Property price declines are not part of consumer prices and so don’t imply deflation. Declines in rents would contribute to deflation.

I don’t really think it is all a confidence game, although the is of multiple equilibria with government bond yields is interesting n related to confidence I suppose. Thanks for he continued comments.

The answer is that we have both deflation and inflation at the same time. eg real estate plunge in the US but heavy living expense increases. Same here in SA. Stagflation ?

Europe, US, Japan, South Africa; its all a confidence game isn’t it ? Once the confidence goes, all bets are off.

The Euro zone is now more worried about deflation than inflation. took them a little while figure this out – why they raised interest rates last year is a mystery to me. But the real point is that inflation still won’t give rise to default. Greef sits borrowing at 29pc at the moment, not because of inflation but from fears of default. Inflation will decrease the chance of default and way more than offset a few percent in higher borrowing costs from inflation.

Inflation can get up and away very quickly and the only tool left to control it, raising interest rates, is out of the question.

How could inflation cause default? Inflation decreases the real value of debt and makes it easier to pay through higher future nominal taxes.

They create it. No, don’t start shouting about hyperinflation just yet. In situations like this a little inflation is exactly what is needed anyway. So although the US has some problems of its own, having its own currency with real control and a real fiscal union, that’s why their bond yields are super-low and, political silliness aside, nobody is worried about the US defaulting.