Federal Reserve

The irrational fear of deflation.

"The person who epitomizes this fear of deflation best is Ben Bernanke, chairman of the Federal Reserve. His interpretation of the Great Depression has greatly biased his view against deflation. It is true that the Great Depression and deflation went hand in hand in some countries; but, we must be careful to distinguish between association and causation, and to correctly assess the direction of causation. A recent study by Atkeson and Kehoe spanning a period of 180 years for 17 countres found no relationship between deflation and depressions. The study actually found a greater number of episodes of depression with inflation than with deflation. Over this period, 65 out of 73 deflation episodes had no depression, and 21 out of 29 depressions had no deflation. "

But we did see deflation in 2008 and a lot of jobs disappeared at the same time, and that makes it easy to stoke deflation fears.

"I am sure that the economists at the Fed are surprised that we did not react to lower interest rates as we did after the dot com bubble of 2001. Human actions simply cannot be modeled as you would the reactions of lab rats in a biology experiment. "

This is a funny point. The Fed lowers interest rates to combat deflation. According to Fed logic, nobody will buy a loan while interest rates are falling, so their actions contradict their claims.

"Central bank power depends on the ability to generate inflation.
This is why central banks have been so generous supporting economic research in so many academic institutions that serve to theoretically justify the central bank’s current inflationary policies. The common fallacy of “a little inflation being good” has been expounded by the media and economists for a reason. Inflation is theft as you sleep, since it robs the value of the dollars in your wallet. Two-percent inflation over 35 years reduces the value of money in your pocket by 50 percent. If anything, evil has a new face; it is called a central bank."

When you print money, you can buy off academics to say that your printing of money, but not mine, is a good thing. Another term for deflation is improved standard of living.