I reprinted an essay here yesterday from Chris Laird that explained why the Fed would not be able to prevent deflation. One of the more interesting responses came from a reader, Hal Muller, who wrote as follows: 'A few thoughts concerning your quote from Chris Laird on the ongoing Inflation/Deflation debate. At times you two seem to be beating a straw man. The Inflationist camp doesn't claim that hyperinflation would lead to prosperity, good times, and more "economic activity"; nor does it claim that hyperinflation can be prolonged indefinitely. Of course, the economy would seize up like an engine drained of oil, if the currency became shunned by all. What you two call a deflationary ultimate outcome actually incorporates the inflationists' scenario of how we get there. Debt Is 360% of GDP 'The question is: Can we have a repeat of 1980-82, when sky high interest rates restored credibility to the dollar, and people once again wanted to hold and accumulate dollars. Since our society's indebtedness has gone from 120% to 360% of GDP since 1982, it's hard to imagine how the economy could cope with the high interest rates required to shore up the dollar. 'When people speak of a deflationary outcome, generally the implication is that it's safe right now to hold dollars and T-Bonds. You say deflation is inevitable, but admit the dollar may become null and void along the way. What kind of a deflationary outcome is that? The dollar worth nothing! Any people who sell their precious metals or other hard assets for dollars, expecting a repeat of the early 80's, would end up ruined. 'In short, do you believe dollars earned today and put into the bank will buy more goods and services 2 years from now, 5 years from now? That would qualify
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