Inflation or deflation? -

One of the hot debates in the current economic crisis focuses the discussion on what the scenario that we will be doomed in the coming years:

¿Inflation or deflation?

Where recognized in the world of economics and finance personalities fail to agree.

A deflationary scenario involves a continuous drop in prices of goods and services produced or assets held as well as wages, consumption, corporate profits, higher real value of their debts, leading to a spiral impoverishing more bankruptcies, layoffs, lower investment … from which it is hard to leave.

The most recent case is found in the Japanese economy into deflation after the crisis of 90 caused by the bursting of a housing bubble and has not been overcome in 20 years despite the many attempts of his government.

Fearing a situation of this kind the US Federal Reserve has begun to prepare the ground for more anti-deflation measures, Intended to boost demand and investment to recover the path of growth through providing greater liquidity to the economy.

An inflationary scenario involves a continuous rise in prices of goods and services produced or assets held, rising corporate profits, a relief in the real value of debts, but entails a loss of purchasing power of money and wages, competitiveness of companies … should be avoided.

John Paulson , one of the millionaires present in the list Forbes and president of a H Edge Fund , in a lecture delivered at the University of New YorkHe expressed fear of this situation and predicted that the measures taken by the US administration will lead to inflation 2 digits for the year 2012 with a dramatic increase in gold prices, stocks and real estate.

However, why inflation situation is more beneficial for the economy , if the decline loads of debtors involves the loss of value of the assets of principles affecting creditors?

As tells Paul Krugman on Inflation, Deflation, DebtThe answer can be found thinking otherwise. In a deflationary situation debtors they are forced to consume the basics by having to deal with their debts more burdensome by reducing their wages and incomes, while principles affecting creditors who see increase their purchasing power and could increase their consumption does not they do, which translates into greater contraction. In an inflationary situation the fact that debtors tend to consume more than principles affecting creditors causes a real redistribution of wealth , with a consequent increase in global demand.

Two diametrically opposed economic scenarios, which require strategies different investment and virtually opposite, explains Marc Garrigasaitin two articles: Where to invest in a scenario of high inflation or hyperinflation? and Where should I invest and what should I avoid a deflation scenario? Whatever the scenario in which we see submergidos, should anticipate acontencimientos and design an appropriate strategy to our particular situation and not be surprised by a heavy loss of real value of our assets.