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Source link: http://archive.mises.org/13523/murray-rothbard-and-the-deflation-bogey/

Murray Rothbard and the Deflation Bogey

August 10, 2010 by

The Paul Reveres of the economics profession are riding their horses, warning Americans, “Deflation is coming! Deflation is coming!” These “experts” misunderstand the role of money in the economy. FULL ARTICLE by William Anderson

{ 48 comments }

Dave Albin August 10, 2010 at 12:02 pm

Very good – the best part (and most overlooked) was that the deflationary spiral downward cannot continue forever. We would be wise to remember this.

billwald August 10, 2010 at 12:11 pm

> the deflationary spiral downward cannot continue forever.

Agree. Jobs continue to go off shore until the large US middle class is destroyed and there is an approximate parity for world wide labor costs.

Dave Albin August 10, 2010 at 2:08 pm

Be upset with the regulators who take our money and restrain what we can do in myriad ways. They prevent the unseen from being realized. They minimize human potential.

J. Murray August 10, 2010 at 5:02 pm

Yes, because lower prices and an expanding customer-base is exactly what drives companies out of business.

Stephen Grossman August 11, 2010 at 1:21 pm

Why dont those lower prices include lower prices for labor, supplies, etc for business? More customers are bad?! Is there some Platonic Form of the Right Price that has been revealed to you? Why didnt the US economy suffer when Rockefeller greatly lowered oil prices? Or when science and tech greatly increased food and clothing production and lowered those prices? Was it a diabolical conspiracy? Science is a system of facts, not isolated facts.

Dave Albin August 11, 2010 at 4:59 pm

You know that he’s joking, right?

Eric August 10, 2010 at 1:53 pm

My favorite non-sequitur:

“But when the price of everything drops, it’s an alarming development that portends stagnation.
The article continues,
Falling prices cut into revenue at firms that build things and provide services, so they need to cut costs to remain profitable. That usually leads to layoffs and pay cuts.”

DuH, if the price of EVERYTHING drops, then doesn’t that mean the prices of their COSTS drop too?

I see, costs must not be part of everything? This must be the new logic: Krugmanism.

A. Viirlaid August 10, 2010 at 5:55 pm

I agree with your sentiments, Eric, but the Keynesian take on this is that wages are “sticky-downward” (either because of recalcitrant unions, or whatever, minimum wage laws, you name it).

That is, let’s say in this example that you are the employer and your labor costs cannot go down “easily”. You then may have to resort to layoffs to correct for this “stickiness” if you cannot successfully point out to your workers what is going on.

You could try explaining to them (or their union) that they (your workers) are making more just by getting the same salaries and wages, that is, by pointing out that they can purchase more goods and services for their (same) incomes, as all prices for those goods and services fall over time.

So you (as the employer) may have no choice.

Your reluctant action then (layoffs) will result in bringing that component of your overall costs down in parallel with other costs.

And also in parallel with your competitors whose products are being priced down in the marketplace just like yours.

So you have really no choice according to Keynesians —— you had better bring your costs down too, just as fast, or faster that those of your competition —— and today that competition includes China and other fast-growing, low-wage developing nations.

Otherwise, say the Keynesians and Krugmanites and Bernankians, you will go out of business.

Gil August 10, 2010 at 8:18 pm

You’re assuming all prices and costs drop evenly at the same rate. What if you have to drop your prices but others you deal with aren’t dropping their prices or reducing the debts you owe as fast? After all by your logic inflation is no different – as long as your income is rising in kind and your purchasing power is the same then nothing has changed.

Stephen Grossman August 10, 2010 at 2:31 pm

>[in deflation] circulating credit can contract only as far down as the total amount of specie in circulation.

But we have no specie in circulation, only Federal Reserve Notes! What then?

DayOwl August 10, 2010 at 2:42 pm

“Four legs good, two legs bad!”
“Inflation good, deflation bad!”

Anything, Anything, to keep status quo gasping to the last desperate wheeze…

And they don’t seem to get that massive wealth transfers (productive to non-productive) decrease the value of the confiscated funds in relation to the amount transferred. The pendulum always swings back.

Gil August 10, 2010 at 8:11 pm

So sellers and borrowers are non-productive leechs and deserve their products paid with cheap yesterday dollars and their loans to get more burdensome?

DayOwl August 11, 2010 at 9:34 am

Talking about the Fed and other Financial Institutions here, not average consumers and businesses. Follow the money: Who benefits the most from inflation?

