Think inflation worries are over?

Wookster

tomterm8 wrote: »

I think my point is, that there are two factors at work:
1. A much needed correction in house prices and
2. A vast deleveraging.

Both of which we agree on, yes?

Before August 2008, banks were widely regarded as solvent, and so able to withstand point 2. If banks are insolvent, they only become more so as house prices fall. In that case, there is no reason to suppose that deleveraging will stop when the needed correcton takes place. House prices can deleverage to the point where a normal person can buy them without incurring debts - in Japan, house prices are still deleveraging now, 28 years after the boom, because the banks are insolvent.

I agree, though you'd be hard pressed to say that house prices are falling because they are correcting or because of a lack of finance. I obviously see the former as the reason - and only being sustainable while cheap money was in abundance. Now that is gone, prices are unsustainable. It seems that the thrust of your argument is that a price fall as a result of deleveraging is deflation where as a price fall as a result of a correction of over egged asset prices is not.

How about if the over-egging arises out of cheap leverage which falls away?