The supposed debate between inflationists and deflationists is really no debate at all as far as we're concerned, and the dialogue we had last week with iTulip founder Eric Janszen should have convinced no one of his thesis that the U.S. economy is headed into some hybrid of inflation/stagflation/hyperinflation. Eric likes to play with definitions, such as by insisting that inflation means 'an increase in the money supply.' That's one way of looking at it, but who cares? It is the symptoms that matter, and in that regard, the inflationists have shown themselves to be deaf and blind to what's going on in the real world. Granted, the price of energy and groceries has been rising at a rapid clip. But does it constitute 'inflation' if we cannot afford to pay the higher prices? For in fact we cannot, and because of this the average household is simply consuming less of other things in order to offset the hit of $4 gas and $3 milk. We have also argued here that no inflationary spiral is possible unless wages are rising along with prices. But has your paycheck risen to keep up with higher prices? And, do you think you could get a raise from your boss right now by pleading the hardships of 'inflation'? Of course not. And neither can anyone else. So how much higher do you think prices can go before the economy trips into recession or worse? Will, say, four-star New York hotel rooms continue to rise above their current average of $470 a night? Or are room prices instead about to plunge, a victim of the city's financial-center tsunami and drastically reduced tourism? We foresee the latter ' not just for NYC hotel rooms, but for nearly all products and services that are not absolutely essential
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