Stephen Grossman August 11, 2010 at 12:24 pm

Since most people think sacrifice is moral, who sacrifices the most from inflation?

Stephen Grossman August 11, 2010 at 1:38 pm

>massive wealth transfers

Ye of little faith. Everyone knows that govt creates wealth from…uh…umm…have a little faith, damnit!

Dick Fox August 10, 2010 at 4:11 pm

This is the greatest example of Rothbard being in direct contradiction to Mises where Mises is right and Rothbard is seriously wrong.

Rothbard writes in his most vindictive manner in Man, Economy and State:

It is true that deflation takes from one group and gives to another, as does inflation. Yet not only does credit contraction speed recovery and counteract the distortions of the boom, but it also, in a broad sense, takes away from the original coercive gainers and benefits the original coerced losers. While this will certainly not be true in every case, in the broad sense much the same groups will benefit and lose, but in reverse order from that of the redistributive effects of credit expansion. Fixed-income groups, widows and orphans, will gain, and businesses and owners of original factors previously reaping gains from inflation will lose. The longer the inflation has continued, of course, the less the same individuals will be compensated.

Rothbard hopes to punish the inflationists and reward the “widows and orphans” but what he suggests harms everyone.

But in contrast Mises writes in The Theory of Money and Credit:

But one cannot repair the evil done by bringing about a deflation. Those favored by the uneven course of the deflation will only in rare cases be the same people who were hurt by the uneven course of the inflation. Those losing on account of the uneven course of the deflation will only in rare cases be the same people whom the inflation has benefited. The effects of a deflation produced by the choice of the new gold parity at $35 per ounce would not heal the wounds inflicted by the inflation of the two last decades. They would merely open new sores.

Today people complain about inflation. If the schemes of the restorers are executed, they will complain about deflation. As for psychological reasons, the effects of deflation are much more unpopular than those of inflation; a powerful proinflation movement would spring up under the disguise of an antideflation program and would seriously jeopardize all attempts to reestablish a sound-money policy.

Rothbard and Anderson are blind to what Mises sees clearly. The solution is not deflation but “a sound-money policy.” The “widows and orphans” are hurt in both an inflation and a deflation.

On this issue I call you to use reason. If you think deeper you will choose the wisdom of Mises and reject the vindictiveness of Rothbard.

Jonathan Finegold Catalán August 10, 2010 at 4:21 pm

Dick Fox,

While the differences in Mises’s and Rothbard’s predictions regarding the effects of deflation on the individual are clearly different, I think their broader point remains the same. Take, for instance, this portion of what you quote,

Today people complain about inflation. If the schemes of the restorers are executed, they will complain about deflation. As for psychological reasons, the effects of deflation are much more unpopular than those of inflation; a powerful proinflation movement would spring up under the disguise of an antideflation program and would seriously jeopardize all attempts to reestablish a sound-money policy.

While Mises saw deflation as unhealthy on the whole, he nevertheless recognized that it was just a consequence of the credit expansion problem, and as such deflation was necessary (to one extent or another) to pave the way towards sound money. A policy of re-inflation, in other words, is not synonymous with sound money.

Gil August 10, 2010 at 8:05 pm

Actually I believe it is shown people would rather have inflation with no pay rises than stable prices and a pay cut despite both scenarios are effectively identical losses in purchasing power. If all Keynesians are doing is to use inflation to do the same thing deflation would do but in a different way then this would have no overall economic effect other than to jumpstart the economy as sudden deflation would.

Dick Fox August 11, 2010 at 8:15 am

Jonathan,

You are correct that re-inflation is not sound money, but neither is deflation. Sound money to Mises was neither inflation nor deflation. See my comment to Shay below.

Shay August 10, 2010 at 7:05 pm

It sounds like Rothbard was talking about natural credit contraction as the market self-correcting, while Mises was talking about artificially-induced contraction not helping things. The current situation is natural contraction and the question of whether to get in its way by inducing inflation.

tralphkays August 10, 2010 at 8:03 pm

Exactly correct Shay.

Dick Fox August 11, 2010 at 8:12 am

Shay,

I did not quote all of what Mises says but if you read the end of The Theory of Money and Credit you will find that what Mises recommends is:

1. Stop the inflation
2. Let the economy adjust to the new reality
3. Based on the new equilibrium prevent deflation and maintain sound money.

