dlaw

7 Key Points About Deflation

Carey_Jim, I think you'll find that deflation is so rare that it is actually correct to "conflate" deflation and depression - particularly if you are getting deflation at a time when the government is expanding the monetary base as fast as it possibly can.

The theory of differential accumulation suggests that growth does tend to be associated with low inflation and stagnation with higher inflation and the currency-corrected, international data more-or-less bear this out. Inflation is essentially constant in a fiat-money world, which is fine. The money economy should anticipate the real economy and the real economy generally grows. So deceleration in inflation is the equivalent of the mild or normal "deflation" and most often this comes when the real economy is starting to outpace the money economy.

However, real, noticeable deflation is, I think, what you would call "hyperdeflation". And hyperdeflation is bad because it is a self-propagating dynamic. Essentially, the price system starts to misprice the economy so consistently that it brings the economy down with it.