by Julian Phillips:
"... Deflation is now the global fear, far more so in the developed world than in the emerging world. But the deflation we are talking about is not simply an economic slowdown. Today’s deflation is a decay of trust, of confidence and consequently, hope. Deflation breeds prudence, caution, discouragement, which attacks growth. Banks slow down their lending, delay the processing of loan requests, take only very secured collateral for their loans. Individuals save in the hope that they can manage those rainy days they see coming.
"As the current type of deflation persists, it accelerates slowly but surely. Central banks [particularly Mr. Bernanke] are aware of this and try to simply promote an expansion of money that replaces lost asset values and no more. It is critical that no more than has been lost to asset/debt deflation, be added.
"There is a point where adding too much by way of newly issued money, that it is inflationary, cheapening the price and value of currency itself. This inflation is a very different animal to the one the public perceives it to be. As deflation rises, so there is a point where inflation takes off and becomes much more difficult to control. In fact, that point becomes ever more mercurial as deflations spreads and confidence continues to sag, as it continues to do in the States and in Europe right now. It is probably a misnomer to call it inflation because it is a cheapening of the value of money. ..."