Posted on 12/20/2014 11:19:23 AM PST by Kaslin
Disinflation is reduction of the rate of inflation. Deflation is reduction of the money supply.
Deflation and inflation are monetary phenomena. Deflation is a collapse in the money supply. Inflation is a huge increase in the money supply.
The last major deflation the United States experienced was 1930-33. The US money supply declined by a full 30%. It wasn’t a good thing.
The Fed and other central bankers are currently trying to keep the series of collapsing asset bubbles from shrinking the money supply. It’s not much more complicated than that.
Mike Shedlock argues that the series of asset bubbles that the Fed is fighting was set into motion by bad Fed policy in the past. Which would have been Greenspan’s very low interest rate policy. Shedlock may well be right.
“It was either doing that ... or ... the USA be officially declared bankrupt at that time.”
No, bankruptcy wasn’t an issue. What could have been done instead of breaking the link to gold was to cease using the US Dollar as the world’s reserve currency.
We had been experiencing inflation since the late 1950s, early 1960s. The first public notice of this was the removal of silver from American coinage and the end of the silver certificate dollar.
This came about due to a conflict between our domestic monetary policy needed to defend the dollar’s value and our foreign policy goals as leader of the Free World. We couldn’t do both while the dollar served as the reserve currency. The problem is called the ‘Triffin Dilemma’ and you can google it if you’re curious.
The very mild inflation of the 90s was was beneficial. the deep deflation of the thirties was not kind to the lenders and financiers.
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