Deflationary Leveling

There's something happening here
What it is ain't exactly clear
--Buffalo Springfield

Toddo reflects on the spectre of deflation using excerpts from sone of his past seminal posts. Todd's posts are always insightful, but his thoughts on deflation (and those of Mr Practical) have been among the 'Ville's strongest contributions to the development of my personal thought process over the past few yrs.

One point excerpted from an early 2008 missive is that deflation is a leveling phenomenon. Deflationary declines in prices increase the purchasing power of those at the bottom of the economic pyramid while vaporizing wealth of those near the top (the rich are overweight financial securities that will get hammered in a broad deflation).

Perversely, broad swaths of the populous have been brainwashed into believing the opposite--that deflation is a bogey that must be avoided at all costs--even if it means borrowing and printing ever more money to do so. Yet, it is precisely this inflation that has been increasing the divide between rich and poor. The poor have trouble making ends meet because their dollars buy less. The rich get richer because money pumping jacks the value of their financial assets higher.

Capitalism is not increasing this divide. Forceful intervention that props up bad decisions at the expense of prudent ones is the culprit.
If people thought more clearly about what is going on here, then my sense is that we would welcome deflationary forces that want to bring the economic system into natural balance. We would be starting down the road to real recovery.