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Non-Tech : Deflation
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To: ahhaha who wrote (155)11/19/2002 1:43:11 AM
From: JF Quinnelly  Read Replies (1) of 621
 
When economists talk about deflation they mean a slowing in the rate of inflation. They never mean a decline in the general price level. That isn't possible and the ability to preclude it creates all the problems.


"Disinflation" is a slowing of the rate of inflation.

"Deflation" is indeed a decline in the general price level, such as what the United States experienced during the 1930s. A significant factor was a 30% drop in the money supply as banks collapsed. Money became extremely scarce, and prices fell accordingly. It's a rare downward spiral possible with fractional reserve banking, when credit money vanishes and only the monetary base remains. You can read all about it in Friedman and Schwarz's A Monetary History of the United States
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