[Deuce]

We are in a slightly deflationary period due to increased productivity and cheaper imports. This is the type of deflation that was prevelent for roughly 120 yrs prior to the creation of the Federal Reserve System. There is absolutely nothing wrong with this type of deflation.

We would be in such a situation---if we had an honest monetary system. However, those that can create money from nothing will find such a temptation/privilege too tempting to pass up

[austrianecon]

Oh I agree. Buty here's the thing. Productivity in many industries can offset the increase in money creation by the Fed. Look at computers, semiconductors and many other high-end electronics. How can this happen when during the 90's the Fed was at the press cranking out dollars left and right? It's because the manfacturers are able to produce them much more efficiently and numerously as well.

We also have something called cash-balance deflation occuring. That's when consumers are more prone to maintain high have cash balances relative to income instead of purchasing goods. The Fed can create as many reserves as they want, if no one wants to use the money for purchasing then there is no inflation. It's only when it begins to circulate that money causes inflation. Make sense?