall. Major states see a huge fall in sales and income tax revenues take a bite out of their budgets and themselves lay off hundreds of thousands of workers or impose major wage cuts.

The result (clicky for biggy picture):

Deflation. Capacity utilization plummets. Inventory piles up. Companies are liquidated and their goods flood the market at ever-lower costs, seeking buyers who are reluctant to spend because they're expecting things to get worse before they get better. Debts taken out in cheaper inflated dollars are unpayable in the more expensive deflated dollars, causing further deflation, which causes further debt inflation, wash, rinse, repeat.

End result: The Great Depression. At least, in 1930 that's what the end point was.

Except notice the end point on the above graph. It's *JANUARY 2009*, not January 1930. And it shows the CPI dipping below 0% -- i.e., DEFLATION.

To which I can respond with only two words: "Oh shit."

-- Badtux the Gloomy Penguin

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