Inflation or Deflation?

I've been reading and thinking about the debate between two camps recently: the larger camp who believes that (hyper)inflation is inevitable given the large-scale monetary and fiscal stimulus that is ongoing, and the smaller camp that believes we will see deflation due to the economic demand collapse that has been forced upon the nation due to the coronavirus outbreak. I'd like to point you to two pieces espousing opposite views that are worth your time. 

Ray Dalio's latest thinking shows historical examples of fiat currency devaluations and the underlying currency's value against hard assets such as gold and silver. He has put out multiple pieces lately on how he views the world economic order and what he believes will change going forward. 

"While people tend to think that a currency is pretty much a permanent thing and believe that “cash” is the safe asset to hold, that’s not true because all currencies devalue or die and when they do cash and bonds (which are promises to receive currency) are devalued or wiped out. That is because printing a lot of currency and devaluing debt is the most expedient way of reducing or wiping out debt burdens."

This is true over the long run for virtually all fiat currencies. 

Trevor Jackson's latest piece in Foreign Policy argues that we will see deflation rather than inflation due to the fact that hyperinflation scenarios in the 20th century were due to political responses to post-war debt reparations (Weimar Republic in 1923, Hungary in 1946): 

"The Great Depression was the most significant historical example of this vicious downward spiral. Prices in the United States fell by about one-third from 1929 to 1933. The German price level fell by about one quarter from 1928 to 1932. It was this deflation in Germany, in part deliberately caused by the austerity policies of the Heinrich Brüning government, that brought the Nazis to power, not the 1923 hyperinflation. Agricultural prices collapsed, trade collapsed, wages collapsed, and thousands of banks failed."

This also is true. General price levels fell for three years in a row from 1930-1932 during the Great Depression. But over the long term, inflation (and depreciation) continued as the international monetary system was slowly losing its gold-standard ties and moving closer to a fiat currency based system. 

My take on both of these articles is that they can both be right, in their own time frame.

Jackson is pointing out a factual claim that most people are observing at this very moment - namely, that there are real deflationary pressures in certain sectors of the economy because of an absolute lack of demand relative to supply. Oil markets have been crushed due to a lack of demand. Theaters. Hotels. Restaurants. Airline ticket prices. Ag prices. Where demand has fallen off a cliff, prices have tended to follow. But this period of economic lockdown will end at some point and demand will pick up, leading to price normalization. Whether that is higher, the same, or lower relative to pre-COVID-19 remains to be seen and will depend on the industry. 

Dalio, on the other hand, tends to explain his views about macroeconomic events unfolding over decades rather than small periods of 1-3 years. In his piece, he is painting a picture about the virtually iron-clad law of fiat currencies: over time they tend to depreciate in value. It is hard to see a situation over the next decade or more in which the dollar (and other fiat currencies) are not worth less in real terms than they are today, given the unprecedented fiscal and monetary stimulus that has been and will continue to be pumped into the economy going forward. 

So tell me - what camp do you fall into?

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