The real “threat” (or lack of it…) of deflation

2 mins. to read

By Filipe R. Costa

The Financial Crisis destroyed wealth around the world. The 99% has lost houses, financial assets and jobs, while those lucky 1% have benefitted disproportionately from the stock market’s wild run. Millions of Americans have been pushed through the poverty line, as their income has fallen to such depressing levels. In Southern Europe there are countries with more than 20% of the adult population unemployed and a staggering 50% of the youth also without work.

But all this is not what worries governments and central banks. No, they are far more concerned from the havoc that low inflation would cause. After all imagine the chaos if we lived in a world where the price of your weekly food shop remained the same, you could go to a restaurant and pay what you did the last time you were out, train tickets wouldn’t go up extortionately every January and filling up your car with fuel wouldn’t become more and more expensive!!!!

Yes, what chaos!

So if a lack of inflation isnt so dramatic for day to day life, who would suffer its curse?

Well, the people/organisations/governments that spent too profligately, were financially irresponsible and ran up huge debt burdens. Given that paying these debt burdens long ago became unrealistic, the only way to “pay” them without defaulting is to run up the price of everything else. Inflation helps them.

Governments around the world want you to pay their debts, but they do not want to tax you. After all, taxes are not popular on polling day. Inflation however is the stealth tax of stealth taxes. It takes away your wealth, day in, day out and most people don’t notice until it is too late. It is the great monetary trick of our time. Governments print money with the excuse they are fighting inflation. They manipulate the statistics to make it appear that deflation is the threat, while the cost of living in the real world soars. While society gets poorer, the people responsible for creating this mess get away with it, as there is no crisis to bring them down. Thats what is really dramatic!

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