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Wednesday, January 25, 2012

Price deflation is not a macroeconomic problem

Price deflation is not a macroeconomic problem

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LI-PAPER. Immediate effect of price deflation is an adjustment in the asset structure, but no macro-economic disadvantage.
The general deflation fear is unfounded. Price deflation may be the natural consequence of growth and positive, they can realize a real cash formation after an artificial boom and shorten the recession. The most unpleasant is the deflationary credit contraction, which reduces the money supply. However, it is only partially covered in a banking system that money has been created out of nothing is possible. The main effect is an adjustment in the asset structure and not, as assumed in various arguments, a necessary decline in overall production.
The fear of deflation is artificially fed by those who profit from the production of new money, because they get the new money first. Banks and state, and companies that depend on the credit expansion boom fear deflation and profit from the production of money, which they recommend as a remedy for deflation, pay at the expense of other economic agents, the higher prices than they would otherwise have done. By artificially lowering interest rates and the distortion of the production structure, it is the very expansionary monetary policy, which causes the greatest economic disaster and a credit contraction makes it all possible. In a fully covered commodity money standard price deflation is completely harmless and the symptom of strong economic growth or formation of a successful checkout.
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