There is such a thing as good deflation and, in mirroring late nineteenth century America, the experience of Japan is the authentic modern manifestation of the phenomenon.
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Deflation is actually a good thing, because in a deflation prices drop and money becomes more valuable, so deflation encourages people to save money.
The good news is that deflation may not be as serious as official figures suggest.
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All these sources of deflation are good for economies, not bad.
However, a blanket praise of deflation as a good thing and ridicule of those who worry about it is not benign.
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Deflation is generally a very good thing.
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But will the Fed's tactics of fighting deflation (which is intrinsically a good thing for creditors) through monetary inflation ignite a virulent new strain of inflation (which kills bond returns and drives down their prices)?
David Roche's analysis of deflationary pressure on world markets brought about by China's seemingly endless pool of cheap manufacturing labor is a good one (" Tributary to the river of deflation, " Sept. 16).
This risk-averse habit is a legacy of the post-bubble deflation years, when the zero nominal return on cash looked pretty good compared with the alternatives.
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Keep in mind that a little inflation is good for the economy since, in theory, it helps keep consumers buying, while deflation tends to have them put off buying, waiting for lower prices in the future.
Here again in 2011-2012, the crisis proved good for gold at first, but the whole move has been unwound as global credit deflation sucked the air out of gold futures and options, and wipe-out losses in other assets forced even true believers to quit their positions.
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But deflation that comes from a lack of pricing power and lower final demand is not good.
Since price deflation is a greater threat to profits than stable or rising inflation, in theory this should also be good for equities.
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