L. David

Isn't Deflation a Good Thing?

Most Americans seem to have lost sight of the fact that the true meaning of inflation is an increase in the money supply.The symptom, of increasing the money supply, ahead of the creation of wealth, is an increase in prices. Common sense tells us that the actual amount of labor (which creates value) to make a loaf of bread hasn't changed much over the years, and yet the price of a loaf of bread has more than doubled in just a few years. This increase in prices occurs not because the value of a given product has increased but because the value of the money has decreased due to an over abundance. Look at it this way, a unit of money (as a medium of exchange) represents a set amount of labor value, that's why a car costs more than a loaf of bread. If the pace of money creation (which represents labor a labor unit) out strips the pace of wealth creation (which is the result of a labor unit) then it's the money unit that suffers the loss of value not the wealth. Once you realize that wealth is constant it becomes obvious that a price increase is the result of too much inflation. It stands to reason that in today's technically advanced economy, the amount of labor, which translates into price, to make a car or a loaf of bread should be going down, not up or at the very least remain the same.

L. David

On Nov 19 08:02 AM investor88 wrote:

> Good article particularly the point about the high cost of debt in
> a deflationary environment. Although interest rates are low, the
> cost of debt is high due to deflation of assets as people and companies
> rush to deleverage.