For unknown reasons, a message on this piece just vanished from my in-box, so I’m going to make a public admission here that for one of the first times ever, someone has read my work, and understood it well enough to offer substantive and valid criticism.
I want to admit, here, that the fourth piece in my five piece argument is by far the weakest. Frankly, it needs some work. It is the only one I don’t feel will necessarily hold up in a strong wind. I write so much I exhaust myself, but I think part of the reason is that my thinking is fuzzy.
Who DOES benefit from deflation? Is it accurate to say banks hate it? I think it would depend on what kind of bank. In the leadup to the Great Depression, the Fed made money easy for banks to get. Beginning in about 1928, it pulled back. Then it kept pulling back even after the Stock Market crash, then it kept pulling back even after unknown persons or nations began making a run on our gold. They said it was to protect the currency, but for all we know it was banks in the system buying up the gold. Nobody tracked that stuff. I don’t think they do even now.
What happened? Banks were faced with an asset portfolio based on loans that were increasing in value steadily, pari pasu with deflation, but which for that exact reason were going into default in record numbers. Those banks that were part of the Federal Reserve System–to be clear, the big banks, by and large–were able to get the on-going capital to stay afloat. Those who weren’t, went out of business. Less banks would seem a desirable goal for would-be “cartelists”.
Thus, all things need to be contextualized. I should add too that I think my differentiation of monetary and price deflation is worth underscoring. Monetary deflation is something that the Fed, the superrich, and banks do. They pull money out and warehouse it. Only those with huge surpluses can afford to simply sit on their cash. People who have hidden it in their mattress need to spend it sooner or later just to survive. By and large only those able to create money can afford to “hoard” it. Inflation and deflation are the evil twins which characterize what the Austrians call the business cycle, and what I term Monetary Mercantilism.
Price deflation, on the other hand, presumes a fixed amount of currency which increases in value as material goods become more widely available as a result of innovation. This type of deflation is seen, as an example, in the steadily increasing amount of computer power you can get for the same money. It should apply, more or less, to everything we buy; although for some things–like food–we may not want only efficiency.
Anyway, if that person sees this, this is my response. It’s the only one I’m able to make, without an email address.