It's easier to adjust to inflation than to deflation. But we're not talking about hyper inflation. We've survived 2% plus inflation for how many years? And we've done okay. Japan had modest deflation since 1989 and they didn't do nearly as well.
What I don’t understand is, Japan has had essentially what, 0 per cent interest rates in recent times? How does that work - they are essentially giving money away when inflation is taken into account as well. The yen carry trade results. But I’ve also read that it is very difficult for the average consumer to get those lowest interest rates, and their economic culture is far different - they don’t write off loans and wager their bankruptcy laws are far different. Why haven’t they taken off in recent years??
Hyper-inflation is probably the worst because it destroys all currency denominated savings and kills any incentive to work for the currency undergoing the inflation. I don’t want to go through either one if I can help it, but a mild inflation can be survived if necessary. We’ve been doing it for 70+ years.
One adage that I’ve heard is “you can’t fool the bond market”; and I guess that makes sense. It dwarfs the stock market in $$ terms. But I see my spreadsheet on I series bonds (used as short term savings, because checking only pays 1/10th of 1 per cent!) shows yields varying from 3 to 4 per cent. Better than a kick in the pants, but inflation is ticking up more than that. Is that what we’re seeing here, is foreign bondholders cashing out and chasing higher yields?
Shouldn’t the FED be raising interest rates?