Mises never praises deflation. To him deflationists we seriously wrong. If Rothbard did not mean what he said then all I can say is his writing it atrocious, but this is not what I believe about Rothbrad. He is a brilliant writer and his economic history is fantastic, but on econmics….I’ll take Mises.

tralphkays August 11, 2010 at 8:02 pm

Dick Fox is a great example of what I call a “Suit and Tie” libertarian. His description of the quote from Rothbard as vindictive gives him away. Note that a careful reading of his quote from Man Economy and State stresses the tendency of deflation to REDRESS the unjust transfer of wealth under an inflationary regime. How is correcting an injustice ‘vindictive’? Note his subsequent unsupported statement that “what he (Rothbard) suggests harms everyone”. Rothbard is clear that under deflation there are losers, but also winners, how does it “harm everyone”? All of this suggests that this Dick has situated himself to prosper under an inflationary regime, he has profited from the theft inherent in an inflationary system, and now is pushing for a system that ignores those injustices and proceeds from the status quo. How convenient. Notice when he says “what he suggests harms everyone”, clearly the “everyone” he refers to is in actuality only himself and others like him, people not like him are beneath notice. These “Suit and Tie” libertarians speak loudly when austrian and libertarian theory proposes removing the barriers to their accumulation of wealth, but usually are strangely silent when the same theories propose removing the government provided unjust advantages to their accumulation of wealth. At least this Dick showed his true colors.

newson August 11, 2010 at 9:22 pm

dick fox is a supply-sider.

those interested in deflation should read bagus’ overview of various perspectives on deflation by prominent austrians, and their various inconsistencies.
http://mises.org/journals/qjae/pdf/qjae6_4_3.pdf

Wuggles August 10, 2010 at 4:18 pm

“Deflation is the answer, but few are listening. Rothbard understood this fact intimately. Those who reject his wise counsel will live to regret it.”

Yes and no. The ones who live to see the devestating effects of the current inflationary policies will certainly regret that the inevitable calamities are falling upon them but they will not sit around and say to themselves “If only we had listened to Rothbard and his austrian advocates when we had the chance!”
Amidst their suffering they will lash out like a large, stupid animal and call for more of the same policies that are devestating our country.

Sorry for the pessimism but I have zero faith in the majority of Mankind to ever learn from the painful lessons that seemingly have to be experienced again and again. It’s a great article though, I just wish you weren’t preaching to the choir.

Stephen Grossman August 10, 2010 at 4:25 pm

>The solution is not deflation but “a sound-money policy.

After inflationary destruction, deflation is sound-money policy. Or is there some method ,other than the market, for creating money and identifying prices? Should we seek a Platonic intuition of the Form of the Amount of Money? All that counterfeit money and bank credit must be destroyed to re-establish equilibrium between capital goods and consumers’ goods. Should the drunk continue drinking until his liver pops or should he decrease drinking so that his liver is in equilibrium with the rest of his body?

A. Viirlaid August 10, 2010 at 7:36 pm

After inflationary destruction, deflation IS sound-money policy.

AGREED! However…

The “drunk” —— representing our entire society, who is FORCED to attend the ‘party’ thrown for us by The FED and other Western Central Banks, acting as our ‘gracious hosts’ —— will indeed continue drinking until his liver “POPS”. There are no chaperones at THIS party who will remove THIS spiked punchbowl!

We will be given no choice, as Wuggles laments.

I agree, Stephen Grossman, that deflation is the sad but necessary price to pay if we had hosts who knew enough to care about our economic health.

That they may actually care (surprisingly they do!) is irrelevant if their well-meaning interventions make us die.

In that sense, I claim that The FED is evil —— not by intent, as some one-world conspiracy theorists might suggest. But purely because of IGNORANCE and a preference for EXPEDIENCY (“the hair of the dog” approaches to ‘solving’ economic problems). The Road to Hell, after all, is paved with Good Intentions.

As Keynesians, The FED sees nothing odd in contradicting Austrians by quoting Keynes to the effect that in the long run, we are all dead (anyway) — so why bother prolonging life by avoiding death from cirrhosis of the liver?

That is, why try to fix the Money System (in the Long Run) if in the meantime (in their minds) you will die from the required medicine, prescribed by some doctor with an Austrian accent?

Well of course Austrians ridicule this notion, because Austrians don’t want this mess to continue for future generations, who will certainly inherit it, if it is not fixed before they arrive.

So there is some ‘logic’ to the Keynesians’ “dead in the long run” sentiment —— but it hardly justifies stupidly repeating the practices that lead DIRECTLY to the economic juncture we are at today.

Even a Nobel-winning economist could tell you that!

Or maybe not?

