What the socialist intelligentia does comprehend is that you can have both deflation AND inflation.
A contracting economy will always have deflationary price pressure. Printing warehouses full of money will always have inflationary pressure. Which wins out? Both.
Let’s say that today I make $1 an hour and can purchase 1 loaf of bread. Five years from now I make $500 an hour, but a loaf of bread costs $400. Purchasing power has deflated, while cash value has inflated. In this situation you get massive shortages as people refuse to let go of commodities.
It is far more complicated than my above example, as wages measued by purchasing power will also deflate, but that is it in a nutshell.
And the trick the government appears to be running right now is to balance the two so our buying power is depressed without us actually seeing a significant change in prices.
Bump for later.
Let's hope we never go there! Sounds like Weimar Germany-style inflation, which of course wiped out most people's savings and made them very bitter and angry about the system, leaving them open to extremist ideas the next time the economy turned sour.
I think the numbers in your example are reversed--because with those numbers, you'd have money left over after buying the bread, or to put it another way, you'd be able to buy 1.25 loaves of bread for an hour's work. But, I know what you mean and I agree with you.
They have a lot of pull as the reserve currency so they can export our inflation. Also nothing is static, so our burst of price inflation in 2008 was partly undone with price deflation in 2009 with the net result that we have lower purchasing power from our wages. You are right though, our deflation and inflation will exist simultaneously with falling wages, falling service prices, falling prices on mostly useless crap, but rising prices for gold, fine art or anything else with limited supply.