Deflation is coming?
Yes everyone it looks like deflation is on the stronger possibility. Looking at the marginal diminishing returns of debt. Lacy Hunt is the famous Economist who has been pointing this out, and I have just updated the chart on a quarterly basis. What is the MRDP? Well it is essentially how much 1 dollar of debt can generate in terms of GDP. Right now 1 dollar of debt only leads to a .40 cent increase in GDP. So it take about 2.5 dollars of debt to generate 1 dollar of GDP. From the shape of the curve you can also see that it is consistent with the law of diminishing returns, and what is that? Well essentially it says in the beginning increases in debt lead to payoff, further indebtedness is flat and leads to no benefit, and further indebtedness causes less ROI from the debt. From the graph you can see that this theory is consistent with what we are seeing. This is DEFLATIONARY.
Joey Hirendernath's avatar
Refreshing to see this possibility after all the talk about inflation
Deer Point Macro's avatar
@joeyhirendernath always good to hear the contrarian view.
Yegor's avatar
Inflation, deflation, stagflation … nobody knows!
Dissecting the Markets's avatar
I've read your memo twice and I couldn't quite wrap my head around it. Is there another way of explaining how it's deflationary?
Deer Point Macro's avatar
@dissectmarkets any money that’s created or new creation of money is deflationary because the more debt we create the lower the growth in gdp