RE: If paper money was banned & silver & gold came back, what would happen?
February 28, 2015 at 9:55 pm
(This post was last modified: February 28, 2015 at 11:48 pm by Anomalocaris.)
(February 28, 2015 at 8:10 pm)Jenny A Wrote:(February 28, 2015 at 5:05 pm)H2O Wrote: That would be a great thing, I suppose.
Only if you think the The Great Depression was a good thing. . . That's what it was, a time of deflation or "hard money." Anyone who owed anyone anything would be in deep trouble as the dollars necessary to pay off the debt would cost more than the dollars borrowed. Both home owners and the U.S. government, not to mention small businessmen who rely on operating loans, would be in deep shit.
The loan negotiated with expectation of deflation would have to have negative interest rate to get around that problem.
But the real problem with deflation is it destroys incentive for investment, since you get richer by simply pulling money out of circulation and then sit on it. With enough deflation, no one would invest in anything except immediate necessity and most economic activities would come to a stop.
So for dynamism in an economy with much more than subsistence activity, moderate inflation is not only a good thing, it is a necessary thing.
