In a fiat, fractional reserve system, money = debt. When large amounts of debt are defaulted, the money that had been created by fractional lending gets destroyed too, hence a decrease in the supply and velocity of money, hence 'debt deflation'. I wasn't talking about 'price deflation', though I should have qualified that term both times I used it, not just the second time.
Price deflation is just a symptom of underlying problem/s, not the actual problems. It's the canary in the coal mine, not the gas leak that's about to blow it up. Prices can deflate or inflate for a number of reasons, from supply:demand imbalances (typical business cycle), change in money supply (which changes demand for goods and services relative to supply), or some other structural change in aggregate demand. Price inflation/deflation is only interesting to me in that regard as a vaguely-specified warning light urging further investigation/troubleshooting, but not as the underlying problem.
I agree with Steve Keen's hypothesis that jwhite linked here, Bernanke can print all he wants, and drop interest rates all he wants, but there's a realistic chance that it won't have the effect he intends. Banks won't start issuing new credit until they are confident the economy can support both the old credit (at an acceptable, pre-crisis default rate) and the new credit.
With the government and Fed propping up a significant percentage of our GDP right now, the odds of banks regaining that confidence aren't great.
Price deflation is just a symptom of underlying problem/s, not the actual problems. It's the canary in the coal mine, not the gas leak that's about to blow it up. Prices can deflate or inflate for a number of reasons, from supply:demand imbalances (typical business cycle), change in money supply (which changes demand for goods and services relative to supply), or some other structural change in aggregate demand. Price inflation/deflation is only interesting to me in that regard as a vaguely-specified warning light urging further investigation/troubleshooting, but not as the underlying problem.
I agree with Steve Keen's hypothesis that jwhite linked here, Bernanke can print all he wants, and drop interest rates all he wants, but there's a realistic chance that it won't have the effect he intends. Banks won't start issuing new credit until they are confident the economy can support both the old credit (at an acceptable, pre-crisis default rate) and the new credit.
With the government and Fed propping up a significant percentage of our GDP right now, the odds of banks regaining that confidence aren't great.