Or do you consider the current debt binge fuelled "growth" sound?
The point about deflation is that lower consumer good prices at a time of stagnant wages is the only way to compensate workers for that situation. Otherwise they lose on everything, so it's not a totally silly point.
Now the other cosnequences of deflation (the possible vicious circle of waiting, lower growth, and further price drops) may make this idea a bad one, but the argument should not be dismissed without serious consideration. In the long run, we're all dead. John Maynard Keynes
Do price drops imply wage drops as companies seek to remain competitive, particularly since energy costs may rise, whilst Chinese labour costs remain below ours?
Here's a paper on the Japanese deflation of the 90s, from the BIS. It's pretty technical, so I don't know if there are any useful insights there...
http://www.bis.org/publ/work188.pdf In the long run, we're all dead. John Maynard Keynes
I would just like to see central bankers have additional regulatory tools to prick these bubbles other than just raising interest rates.
For example:
One measure for promoting both stability and fairness is a small sales tax on all financial transactions-that is on the sale of all stocks, bonds, derivatives and foreign currencies. . . . The idea behind the financial transaction sales tax-whether it applies to foreign currency transactions or to stocks, bonds, or other instruments-is that it raises the costs of speculative trading and therefore discourages the types of excesses that occurred in the U.S. stock market in the 1990s, since the tax would have to be paid every time a trade takes place. The tax will not discourage investors who intend to hold onto their assets for a longer time period, since, unlike the speculators, they will be trading infrequently. A second type of measure that would be important for promoting both stability and fairness in the financial system is what are called asset-based reserve requirements. These are regulations that require financial institutions to maintain a supply of cash as a reserve fund in proportion to the other, riskier assets they hold in their portfolios. Such requirements can serve both to discourage financial market investors from holding an excessive amount of risky assets, and as a cash cushion for the investors to draw upon when market downturns occur. One example of an asset-based reserve requirement that is already in operation is the so-called margin requirements on stocks purchased with borrowed funds. As we have discussed, Alan Greenspan acknowledged in September 1996 that he could have prevented the speculative market bubble at that time by raising margin requirements. A simple proposal would therefore be for Greenspan or his successors to actually make use of this policy tool as the next incipient bubble begins to form.
A second type of measure that would be important for promoting both stability and fairness in the financial system is what are called asset-based reserve requirements. These are regulations that require financial institutions to maintain a supply of cash as a reserve fund in proportion to the other, riskier assets they hold in their portfolios. Such requirements can serve both to discourage financial market investors from holding an excessive amount of risky assets, and as a cash cushion for the investors to draw upon when market downturns occur. One example of an asset-based reserve requirement that is already in operation is the so-called margin requirements on stocks purchased with borrowed funds. As we have discussed, Alan Greenspan acknowledged in September 1996 that he could have prevented the speculative market bubble at that time by raising margin requirements. A simple proposal would therefore be for Greenspan or his successors to actually make use of this policy tool as the next incipient bubble begins to form.
