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To: Snowshoe who wrote (55292)	11/1/2004 5:39:31 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 74559

As I pointed out in a previous post, deflation fools many. Message 20712737 This post is excerpted below with some improved English A. ) If prices decline by 30%, those with cash benefit. B. ) But, absent the massive monetary creation to pay for bank defaults, prices would have declined by 55% and they would have benefited more. --> So the value of their money is lost, even if they find it easy and convenient to hide this from themselves. This may mean little to those of a Wall Street persuation who live in the world of a "relative return". But as many invetors have discovered, you can't dine on a "relative return", only on "actual returns". * * * * * * * * * * * * * * * * * * * * * * * So the secret is, absent the large money creation the typical Consumer Price Index might show a 4% annual decline. But with the inflation of the money supply, the CPI instead shows an inflation rate of 2%. Because the public mistakenly assumes the base is 0% rather than -4%, they believe this indicates a low inflation rate and relatively stable pricing. This might seem serendipitous, at least from the Fed's standpoint as their true purpose is to protect the banks. If the value of assets decline by say 50% over a period of time, well protected loans quickly become loans with insufficient collateral. So as I said it seems propitious on some level. However, my Granddad's cousin, Charles Rist, who was the Governor of the Bank of France during the 1930s made this comment in a book published in 1955. "A policy aimed at monetary stability will secure a relative stability of prices, but the economic history of the 1920s teaches us that a policy whose goal is stabilization of prices may result in inflation of money and credit, and very unsound speculation." His book was recently translated again into English for those interested. "History of Monetary and Credit Theory from John Law to the Present Day" amazon.fr As Rist suggested, monetary inflation during a period of deflation stabilizes prices at the cost of creating a series of financial bubbles, one after another: the stock market; the bond market, the real estate market, etc.