Why the Argument for Imminent Inflation Is Flawed

Deflation is often referred to as falling prices, but that is not the correct definition. Falling prices are the effects of deflation. The opposite holds true when discussing inflation. Deflation results when the overall supply of money and credit contracts, which means that there is a lower supply of money -- or better yet, purchasing power -- to go around. Money supply can contract when debtors are unable to repay their debts; hence a bond worth 100 cents on the dollar one day can be worthless the next if the debtor declares bankruptcy. That loss of wealth, or purchasing power,