The Little Book of the Shrinking Dollar: What You Can Do to Protect Your Money Now

Deflation Is Not a Dirty Word

Deflation is when prices fall. You’ll see it come about frequently when credit or the money supply shrinks.

We declare deflation is not evil. And the central bankers are wrong to hate it. But let’s examine their argument.

Deflation, they say, will cause people to put off spending! They say that if you see prices falling you’ll wait to see them fall further. Hmmm. . . . We find that hard to believe. Computers have only gotten cheaper over the years, but that didn’t mean we waited to equip the office until the iPad got cheaper. We gave iPads to everyone on our staff the year they came out.

In this case, as prices fall, more people can afford the product. And if they need it, they buy it. In an inflationary scenario—where the price of everything is climbing—you don’t buy something when you need it. If you’re scared the price will go up, you’ll risk getting into debt just to beat rising prices.

In hyperinflationary situations, which you’ll explore later, you’ll buy anything because the value of your money is vanishing so rapidly. You’ll buy anything that could be a store of some kind of value, because your money is not. In hyperinflation, prices can double in just a matter of hours. Store clerks can’t even keep up! I bet you’ve heard the story about how a young gentleman in hyperinflationary Vienna orders a cup of coffee. An hour later he gets a second cup, at twice the price. The waitress then told him, well, if you’d wanted a second cup, you shoulda ...