Posted on 03/11/2013 4:09:06 PM PDT by Lorianne
If instead they allowed the market to work an equilibrium would have be found naturally. It would have caused short term pain and we'd see several banks, shareholders and bondholders get wiped out, but that's the free market. Instead they're stealing from the future so that we get out of deflation.
The history of pre-Fed deflations is that prices and wages both drop. Eventually a bottom occurs and the economy grows again. Deflation isn't ever a permanent spiral and there's no historical precedent of perpetual deflation. Nothing ever would be valued at zero. It's absurd and you've been taught this by egghead economists who use a thought experiment to simulate reality.
What would really happen in the face of deflation? If someone told you your house was worth zero dollars what would you do? If the deflation we see in electronics occurred across the entire economy why would that be a bad thing for Americans? Productivity driven deflation is a good thing. Government stands in the way. Doing nothing would have been better.
Take a look at clearing houses and the history behind them. Also, we need to break the monopoly of the US Treasury on money printing. Deflation can be good, very good.
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