Thursday, February 5, 2015

Deflation: Is it Really A Bad Thing?

Many supporters of the Central Banks, in many of the industrialized nations, fear deflation. Their rationale, in being against deflation, is that it pushes a downturn in an economy. For them, it also represents that spending is in decline, thus the Central Banks must pump more money into the banking system.

Deflation simply is a decline in prices. Why does this condition require intervention with the Central Bankers? Is a drop in prices a "good" thing?  Why should more money be pumped into the banking system due to a decline in prices?

Consider this example: Currently, the Gas Prices are well below the $3.50/gallon mark, as the price averages around $2.00/gallon. Are consumers excited about the prices being lower than $3.50/ gallon?

The article titled, "The ECB fears Inflation, But You Should Not" explores the folly associated with the fear of deflation.

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