Chris B

7 Key Points About Deflation

In times of minor hardship, people often do things that make it a major hardship. Poor people buying lottery tickets is one example, and the most successful economy on earth undoing the reforms of the last 100 years that made it the most successful economy on earth is another example.

If you want to go back to the economy of 1900, please take a hard look at the historical results of hard monetary policy. Stormy seas of inflation and deflation destroyed businesses, over and over again, as the value of both gold and currency violently changed over time as measured by prices of labor and products. Bank crisis after bank crisis and currency crisis after currency crisis destroyed life savings and made saving and earning interest hazardous. Subsistence farming was considered employment. Want a mortgage? Too bad, build your 500 sf cottage by hand. Want to start a business? Hope you already have money. In hard currency times, the US was what we now call a 3rd world country, with living standards worse than during the so-called great depression.

In a free market, the government cannot dictate how much gold should be worth in terms of labor, products, or resources. They have little control over price stability in gold terms. That's why prices and the currency were so unstable during so-called hard money times. Fiat currency allows policymakers to roughly target the economically maximal 2-4% inflation rate and, more importantly, to keep it steady.

The reforms of the early 20th century, produced the strongest, most dynamic economy the world has ever seen, and those policies were copied by other nations that became destined for success. The results of unlinking currency from prices of volatile commodities speak for themselves, as do the results of hard money policies.

If you think the statistical blips we now call recessions have changed the rules of economics, look around you at the economic prosperity you still enjoy and compare it to the sharecroppers of 1900. Their idea of prosperity is your worst case scenario.