1) Large unexpected changes in the value of money wreak havoc on contracts but the economy can generally deal with equivalent levels of inflation better than de

1) Large unexpected changes in the value of money wreak havoc on contracts but the economy can generally deal with equivalent levels of inflation better than deflation. A 2%-3% deflation per year is terrible for an economy and will result in greater than depression levels of unemployment but 2-3% inflation obviously doesn't have this effect. 2) Unexpected inflation actually benefits the poor because they tend to owe more debt, and own less fixed interest assets such as bonds. 3) Bond purchases and loans aren't zero sum investments. If we banned loans today the economy would not expand faster but would start to shrink very quickly. Contemplating banning loans from a demand side would be terrible for our economy because the velocity of money would shrink considerably and we would end up with incredibly painful deflation. 4) With mild long term deflation you run into demand problems and lack of investment. Deflation makes investments look less profitable then they are because hoarding money has great risk free returns, and the nominal future cash flows will be smaller because money will be more valuable. For instance if you buy a house for $100,000 and it returns $10,000 a year in rent. After 30 years of deflation it will only be returning $2,500. This means that many productive investments are not made because it makes more sense to hoard the money, leading to under investment and an underutilized economy. The only economy that in recent history has experiences predictable deflation is Japan, and it does not look like an economy we would want to emulate :P.