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Perfectly possible, sadly, in the case of a collapse of the exchange rate, such as what you would see under a poorly implemented fuel rationing scheme in a country which is import dependent on fuel and has a primary trade deficit and no access to hard currency borrowing.

You need to distinguish between imported and domestic inflation. The domestic economy can be in deflation (that is, the absolute nominal markups, including wages, can be falling due to a general industrial depression) while the consumer price index shows runaway inflation due to deteriorating terms of trade.

It's not the sort of inflation the BundesBank idiots think of when they say inflation. But then, the BundesBank subscribes to a remarkably simple-minded theology. So that should, perhaps, not be surprising.

It is, however, more probable, that the state will use the newfound freedom to conduct economic policy to increase nominal markups and wages. You have to have a pretty extreme commitment to austeritarian idiocy to allow domestic deflation to persist in an environment of hyperinflationary foreign accounts positions.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 09:54:57 AM EST
[ Parent ]
Greece isn't Argentina, but it isn't exactly Zimbabwe either, far from it. No one knows what will happen in the event of a default, no matter how good the modelling, it's as simple as that.

Remember, the scarecrow being bandied about here is "hyperinflation," not simply a bout of high inflation (which actually would be welcome news not just for Greece but for most of Europe).

But, I think we both can agree that whatever the result, the real shame here is that the Greeks didn't just tell the ECB, the IMF and the EU to shove it up their ass and default two years ago, we'd all be better off, not just the Greeks. Though this result was perhaps not unpredictable given the craven clientelism of the PASOK elite, the sort of uncertainty that scenario would have brought about made it difficult for them to remain in control of the money levers to keep their partisans on side and in power. Papendreou...well, enough said.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sat Feb 18th, 2012 at 01:04:13 PM EST
[ Parent ]
At least we can say "I told you so". I made this pic on May 2 2010.


Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Feb 20th, 2012 at 01:35:54 PM EST
[ Parent ]


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