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Wednesday, July 27, 2011

Mass Manipulation Via the Deflation Monster...


With the many examples of hyperinflationary currency destruction and a history replete with not one example of currency destruction via hyperdeflation we continue our endless, flirtatious dance with inflation.

I understand the undeniably rational arguments that deflation is imminently dangerous as well as I understand the theoretical concept of a circle. The problem I have is that neither seem to exist in reality. Deflationary spiral theory strikes me as a theory in search of a reality.

Where is an example in history of this so feared mythical deflationary spiral? There is not one.

But for examples of hyperinflation we have:
Angola (1993), Argentina (1981), Austria (1922), Belarus (1999), Bolivia (1985), Bosnia and Herzegovina (1992), Brazil (1994), China (1948),Danzig (1923), Georgia (1994), Germany (1923), Greece (1944), Hungary (1922), Hungary (1945), Isreal (1970's), Krajina (1993), Mexico (1980's), Nicaragua (1980's), Peru (late 1980's), Philippines (1940's), Poland (1922), Poland (1989), Romania (1990's), Taiwan (1948), Ukraine (1994), Yugoslavia (1999), Zaire(1992), Zimbabwe (2005)

But we are told that:
The problem with deflation on a wide scale (not just with one class of consumer goods) is that it leads to a highly unstable economy. If consumers expect that prices will fall, they put off purchases, which decreases demand and can cause prices to fall further, decreasing demand, rinse and repeat. (Dave Ribar)
Why do they force this irrational fear?
Why do we believe it?

The reality is that people can not forever delay the purchase of needs; people need things and will buy them when a floor in pricing is found.

It seems odd to me that we are being asked to be more fearful of a deflationary spiral than an inflationary spiral. We are being asked to consistently dabble in inflation which has no real upward ceiling aside from currency destruction so as to avoid a deflationary event which almost everyone admits has a floor.

This strikes me as an awfully risky strategy for a nation, however it does lend "the few" tools to by which macro economic manipulation may be attempted.deflation monster


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