News

Asset Price Deflation Vs. Consumer Price Deflation

But is that a problem?

In a Dec. 14 FXStreet article titled "Oh No! Deflation Worsens in Switzerland," the writer pokes fun at the idea that consumer price deflation is bad. But, he says asset price deflation is a different matter.

Here's an excerpt:
Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.
I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.
My article Deflation Bonanza! (And the Fool's Mission to Stop It) has a good synopsis.
And my Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit" has gone unanswered.
There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.
The BIS did a study and found routine deflation was not any problem at all.
"Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive," stated the BIS study.
It's asset bubble deflation that is damaging.
And in central banks' seriously misguided attempts to fight routine consumer price deflation, central bankers create very destructive asset bubbles that eventually collapse.
When those bubbles burst, and they will, it will trigger debt deflation, which is what central banks ought to fear.

You can read the entire article by following the link below:

https://www.fxstreet.com/analysis/oh-no-deflation-worsens-in-switzerland-201612140847