Deflation Is Not On The Menu

Monday, April 19, 2010, 9:21 AM
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Deflation Is Not On The Menu

April 19, 2010

Executive Summary

  • Why creating inflation is our official policy.
  • Deflation would destroy our economy, our financial system, our hopes, and our dreams.
  • For budgets and pensions to be repaired, we badly need a return of economic growth. Or inflation of our asset markets. Or both.
  • The flood of liquidity that we've been tracking is very real and is distorting prices for all financial assets.
  • This 'recovery' is a gift.  Use the time wisely. 

A constant debate rages over whether we will ultimately head down an inflationary path or get sucked into a deflationary whirlpool.  In fact, the most common question I am asked at my public talks is whether the future will consist of inflation or deflation.  So I thought we'd spend a bit more time on the subject here.

While I can't tell you which will happen for certain, I can tell you that the inflationary path is infinitely preferred over deflation by our fiscal and monetary authorities.  Given their druthers, we'd most definitely head down a path of inflation.  While a renewed bout of deflation may be in our future, it is simply not among the acceptable range of policy options.


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