Deflation is
looked at by economists in different ways. The most appropriate
definition for deflation is ‘a contraction in the supply of money and
credit’. It is not falling prices, although falling prices are a
consequence of deflation.
One should not confuse the two concepts as
prices can decline without deflation. Inflation is the opposite of
deflation, in that it is an expansion in the supply of money and credit.
Clearly we are in a period where falling supply of money and credit
is real and probable.
Inflation is
all most people know as it was part of our lives each year from 1933 to
2008. Many analysts and economists still call for the return of inflation
and potentially hyperinflation. Reality is, the signs are not there for
inflation but deflation appears to be the most likely probability.
There
is a strong historical basis for this belief as well as many economic and
fiscal signs pointing strongly towards it.
Most of the
arguments for inflation are based on the US Federal Reserve and other major
world Central Banks continuing to inject monies into world economies through
quantitative easing programs. So far the amount Central Banks have
injected into the economy is unprecedented.
Read More: The Great Depression
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