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It's the deflationary spiral that's bad. A little drop in price is nice, but when a feedback cycle occurs, it becomes very dangerous.

• nazgulnarsil 18y ago
  explain how. has deflation ever destroyed a country? no, not once in history. Inflation has destroyed MANY countries.
  • bokonist 18y ago
    The deflation of the Great Depression and the ensuing unemployment resulted in the election of the dictator FDR, the destruction of the old republic, and creation of the modern American civil service mega-state. If you could go back in time, and put yourself at the head of the Federal Reserve in 1930, would do you anything differently?
    • nazgulnarsil 18y ago
      you've got some reading to do. America's Great Depression http://mises.org/rothbard/agd.pdf http://mises.org/rothbard/agd.pdf
      • bokonist 18y ago
        I've read it. Rothbard is dead right about the dangers of fractional reserve and the need to avoid inflation in the first place. But he's dead wrong about what to do once the crisis hits. I do not buy his arguments that Hoover's actions after the crisis caused the severity of the downturn. It's very unlikely that Hoover's cajoling was the cause of sticky wages. Right now we are seeing businesses across the economy choose layoffs rather than wage cuts, even in non-union, non-regulated sectors like tech. Furthermore, the major cause of the unemployment was businesses going bankrupt. Businesses went bankrupt because when the money supply shrank they could no longer payoff their debts. The debts were all nominated assuming a much greater money supply. Deflation caused the unemployment.
        • nazgulnarsil 18y ago
          wow. you're the first person I've run into who has a strong grasp of the facts. I would argue that debts nominated during a time of a much larger money supply led to businesses that were predicated on artificial demand. when the demand shrunk these businesses went bottom up. The great depression is an almost perfect example of economic latency. Those workers did eventually get assimilated back into productive industry, it just took a long time.
          • bokonist 18y ago
            The demand was not artificial. For example, before the crash people bought a lot of cars. After the recovery, people bought even more cars. So why was it necessary to go through 5-10 years where nobody made or bought cars, factories sat idle, and laid off autoworkers went hungry? There are cases in recessions where the unemployment is beneficial. For instance, "financial instruments" have been overproduced, and it would be beneficial for Wall St. workers to be laid off and then find more useful jobs. But a depression is marked by lots of collateral damage - people get laid off in industries simply because of instability in the banking and moneterary system, not because they were not being productive. Let me ask this question: Imagine a gang of thieves slowly slipped counterfeit bills into the money supply for a long period of time. Eventually, half the money supply was counterfeit bills. The thieves had long traded their counterfeit bills for wine and women. The bills were now evenly distributed across the economy, in every home and business. Suddenly, the crime is discovered. Now no one will except the counterfeit bills. The money supply drops in half. Businesses with debt and wage contracts created before the counterfeit money was discovered start to bleed red ink. What is the proper policy response to this scenario?
            • nazgulnarsil 18y ago
              the greater consumption of cars in the years following the great depression were due to having suppressed demand for all those years. as for the scenario you seem to be saying that the government needs to step in and take up the role of the counterfeiters. Why should the supply and demand structure from the time of counterfeiting continue on? those demands were artificial and the market met those demands with artificially inflated supply.