Does Deflation Have a Good Side?

Conquer the Crash published in 2002 and warned about a devastating economic deflation.

Back then, most economists said deflation was "impossible." The shock of the 2007-2009 financial crisis prompted some economic observers to shift their view of deflation to "unlikely." Now that deflation is a reality in parts of the European Union, pundits are pointing out the "good" side of deflation.

On January 14, The Financial Times said, "Eurozone's slide into deflation need not be a negative thing."

On January 22, a Business Week headline read, "The U.S. Welcomes the Good Kind of Deflation."

Similarly, a January 25 Reuters article is headlined: "Should the euro zone really fear demon deflation?" Here's an excerpt:

If the multi-billion dollar consumer electronics industry can function fine with constantly falling prices, why is deflation in the broader economy such a threat?

Falling prices may really be more a symptom of malaise rather than a cause for further grief.

European Central Bank policymakers have repeatedly warned of the risk of being drawn into a prolonged downward price spiral, a danger that has led them to an unprecedented government bond-buying programme that will pump hundreds of billions of new euros into the sagging euro zone economy.

Inflation turned negative in the currency bloc for the first time in five years in December. But this is not yet the sustained deflation policymakers fear, and even ECB board members accept weaker oil prices should increase spending power -- recognising that falling prices do not necessarily stifle consumer demand.

But, bear in mind, deflation is more than falling prices. Deflation is a period of contraction in the total amount of money plus credit. A debt implosion can bring a depression. That is what the world is facing, not "good deflation."

[You can read the entire Reuters article by following this link:]