Dick Fox August 11, 2010 at 8:13 am

Stephen,

See my note to Shay above.

Stephen Grossman August 11, 2010 at 12:34 pm

Ive not yet read TMC but my memory of HA is that Mises thinks deflation is the necessary correction to inflation. My memory could be wrong. And if Mises denies that a post-inflation deflation is sound money policy, what does he think is the right policy?! Also, in HA he corrected some ideas in TMC.

J. Murray August 10, 2010 at 5:05 pm

Major note – there is a huge difference between deflation and falling prices due to expanding productivity. Just because prices across the board falls doesn’t mean there is deflation.

A. Viirlaid August 10, 2010 at 7:14 pm

Good argument J. Murray, if what you write were true, then that kind of system-wide price deflation would likely be welcomed even by the Krugmanites and Bernankians and Keynesians of our world (redundant, I know).

But that “KIND” kind of deflation is not sadly in the cards IMO.

Recent rather pathetic productivity numbers belie that kind of good price deflation (that you theorize could happen at some times, in some places) as happening today.

In fact, we are more likely to suffer the ‘payment’ for the years of excess artificial credit-creation done by our central bankers.

If what you describe did come about by some miracle of human ingenuity, then it might indeed rescue us from the fate that is more likely to befall us.

In fact what you describe is what has allowed central bankers, over most of the 20th century, to hide their insidious money-inflating practices.

Because of HUGE productivity improvements since 1913 (founding of The FED) the prices of goods and services have only ‘moderately’ increased.

If one removed all the productivity improvements over the last 100 years, and The FED had done exactly what it did over that period of time, does anyone here reading these words, really think that people would have let The FED continue its harmful practices or even its harmful existence?

No.

It is precisely that because The FED has been able to hide behind those productivity improvements, done through the ingenuity and sweat of regular folks, that its malpractices have not caused catastrophic price inflation.

Imagine a pound of butter that might have been 20 cents in 1913 today costing about $4.00 in the store.

BUT, without all the intervening productivity ‘miracles’ what would the actions of The FED have done to the price of that pound of butter?

Perhaps that pound would now cost $100.00, or $400.00, or even more in nominal terms.

So much for hiding its evil practices.

Stephen Grossman August 11, 2010 at 12:40 pm

>Because of HUGE productivity improvements since 1913 (founding of The FED) the prices of goods and services have only ‘moderately’ increased.

Yes, Mises notes that statistics can mask economic law. BTW, some prices has greatly increased. Average 1920s cars were $200. 1960s Ferraris were $12000! 1950s ice cream cones were 7 cents.

A. Viirlaid August 11, 2010 at 2:07 pm

Agreed. Thanks Stephen.

Oh, if only to be able to have to give $200 for a new 1920-s car (or even $200-equivalent in today’s dollars = approx. perhaps $4,000) — what THAT car would be worth today! I can picture Jay Leno already formulating the offer-price for his bid.

Same goes for the Ferrari.

Of course those items would show the value attributed due to the scarcity of supply of such mint-condition ‘antique’ automobiles in today’s world.

What bothers me about the ‘ruling’ administrators, managers, and bureaucrats, is that they all tend to assume that the future will behave like the past.

That is, that we can all expect technological progress to continue in the same manner over the next 50 years as it has proceeded in the past 50.

But I should not really be surprised because this is human nature.

But if you or I think this way, it does not much matter —— we are just expressing our ideas in forums like this. What saddens me is that the decision-makers hold the fate and wellbeing of many millions of people in their hands when they make such assumptions.

That such management-types seem ignorant of their responsibilities (or at least seem so, given some of their past behavior and decision-making) is what is so tragic. They, of all people, cannot afford to be making assumptions about the strength or direction of that future wind as if it were a given —— because that is exactly what they (e.g. The FED) are doing.

This haunts me, because I think I have a pretty good idea what will happen if and when such progress does not materialize.

In fact an argument not often made (or at least not promulgated in most forums) is how the ‘Expediency’ Approach to Money Management that The FED takes (along with many other institutions in the West) actually hinders technological progress.

It seems rather strongly possible that there is a logical argument to make that when central banks manipulate the money (Money-Pulation) and thereby send False Signals to entrepreneurs and others in the Marketplace, and thereby force the creation of malinvestments, that they are also thereby skewing the future road to be taken for Technological Advancement.

That is, if they screw up how the economy should work, they are also changing how technology would most optimally unfold in its development to meet the needs of a more naturally (unforced) developing overall Economy.

