Quote:
Originally posted by Spanky
When was the last time we had deflation? 1930s? At the end of the 19th century we had deflation because we were on the silver standard and the value of money was not controlled by the Fed but tied to a limited resource.
Ever since Jimmy Carters stagflation of the late 1970s the Fed keeps the inflation rate at the rate of growth. That seems to work and there is no reason to think that will change. I can't even think of a modern industrialize economy that has had deflation over the past fifty years. Japan and Germany have come close to zero inflation but never deflation.
The economy has grown consistently with occasional problems since the founding of this nation. So as long as the nation grows and and even if the Fed keeps a strict monetary policy (which we have had since the 1980s) todays huge deficits will be tomorrows chump change.
We don't need to pay the money back. We just need to balance the budget and everything will be fine. In fact, paying off the national debt could be a disaster. The entire world economy is dependent on the interest our government provides on our debt. The number our government uses to determine our interest payments sets all sorts of different numbers for the economy, and without the US government setting that number no one knows what will happen.
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Significant components of our economy are structurally deflationary right now. Technology and retail are two examples. There are demographic shifts that could turn large portions of the real estate market deflationary - deflation in the past has been linked with shrinking populations, and many regions have been experiencing loss of population.
I am not saying there will be deflation, merely saying that our planning should not rule it out. Some cycles are very long, and the inflationary/deflationary economy is one of them. But there has never been an inflationary economy that did not ultimately turn deflationary. In 2001, I remember hearing about the end of boom/bust cycles. We had it under control; the stock market and the economy could expand forever. What happened?
