Comment: Is Falling Money Supply Deflation?

(See in situ)

In reply to comment: Rombach (see in situ)

Is Falling Money Supply Deflation?

NowOrNever - Austrian school economists often say that an increase in the money supply translates into inflation. If this is true what would you call a decrease in the money supply? The fact remains that if you suddenly reduce 40% of the currency reserves in the commercial banking system by forcing the government into an automatic balanced budget, the weakest links in the chain of the payments system are likely to fail, which could create a domino effect. You may not agree with me that such an outcome is likely and would result in a deflationary economic contraction, but do you at least see it as a possible risk? Why risk another relapse into recession when the deficit is already shrinking?

Ed Rombach