Deflation

In economics,deflationis a decrease in the general price level of goods and services.[1] Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). This should not be confused with disinflation, a slow-down in the inflation rate (i.e., when inflation declines to lower levels).

Quotes

• Ziyauddin's sarcasm is incisive. Occasionally his sardonic humour helps him to sum up his ideas in a few words. His remark that in Alauddin's days "a camel could be had for a dang," but wherefrom the dang? "- shows at once how the reforms of Alauddin had made articles cheap and people poor.
  • Ziyauddin Baraniquoted inK.S. Lal,Studies in Medieval Indian History, 1966

• To every outworn shibboleth of19th-century economicshe clung with fanatic tenacity.Economy,Free Trade,Gold- these were the keynotes of hispolitical philosophy,and deflation the path he trod with almost ghoulish enthusiasm.
  • Robert Boothbyin: Robert Rhodes James,Bob Boothby(1991), p. 102; AboutPhilip Snowden, 1st Viscount Snowden

• The big, looming, monetary issue is "quantitative easing":that is, printing money. What happens is that thegovernmentborrows from theBank of England,not from themarkets.It expands the money supply to keep the economy going and also to counter deflation without simultaneously increasinggovernment debt.The attractions are obvious, as are the dangers.TheRobert Mugabeschool of economicsprovides a salutary warning about uncontrolled monetary expansion in generating hyper-inflation. The road toHarareis not as long as we might hope. Monetary easing may prove to be necessary but will have to be managed with great skill and care: Too little easing and the crisis drags on – as inJapan.If there is too much, the authorities face the messy task of mopping-up liquidity by issuing bonds which add to the burden of borrowing or else we lurch back from deflation to inflation. Sointerestrates may soon become yesterday's story.
  • Vince Cable"Confiscating savings from the poor is stupid and cruel".The Independent.8 January 2009.

• See your disappointments as good fortune. One plan's deflation is another'sinflation.
  • Jean CocteauDiary of an Unknown(1988)

• Between August 1921 and August 1929 theDow Jones Industrial indexincreased by a factor of 4.4. Otherprices,however, had not risen so far. Some were already falling. For those fortunate enough not to be fighting it, theFirst World Warhad been a two-fold boon. The temporary diversion of so muchEuropeanproductioninto thebusinessofdestructionhad allowedAsianandAmericanproducers to expand mightily, but they could not wholly compensate for the disruption caused by the war. It was a global seller's market. At the same time, theinflationaryfinancing of the war, asgovernmentsprintedmoneyto pay for their deficits, pushed up worldprices.The spot price ofwheatin theChicagomarket - a reasonably good proxy for traded primarycommodityprices - hit roughly treble its pre-war average in 1917 and again in 1920. The twin stimuli of dearth and currency depreciation ended thereafter, and a global recession in 1920-21 saw steep declines in the prices of primary products andmanufactures.Thereafter, they barely recovered. The price of wheat peaked in February 1925 at 182 cents a bushel (compared with 294 cents in May 1920) and by May 1929 it was down to 102 cents. Similar forces were driving down the world prices of other key commodities likeironandsteel.This deflation was the overture to theGreat Depression.In the 1920s it meantpovertyforfarmers,but easy living for those who received the profits ofindustryandfinance.
  • Niall Ferguson,The War of the World: Twentieth-Century Conflict and the Descent of the West(2006), pp. 191-192

• Globalizationwas exerting a dis-inflationary impact.
  • Alan GreenspanThe Age of Turbulence(2008) Chapter Eleven, "The Nation Challenged", p. 228

• You can't push on a string.
  • John Maynard KeynesAttributed byVarian, Hal R.(June 5,2003)."Dealing with Deflation".The New York Times.Retrieved on 2007-01-11.

• The clear and present danger is, instead, that Europe will turn Japanese: that it will slip inexorably into deflation, that by the time the central bankers finally decide to loosen up it will be too late.
  • Paul Krugman,"The euro: beware of what you wish for",Fortune(1998)

• The declared object of deflation was the restoration of the gold standard at pre-war parity. Its actual effect has been to create unemployment by the restriction of industrial credit. By the lever ofunemploymentit has forced downwagesand has thus facilitated the return to gold through the reduction of prices. An incidental effect has been to transfer purchasing power from theworkers,whose wages have been reduced, to the bondholders, whose interest has remained the same. It has also doubled the real burden ofDebtsince 1920, and was largely responsible for themininglock-out last year, by the reduction in terms of sterling of the money which we receive for coal sold abroad. Deflation, in fact, has been responsible for a sinister catalogue of disasters which can be substantiated in detailed argument that has never yet been rebutted.
  • Oswald MosleyNew Leader(20 September 1927), quoted in Robert Skidelsky,Oswald Mosley(Papermacs, 1981), pp. 152-153.