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from the should-not-embrace-deflation-either dept.
Currently we can observe a general slowdown in the annual growth rate in price inflation across major countries around the world. [...] Most commentators are of the view that deflation generates expectations for a decline in prices. As a result, it is held, consumers are likely to postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. This weakens the overall flow of spending and in turn weakens the economy. Hence, such commentators believe that policies that counter deflation will also counter the economic slump.
Inflation is not about general increases in prices as such, but about the increase in the money supply. [...] For instance, if the money supply increases by 5% and the quantity of goods increases by 10%, prices will fall by 5%. A fall in prices however, cannot conceal the fact that we have inflation of 5% here because of the increase in money supply. The reason why inflation is bad news is not of increases in prices as such, but because of the damage inflation inflicts to the wealth-formation process.
The economic effect of money that was created out of thin air is the same as that of counterfeit money — it impoverishes wealth generators. The money created out of thin air diverts real wealth towards the holders of new money. [...] So, countering a falling growth momentum of the CPI by means of loose monetary policy (i.e., by creating inflation) is bad news for the process of wealth generation and hence for the economy. [...] Furthermore, if a fall in the growth momentum of prices emerges on the back of the collapse of bubble activities in response to a softer monetary growth, then this should be seen as good news. The less non-productive bubble activities the better it is for the wealth generators and hence for the overall pool of real wealth.
https://mises.org/wire/central-banks-shouldnt-fight-deflation
(Score: 2) by urza9814 on Friday March 29 2019, @11:59AM
Inflation is also governed by supply and demand. They print more money, supply goes up, the value decreases. Granted, increasing the supply of dollars requires a bit less effort, but it's the same general process. And if people are using gold as currency, then it's subject to similar forces and can bubble or crash just as easily. People see the market doing badly, so they buy a bunch of gold thinking that will protect them. Then if the crash doesn't happen, or after it recovers, everyone starts selling. Or if the crash *does* happen, and people need money, they start selling. And the resulting increase in supply leads to a drop in the price. There was a gold bubble in the early 2000s, then between 2012 and 2015 gold prices dropped by more than 40%. In late 2011 prices were up to nearly $1900/oz, by 2016 it was down below $1100/oz, and today it's around $1300/oz. If you bought gold in 2011 thinking it would protect you from inflation, you got screwed. You would have been far better off putting that money in a bank.
Traditional currency has the value moderated by a (sometimes incompetent) central bank; gold has its value moderated by a (sometimes panicky) mob.