And as good as today's beginning stages of deflation may feel,
especially when filling up at a service station or shopping for
a house, economists warn that there is a high price to pay down
the road and that current monetary policy is only raising that
price. Of course, not all price reductions are created equal. A
price drop that stems primarily from an increase in
technological efficiency is not deflation; it's progress.
Deflation is a fall in prices that stems from a shrinking money
supply, just as inflation is a price hike that stems from an
increase in the supply of money. Deflation ramps up when people
borrow to make a big purchase on the assumption that what they
are buying will be worth more later. But if prices fall, the
loan will have to be repaid in dollars that are worth more than
the dollars they borrowed, making the debt more onerous. As a
result, when people expect falling prices, they become less
willing to spend, and in particular less willing to borrow. And
when that happens, the economy ma