[Destro]

So if the dollar deflates, what does that mean to the purchasing power of the dollar? difference with inflation is?

[AntiGuv]

The dollar would undergo depreciation not deflation. The purchasing power would obviously be reduced through a period of hyperinflation, followed by a slide into deflation. For some reason, a lot of people seem to think that the two (currency depreciation; economic deflation) cannot take place simultaneously or sequentially, although history proves them otherwise.

[Timesink]

So if the dollar deflates, what does that mean to the purchasing power of the dollar? difference with inflation is?

Deflation, in and of itself, is nothing more than prices going down instead of going up. So your dollar's purchasing power (in this country, anyway ... deflation and currency fluctuations are different animals, though the existence of the former will certainly affect the latter) will technically go UP.

The problem is that our entire system of capitalism requires prices to rise in order for the economy to grow (within reason, of course. As long as your salary increases in line with inflation, all is well). You invest in something, you expect the price to increase; that's how you become more wealthy. So if company Y, which employs you, starts turning in crappy quarterly earnings reports because deflation is forcing them to charge less for all their products, eventually they're going to have to cut your salary, which pretty much wipes out your extra purchasing power. And that, of course, starts a vicious circle, since people who have their salaries cut buy less stuff, forcing companies to lower prices even more ... lather, rinse, repeat.

This is how depressions can get started. (Emphasis on CAN; this isn't exactly 1929.)

[AntiGuv]

To be sure, depreciation followed by deflation would be the likely consequence taking into account the scenario described above and the current economic milieu in general. I'm definitely not suggesting that deflation inherently follows currency devaluation (that would be an absurd statement) but that it has done so and can do so under particular circumstances.

[Beck_isright]

"So if the dollar deflates, what does that mean to the purchasing power of the dollar? difference with inflation is?"

It means get out of personal debt immediately. Deflation is devasting to debtors.