Kevin Duffy on the benefit to American consumers from trade with China

American consumers were standout winners in the pre-Trump 2.0 U.S.-China trade relationship.  Last year, the U.S. got 78% of its imported smartphones from China, 65% of its TVs and 76% of its toys.  As the chart below shows, these categories experienced massive deflation since 2000 at the same time the Consumer Price Index rose 81%. (Unfortunately, we can’t yet import pre-fab homes from China!)  More money in consumers’ pockets translates to more consumption, more investment and more jobs.

~ Kevin Duffy, "Mercantilism in America," The Coffee Can Portfolio, May 6, 2025

Jim Grant on the risk of monetary deflation

Von Mises said that deflation can never undo the harm that inflation causes, and he warned central bankers against imitating the motorist who, after running over a pedestrian, stops his car, throws it into reverse and backs it up over the same hapless victim.  Whether Jay Powell has the stomach for that second sickening bump remains to be seen.

~ Jim Grant, "The CDC at Jackson Hole," Grant's Interest Rate Observer, September 2, 2022

Kevin Duffy on the role of deflation

Deflation is the market’s instinctive response to a particularly insidious strain of monetary inflation: one that leads to asset bubbles.  The artificial boom is seductive, pulling in the retail investor at the end.  As the bust does its all-important work of rediscovering prices, redirecting scarce capital to its best uses, and restoring economic health, hopefully some lessons will be learned.  Chief among them: the great stimulus experiments of 2008 and 2020 caused this train wreck.  The interventionists have done enough damage.  It is high-time they are swept into the dustbin of history.  Vive le laissez-faire!

~ Kevin Duffy, "Breaking Point: The interventionists lose control," The Coffee Can Portfolio, p. 9, June 15, 2022

Irving Fisher on main causes of boom and bust: over-indebtedness and deflation

19. I venture the opinion, subject to future evidence, that, in the great booms and depressions, each of the above-named factors has played a subordinate role as compared with two dominant factors, namely over-indebtedness to start with and deflation following soon after; also that where any of the other factors do become conspicuous, they are often merely effects or symptoms of these two. In short, the big bad actors are debt disturbances and price level disturbances.

While quite ready to change my opinion, I have, at present, a strong conviction that these two economic maladies, the debt disease and the price-level disease (or dollar disease), are, in the great booms and depressions, more important causes than all others put together.

Irving Fisher on debt, deflation and the business cycle

29. When over-indebtedness stands alone, that is, does not lead to a fall of prices, in other words, when its tendency to do so is counteracted by inflationary forces (whether by accident or design), the resulting "cycle" will be far milder and far more regular.

30. Likewise, when a deflation occurs from other than debt causes and without any great volume of debt, the resulting evils are much less. It is the combination of both—the debt disease coming first, then precipitating the dollar disease—which works the greatest havoc.

~ Irving Fisher, "The Debt-Deflation Theory of Great Depressions," September 1933

Jim Cramer on deflationary oil prices

Don't forget: declining oil is deliciously deflationary, something that will keep Ben Bernanke's inflation-fears in check and allow interest rates to stay low for longer periods.

~Jim Cramer, "Curb Your Enthusiasm?", Mad Money, May 13th, 2010

Thomas Piketty on insane Greek sovereign debt interest rates

Austerity can be justified, but 8 percent interest rates on a debt that amounts to more than 100 percent of gross domestic product is just crazy. They will have to restore their public finances and then pay back this huge debt at the same time — and Greek debt amounts to so little when you compare it to what was needed to bail out the banks [last year]. Not only is this not going to help growth, it’s going to end very badly, politically speaking. Taxpayers cannot accept this in the long run.

~Thomas Piketty, professor and founder, Paris School of Economics, as quoted in "Deflation Could Stall Efforts to Revive Greece in Debt Crisis", NYT.com, May 2nd, 2010

French economics professor on virtue damning debt-burdened Greece

How can Greece grow out of its debt if there is deflation? Deflation increases the debt burden, so we are following this virtuous circle that is bringing us toward hell. Economics has nothing to do with virtue, which can kill an economy.

~Jean-Paul Fitoussi, professor of economics, Institut d’Études Politiques, Paris, France as quoted in "Deflation Could Stall Efforts To Revive Greece in Debt Crisis", NYT.com, May 2nd, 2010

Peter Schiff on the inflation vs. deflation debate (2007)

Among those rational enough to perceive the looming economic downturn, a heated debate has arisen that centers on whether the slowdown will be accompanied by inflation or deflation.

Those in the deflation camp believe that money supply will collapse as a natural consequence of the implosion of the biggest credit bubble in U.S. history. As loans go bad, assets, which collateralize these loans, will be sold at fire sale prices to satisfy creditors. It is also argued that a recession will reduce consumer discretionary spending, causing retailers to slash prices to move their bloated inventories. This is the way the situation played out in the 1930's and this is how many expect it to happen today.

However there are several key differences between then and now, which argue against the classic deflationary scenario. In particular, the Fed's ability to pump liquidity into the market in the 1930's was limited by the gold backing requirements on U.S. currency. No such limitations exist today. This distinction is critical. When credit was destroyed after the Crash of 1929, the Fed was not able to simply replace it out of thin air. Today however, the Fed will likely print as much money as necessary to prevent nominal prices from collapsing. In fact, in the infamous speech that spawned his "helicopter" sobriquet, Ben Bernanke explained how the printing press can be used to stop deflation dead in its tracks.

~ Peter Schiff, "Not Your Father's Deflation," Safe Haven, December 21, 2007

Nassim Taleb on deflation and Henry Paulson

I know that we're going to have massive deflation. The overhang of debt, massive deflation. Debt needs to be reduced. And [Henry] Paulson seems to be doing a good job. Particularly that they were part of the cause of what happened. It's quite commendable.

~ Nassim Taleb, "A conversation about economics with Nassim Taleb," Charlie Rose, December 3, 2008

Hiromasa Nakamura on deflation

Deflation, rather than supply, sent yields down in Japan. The same situation will occur in the U.S.

~ Hiromasa Nakamura, a senior investor in Tokyo at Mitsubishi UFJ Trust & Banking Corp., "Obama Bonds to Give Buyers Taste of Japan Lost Decade," Bloomberg.com, December 8, 2008, by Wes Goodman

Wan-Chong Kung on deflation

Deflation fear is alive and well. The constant parallels being drawn to the Depression era as well as to the Japanese experience leads to the feeling we’re looking at a pretty gloomy period for a long time.

~ Wan-Chong Kung, who helps oversee $76 billion in fixed income as a money manager at FAF Advisors Inc. in Minneapolis, the asset-management arm of U.S. Bancorp, "Obama Bonds to Give Buyers Taste of Japan Lost Decade," Bloomberg.com, December 8, 2008, by Wes Goodman

Lew Rockwell on the limits of credit expansion

Will more monetary injections work to puff up the economy? They might, but only temporarily. There comes a point at which no matter how much the Fed floods the markets with credit, it can still find no takers. It's happened before: in 1930 and following, for example. The Fed tried desperately to inflate but to no avail. It could happen again.

~ Lew Rockwell, "The Fallacy of Money Mania," LewRockwell.com, November 30, 2007

Ben Bernanke on avoiding deflation at all costs

The Congress has given the Fed the responsibility of preserving price stability (among other objectives), which most definitely implies avoiding deflation as well as inflation. I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief.

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.

~ Ben Bernanke, Federal Reserve governor, from a speech before the National Economists Club, Washington, D.C., November 21, 2002