Stephen Grossman August 12, 2010 at 4:59 pm

Just look at that night photo of No. Korea for the technological progress of socialism. And do you recall…ummm, uh, oh, yes, the Soviet Union and its electrified communism.

J. Murray August 12, 2010 at 5:40 pm

Don’t bother. The common response is, “They just didn’t do it right. It works, just so long as we find the right people.”

A. Viirlaid August 10, 2010 at 7:56 pm

One way to look at price deflation versus price inflation is what would the economic world be like if central bankers never intervened in changing the money supply?

And, so long as our Fractional Reserve Banks were also not allowed to engage in credit expansion —— by perhaps converting them to 100% reserve banks —— what might the world then look like?

(I cannot claim that converting-over would be easy — this is a thought-experiment only!)

The BENEFITS of all the productivity improvements that J. Murray alludes to, would accrue to all of us, fairly, and be most likely reflected in gently-declining prices for all goods and services.

No more FED-induced catastrophic booms and busts.

No more artificially-induced and highly-variable fluctuating levels of economic growth and contraction.

No more people losing their homes, and health, and sanity (or at least fewer such people).

No “first-in” inflation gainers at the cost of the “last-in” losers.

Well, maybe not complete nirvana, but certainly we would experience far fewer artificially-induced expansions and collapses like the ones that we have lived through in recent times.

Given all of our lamentations and protestations, it is nevertheless clear IMO that a richer society like America is today, compared to what it was in the Dirty Thirties, is far better positioned to withstand what we will be asked to withstand in the near future.

But for all our wealth, we are not out of the woods.

Depending on how the unfolding catastrophe is handled by our elected and appointed leaders (and I suffer periodically from SDE = Somewhat Diminished Expectations much like Wuggles does in that respect) we could still see a lot more suffering. And worse, we could get more societal unrest, crime, upheaval of personal lives and institutional collapse. Revolution in America came from less at the end of the 18th century.

Paul Krugman, bless his liberal heart and soul, CARES.

But so do most of us.

Our disagreement is not about “CARING” or “NOT CARING” —— let’s use all the societal resources we can apply, to help those who need help, at the micro-level. Let’s forget this nonsense about ‘stimulating’ Aggregate Demand.

But to saddle the wealth-generating sectors of our society with the cost of this kind of deflation-fighting (and even more misguided “HELP”) with a view to extricating ourselves out of this mess —— well that just seems self-defeating and plain silly.

And maybe that’s what we’ll end up doing —— not succumbing to an external enemy —— but perchance, just defeating ourselves.

guard August 11, 2010 at 2:34 am

Another benefit:
No more wars. Virtually all wars are only possible through inflation of the money supply.

Bennet Cecil August 10, 2010 at 10:16 pm

Never waste a crisis. The party in power will keep taking the wealth from citizens to buy votes with government spending until they are voted out. If unemployment were lower they would stay in power. Will the currency have to collapse before voters insist on small government and economic liberty? Will Americans keep believing the lies from politicians promising free benefits?

pbergn August 11, 2010 at 12:56 am

What an utter nonsense this article is…

Both the author and the parties he is so vehemently deriding are wrong:

What we are observing currently in the US is NOT a deflation. Deflation is when the prices of the MAJORITY of goods and services goes down due to change in time preferences for money towards the higher end, often resulted from significant credit contraction and rising unemployment…

What we are observing is NOT a deflation because the prices are not falling. On the contrary, they are slightly rising…

This is called stagflation, and has nothing to do with classical Austrian teachings…

The main reason behind the current situation is the severe contraction of credit handouts by the banks and the government, coupled with sharp rise in unemployment due to globalization of the US economy…

Neither Austrian nor Keynesian schools would work in this situation…

There is only one solution – close the borders – impose tariffs on cheap low quality products, introduce tax incentives for local businesses, penalize severely the multinational corporations…

There is no way out of this bog, ladies and gentlemen… We are deep in it for some time to come…

So, buckle-up and enjoy the ride…

Baten August 11, 2010 at 3:42 am

“There is only one solution – close the borders – impose tariffs on cheap low quality products, introduce tax incentives for local businesses, penalize severely the multinational corporations…”

Hate to wake you up – but it would be deja vu all over again: this has been tried extensively in the last great depresion, and it did not work.

And Austrian theory does provide the best explanation for stagflation, this is why Hayek took the Nobel prize in 1974 (Mises should have, but unfortunatly he was dead), and why he was so popular in a period when most economic journals printed titles like “Keynes is dead!”

