TinyTim

7 Key Points About Deflation

great points. very, very good.

deflation is not likely in a fractional reserve, fiat money system. The Fed is currently demonstrating why with massive printing of money and a low funds rate. Maybe for a few months till the stimulus catches up, more likely (as said) a slowing of inflation.

deflation is scary because the system is highly leveraged with fractional reserve and derivatives. reduction in asset values is the main weakness. interesting comment on withholding spending in a deflationary environment; the flip side from 1979 is buy it now before the price goes up again.

I've heard one possibility that an alternate system may grow side by side with the current one and gradually phase it out without the turmoil. e.g. private electronic money / plastic backed by hard assets.

I'm not worried about nuclear war. spent too much time under my desk with my head between my knees waiting.

What worries me is 1) the Fed knowing when to stop to avoid high (maybe hyper) inflation 2) devaluation of the dollar and / or loss of defacto reserve currency status (this lets the US get away with a lot of fiscal irresponsibility) 3) some country wanting to redeem their treasury notes for assets.