RE: [OPE] Early Notes on the Present Crisis

> Doubts about the U.S.'s ability to make good on its debts could set off > a serious deflation, making debt burdens become unbearable.
 
 
Hi Michael P:
 
So far, though, we've seen stagflation in the current crisis in the
US economy rather than deflation.
 
The latest round of current and possible collapses will trigger -
what? For instance, if AIG (the nation's and world's largest
insurance company) goes belly up, couldn't the consequence
be inflationary (stagflationary) rather than deflationary? I
certainly don't think that insurance rates will go down as a
consequence or that people will purchase significantly less
insurance policies (since the demand for insurance is
relatively price inelastic). It could mean additional bankruptcies -
especially if firms are unable to maintain and secure insurance.
What the effect of all this will be on average market prices (and
hence whether there will be continued inflation or deflation) is not
at all clear to me. Is it to you?
 
In solidarity, Jerry

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Received on Tue Sep 16 07:49:50 2008