I began this series of posts with the observation that inflation and deflation benefit (and harm) different economic actors. Inflation benefits people who spend more and save less, who place their capital at risk by investing, and who in general feel comfortable taking risks. Deflation benefits people who save more and spend less, who prefer not to place their capital at risk, and who in general prefer to avoid risk.(1) read more »

Deflation is the word That Dare Not Speak Its Name. In a 2002 speech (before he became Fed chair), Ben Bernanke even titled his talk, Making Sure “It” Doesn’t Happen Here. “It” meaning, of course, “deflation.”(1) read more »

In my first post on this subject I suggested that, while deflation is not necessarily a good in itself, an economy that cycled between modest inflation and modest deflation might be superior to an economy like the one we been living in since the mid-1930s. Since that time, the Fed has insisted on managing the money supply so as to generate consistent, albeit modest, inflation. Indeed, I quoted Ben Bernanke to the effect that central bankers intentionally err on the inflationary upside so as to avoid the supposed horrors of deflation. read more »

If you want to watch a central banker turn pale, simply whisper the word “deflation” in his ear. Well, her ear. read more »