[quote=CA renter]
It is so disturbing that Fed officials can only see inflation as the solution to our problems. Has nobody ever considered the fact that *deflation* might actually the the cheaper, more efficient, less-painful (to working people) solution?
[/quote]
Ponder that for a minute.
In a world with 4% interest and 2% inflation, the effective interest rate is 2%.
In a world with 4% interest and 5% deflation (which is fairly modest), the effective interest rate is 9%.
This makes leverage significantly more costly.
Considering that effectively all economic advancement since the 1700’s has been achieved using funds that had leverage as a significant component, deflation would impact economic advancement noticeably.
The same would be true of housing leverage.
In other words, this would do to business what home value deflation did to housing.
If the debts are all toxic and the the things they bought are always going to be way cheaper than the debts, far fewer people will borrow and lots more will start to default on existing loans.
The only people who would benefit would be those who have big savings accounts.
