When will the "deflation" end, and the inflation begin with all that printed currency I wonder? When will our creditors start charging us higher real interest rates? When will this game of musical chairs end?
The money being pumped into the economy is intended to prevent deflation more rapid than it might be, and to prevent a situation in which people are paid in kind rather than in cash wages (work here and we will give you rice, beans, a little canned meat, and a cold-water apartment -- the norm characteristic of a plantation, a company mining town as in
Sixteen Tons, or the Soviet Union in the bad old days).
Interest less inflation (or added to deflation) is the real interest rate. If one has a nominal interest rate of 10% and inflation at 7%, then the real interest rate is 3% (and might not cover income taxes on the nominal income -- which suggests that the Japanese are wise to not tax interest income). If the nominal interest rate is 3% and the deflation rate 7%, then a creditor is getting a real return of 10%.
Consider some of the exorbitant interest rates now charged on credit cards -- default rates in the 30% area (which doesn't even account for over-the-limit fees and late fees): anyone stuck with these rates in a time of rapid deflation has many choices: default is one of them, and various forms of suicide are the others. Maybe the creditors must find ways to protect their capital by gouging those who can still meet some payments.
We got ourselves into this mess by voting for people who backed those who offered debt as a surrogate for real pay. Real wages have been in decline in America for about a quarter century, and only now does reality strike -- hard.
The game may end when Americans recognize that there is nothing special about American wages.