Jon Leckie August 11, 2010 at 4:31 am

Not only was it extensively tried in the Great Depression, Baten, but it led to a catastrophic collapse of world trade, unemployment shot up and conditions were set for the rise of far-right nationalist parties promising to restore glory and honour to the wounded nation. And then WW2 broke out not much later…. wait a minute! I see where pbergn is going here – we need to recreate the miserable suffering and charged political environment that is most convivial to the outbreak of gobal war, which will then fix the economy! Pbergn you magnificent bastard! Genius!

Stephen Grossman August 11, 2010 at 12:56 pm

>sharp rise in unemployment due to globalization of the US economy

Trade benefits all. Unemployment is from minimum wage laws, high taxes, regulations and counterfeit govt money and bank credit stealing limited resources to fund unsustainable investments. When the unsustainable investments pop the market’s return to equilibrium includes temporary unemployment. Increasing prices and decreasing exports with protectionism will decrease jobs. You reach for a gun because your mind is empty. Protectionism was refuted by Adam Smith in 1776 (and maybe by earlier economists). That early prosperous and free trade zone called the Roman Empire is an application of free trade. Self-sufficient farms are not prosperity. The basic problem is production, not jobs. We can have full employment by banning machines and accepting slavery.

newson August 11, 2010 at 10:02 pm

for pbergn: when goods can’t cross borders, armies will (bastiat).
autarky invariably ends badly.

RH August 12, 2010 at 12:59 pm

I completely agree with the article, but there are a couple of practical problems:
1. Deflation is good if one is not levered. Since the country and most individuals (personally) are levered to the hilt, deflation would be problematic.
2. Do you expect unions to adjust wages downward should we go ahead with deflationary policy? I think this is pretty unrealistic.

Stephen Grossman August 13, 2010 at 2:15 pm

This is short-range, unprincipled, unsystematic foolishness, not science, and a mere rationalization for govt theft from the productive.

A. Viirlaid September 3, 2010 at 7:18 pm

TO Stephen Grossman

WELL SAID! Thanks.

Please see another way how The FED, and the Banking Cartel it operates, steal The Wealth of The People in a well-written essay by Jeffrey Sachs:

Rob rich bankers and give money to the poor

Also more at

Economic freedom and the end of poverty

A. Viirlaid September 3, 2010 at 7:35 pm

TO “RH”

No one said that price deflation is painless.

It is just the outcome you get when you play around with The Money System the way that our dear friend Alan Greenspan did at The FED for 19 years.

It does not much matter what unions do. Sure wages are “downward sticky”. That is why unemployment does not go down very quickly given the sticky residue and mess of A Broken Money System that Alan Greenspan left behind himself when he left The FED.

If there is resistance to adjusting wages when prices fall, unemployment will stay unnecessarily high for an unnecessarily long time.

And yes, a lot of people will go broke because their debt will increase in real terms. Who’s to blame?

Most importantly, ask yourself whether it was moral for Savers and Lenders to, for so long, subsidize The Borrowing Class? (That subsidization, by the way, continues today, with The FED orchestrating even lower interest rates than our dear Alan did!)

In any case you really don’t have to worry —- our dear Doctor Ben Bernanke has indicated that he feels Price Deflation is to be avoided at all costs —- “IT” will never be allowed to happen, so long as The Great Doctor is our Helmsman at The FED.

Deflation: Making Sure “It” Doesn’t Happen Here

A. Viirlaid September 3, 2010 at 7:41 pm

TO “RH”

No one said that price deflation is painless.

It is just the outcome you get when you play around with The Money System the way that our dear friend Alan Greenspan did at The FED for 19 years.

It does not much matter what unions do. Sure wages are “downward sticky”. That is why unemployment does not go down very quickly given the sticky residue and mess of A Broken Money System that Alan Greenspan left behind himself when he left The FED.

If there is resistance to adjusting wages when prices fall, unemployment will stay unnecessarily high for an unnecessarily long time.

And yes, a lot of people will go broke because their debt will increase in real terms. Who’s to blame?

Most importantly, ask yourself whether it was moral for Savers and Lenders to, for so long, subsidize The Borrowing Class? (That subsidization, by the way, continues today, with The FED orchestrating even lower interest rates than our dear Alan did!)

In any case you really don’t have to worry —— our dear Doctor Ben Bernanke has indicated that he feels Price Deflation is to be avoided at all costs —— “IT” will never be allowed to happen, so long as The Great Doctor is our Helmsman at The FED.

Deflation: Making Sure “It” Doesn’t Happen Here

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