Opinion: Deflating the Hype About Deflation

In just a few months, the Fed has effectively printed trillions of dollars and the Treasury has spent more than a trillion dollars trying to increase the supply of money. That should demonstrate their seriousness about preventing deflation.

Second, it is in the national interest of the U.S. and the personal interest of most American consumers to create inflation. The U.S. government owes trillions of dollars to foreigners. It has a strong financial incentive to destroy the value of the dollar in order to repay that foreign debt with cheaper currency. Similarly, most Americans are deeply in debt and would benefit from inflation that would effectively reduce that debt burden on their households.

In a social democracy like ours, people support policies and government implements policies that benefit most of the people. In Japan, most people were savers and didn't have much debt relative to Americans.

Japanese corporations and the government have a lot of debt, but it is all owned domestically rather than by foreign creditors. So from a political standpoint, destroying the currency doesn't really benefit Japanese society as a whole.

Third, Japan produces too much and consumes too little, relative to the size of its economy and its stage of development. This is exactly the opposite of the U.S. Here, we produce very little and consume way too much. That has been our economic model, based on borrowing money to spend and speculate, for decades.

An economy oriented toward consumption and away from production like ours is far less likely to fall into a long-term deflationary spiral because there are not likely to be too many goods and services produced relative to demand.