> We haven't had a serious bout with deflation in 80 years so people have grown overly biased against cash.
Coincidentally we're not tying the money supply to stuff we dig out of the ground, growing the money supply is now only as difficult as turning on the printing press. Unless that changes, I don't see how deflation is a serious threat anymore.
Debt based currencies deflate when a lot of debts go bad. When somebody declares bankruptcy and debt goes bad, that's money going "poof" and disappearing from the banking system, with knock-on effects. That's what happened in the 30s and nearly happened in 08. Whether or not the gold convertibility window is open doesn't much figure into it. If the US government were to partially default on its debts, or a lot of banking sector debt were to go bad, the value of US dollar cash would sky rocket as people scrambled to deleverage. This happened in 08. This happened in Japan in the 90s.
If a private debtor defaults and declares bankruptcy, then the money supply contracts and you get deflationary pressure. I'm curious, though, why you believe the US would see deflation if it were to default?
The Eurozone countries tended to deflate, but there are plenty of examples of countries that went the other way -- Germany, Argentina, Mexico...
I don't think the US will default any time soon, but if we were to get near that point, we would inflate our way out.
Coincidentally we're not tying the money supply to stuff we dig out of the ground, growing the money supply is now only as difficult as turning on the printing press. Unless that changes, I don't see how deflation is a serious threat anymore.