Comment: Dr. NO, In the above reponse

(See in situ)

In reply to comment: "Deflation is not vicious and (see in situ)

Dr. NO, In the above reponse

Dr. NO,
In the above reponse from you ...

In the 1st section - you explain why a gold-standard with fixed exchange rate will result in deflation. I agree with you on that. But then you abruptly jump to conclude that gold-standard is bad since it leads to a deflationary spiral or competing currencies will allow for inflationary practices thus preventing deflation. I absolutely do not agree to that and you haven't explained in your 1st section why deflation will necessarily lead to a deflationary spiral. It is your assumption in this argument and continues to be at this point.

In the 2nd section - you say -
"I would point out the great depression, the early 1820s, the Great Deflation of the 1870s, and the panic of 1837. Outside of the US we have Japan in modern times...and the key issue in the cases of deflation in America, was that the government did things to prevent a spiraling, because they controlled the currency."
This feels like a perfect regurgitation of main-stream economic claims. The deflationary spiral was not the cause of the 1929 great depression nor the cause for the 19th century depressions.
1929 Great Depression was caused by inflationary monetary policy of the Fed. When the actual depression is in progress, you will of course see many mis-allocated investments/industries shutdown thus following a deflationary model. But during this depression stage, there would be other industries which have real demand and will continue to attract the real capital and would see growth. The reason the depression was dragged out was because of the stop-gaps and bailouts that the Govt. did back then. For further information and an Austrian analysis on The Great Depression, it doesn't get much better than Rothbard's analysis -
1870-1890s deflation is a myth - productivity (efficiency improvements) in US was the highest at this time, job growth rate was astounding even with increased immigration. Ofcourse the keynesians and mainstream economists want to call it the great deflation just because prices fell and financial instruments such as bonds and stocks were less powerful at that time due to falling prices.
1837 great contraction - Again this deflation was necessary as a counter-action against the inflationary central bank policy. After Andrew Jackson abolished the second central bank of America and gold and silver were deemed real money, asset prices (especially land) fell drastically and this was called deflation. Infact America's GDP grew by 16% in 1839-1843 :P
Deflation in Japan - Japan has been experiencing very mild y-o-y fall in prices. The mainstream media and economists have blown this out of proportion calling it 'the lost decade' of Japan. The peak deflation rate in Japan was about 2% (for a single y-o-y measurement). Would anybody post-pone the purchase of a $20K car by 365 days just because they might get it at $19.6K. Or how many people are ready to post-pone bread consumption by 365 days so that prices can fall from a dollar to 96 cents. At most times deflation was less than 0.5% and so the theory of consumer hoarding money is crazy. Deflation is demonized unnecessarily. Fall in prices are usually due to efficiency improvements. If fall in prices are also accompanied by fall in productivity, then it is probably a much needed correction in an industry that didn't have any real demand but were just riding the inflationary boom.

In section 3 you say -
"(With respect to Electronic goods industry) Right, because the price dropped while wages rose. That is the key difference. When the price drops because the money supply can't grow to match real production, costs aren't going down because of improvements in production, they are going down because demand is going down. If demand goes down, production will follow."
You didn't read that right. I clearly said that the demand went up due to falling prices (which were actually due to efficiency improvements). Deflation is not mere falling prices nor just falling wages nor both in just a particular industry.

In the last sections, you say -
"On the other side, the fiat-based currency and high credit-creation we've had now has led to the greatest economic boom ever. Literally. The standard of living, purchasing power, real wealth, real assets, etc."
At what cost I ask? I am not an American, just a libertarian. You guys have simply exported your inflation to other countries via the petro-dollar scheme. All expansionary credit policies will cause inflation. Just because US is the international bully, you were able to offload the inflation to many other countries including mine, India. The standard of living in US is a mirage. Remove the petro-dollar from the equation, the US infrastructure will be in shambles the next morning and people will not know how to collect water or forage food.

I summary you seem to take the deflationary spiral lies as facts and are not asking the critical questions. Human Action is not predictable and to think so is keynesian arrogance. Read this excellent article on deflation where all the critical questions are asked and it is clearly established that deflation is a natural part of the economy and is actually very beneficial. It is painful only in those cases, where it acts as a counter-force to inflationary bubbles.