That might produce a result that looked like deflation even though the economy would be stronger and growing.
The main difference is that inflation acts like cancer, while deflation behaves more like a heart attack.
Many are more worried about deflation, like what has crushed the Japanese economy since its stock market peaked in 1989.
Once it gets started, trying to stop deflation is a lot like trying to halt a boulder bounding down a mountain.
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But we also saw deflation in prices, like the downturn of the 1930s and unlike the inflationary downturn of the 1970s.
Given all of the factors that contribute to inflation in the short run, this correlation is truly remarkable, but there are near-term deviations in times like this when central banks are fighting deflation trends actively or due to economic swings, currency changes, spikes in oil prices, or other factors.
"Deflation is much harder to deal with than inflation, and it seems like Bernanke has understood this, " he explained.
Deflation is a prolonged drop in wages, prices and the value of assets like stocks and houses.
Germany's low inflation rate, its limited room to ease monetary or fiscal policy and the problems in its banking system look horribly like the early symptoms seen in Japan in the mid-1990s before it sank into deflation.
Higher oil prices operate like a tax that depresses growth, so their medium-term impact would be to heighten the deflation risk.
While not a gang buster rate of monetary inflation, certainly nothing like we are seeing in the US, it is notable in that the Euro money supply was flirting with monetary deflation mid-2011.
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