Im no economist but i dont understand how deflation can possibly be a good thing as some of you seem to be arguing? One of the key factors that caused the banking crisis was the implosion of the housing market. I know the US has had it very bad. But here in the UK house prices are only down about 11% from their 08 peaks. In the more desirable locations i.e London, South England we are near all time highs. Everyone I know with cash is piling back into property. Deflation would surely lead to heavy selling in the housing market as people try to release their remaining equity. This will lead to more foreclosures, more bankruptcies more unemployment and crunch x 2?
It depends on your situation. If you're divested from the equities market, do not own a home, and are sitting on a pile of cash from successfuly trading the short side of everything; you are probably hoping and praying deflation kicks in and the floor drops out on the price of everything. That's when you can start buying with your money going much further. However, if you have an overpaid job with a 401k, an over priced home you bought at the top of the bubble deflation will be bad. Your job will be worth half as much or nothing at all, as will your 401k and home.
so from the perspective of the Fed and central banks (which means governments) everywhere, deflation is the WORST possible situation (for all the reasons stated - same debts, lower revenues and collateral values). So they will do whatever they can to re-flate and avoid it. From a CONSUMER point of view, if you have little or no debt, deflation is great as long as your income source remains stable. Its a matter of leverage and debt. If you have no debts or fixed liabilities (whether you are a government or a person or a corp) then you WANT deflation. Your cash will go farther. But of course every government and most corps and individuals are LOADED with debt - ESPECIALLY governments - they are DROWNING in it literally..so to them they want moderate INFLATION...as much as they can get without requiring higher interest rates or seeing widespread lack of confidence in their currency. Also horrible, from a fed or govt point of view, is hyperinflation. So they want to avoid that as a second-worst eventuality. what they TRY to do is walk a tightrope of moderate inflation. Its just not as easy to accomplish depending on the global environment. But that is the goal, and the WORST and 2nd worst outcomes are deflation and hyperinflation (again, from the fed and govt point of view). So therein lies the root causes of fed and govt policy and tactics. Odysseus