So why do all three of these guys turn positively facile when the topic of deflation comes up? I really don’t know. What I do know is that the inflationist argument invariably pivots on one notion that is so ridiculous as to be laughable – the notion that "the Fed would never let it happen." Yeah, sure. As though the Fed could actually do something to make us keep borrowing and spending like crazy when the whole financial edifice comes toppling down.

My dialogue with Eric was prompted by something he had just posted at his web site concerning debt vs. GDP. It mentioned deflation as a possibility, but in a way that seemed to muddle points he had made to me earlier: "Without an ever more rapidly expanding money supply, the U.S. economy is ripe for a debt deflation, either via a hyper-inflation or credit defaults."

That is quite a bit further along the deflationist path than I had ever know Eric to go. Here is the dialogue that ensued:

RICK: Hiya, Eric. Just one more slyly rhetorical half-step like the one you’ve taken above, and you and I will be seeing eye to eye!

ERIC: Hah! As soon as you "get" the idea that a hyper-inflation IS a debt deflation, the gap between our views may close a bit. After we finish running Finkel next week, then Hudson the week after, our debate is up next [at iTulip]. Dr. Hudson -- by the way, a professional practicing economist, not a quasi-economist like me or retired like the guy you like to quote [Richebächer? If so, he’s still quite active.] – thinks the whole debate about hyper-inflation debt deflation or credit defaults debt deflation is silly; the issue is political, and guessing which way it might go is like speculating on whether our leaders will ramp up the foreign wars or not. In fact, the question of debt deflation via hyper-inflation or credit defaults likely hinges on the outcome of the wars. Not sure how your vision of price deflation works out with $200 oil and $20 cups of coffee.

RICK: You’re confusing means and ends, Eric. Hyperinflation most assuredly is not debt deflation, but rather one of two possible ways in which our debts might be liquidated. Hyperinflation would arbitrarily and indiscriminately destroy creditors and savers as a class while allowing debtors effectively to skip-and-go-naked. Debt deflation per se implies that debts will be liquidated through bankruptcy, destroying borrowers (who in many instances will be creditors as well) more or less in proportion to their sins.

Concerning the "debate, there is nothing silly about it except for the blather of those who apparently have not troubled themselves to parse the statutory and reflationary implications of the 1980 Monetary Control Act. My opinion is that, well before such time as the legally untested provisions of the MCA could ever be pressed desperately into service – in theory, legitimizing, say, the purchase, by the U.S., of a bankrupt GM’s pension bonds – full-blown deflation would have long since rendered the psychological "machinery" required to massively reflate virtually inoperable. On the evidence, I would infer that neither you nor Dr. Hudson believes the psychological piece of the argument even matters.

No matter. We might see $200 oil for reasons other than hyperinflation, but the odds of $200 coffee are about the same as the listing of a billion-dollar tract home, or the enactment of a $1,200/hour minimum wage. I hope you are right, though, since I have a big mortgage. But it would be silly to think this is even remotely possible, let alone likely.