ABC News: Dissecting Deflation (2008-12-17)
Also, central banks tend to feel much more comfortable fighting inflation as opposed to fighting deflation. Inflation can be choked off, the theory goes, because the money supply can always be reigned in. (The timing of such measures, of course, is the tricky part.)
Deflation, on the other hand, is nastier. Once the mindset of "Don't buy today; prices will be lower next week" sets in, the velocity of money grinds to a halt, and it's uber-difficult to reverse. Sure, a central bank can force piles of money and credit into the system. But making certain that the liquidity gets loaned out (by nervous banks) or spent (by debt-burdened consumers) is a task not yet perfected by any central-banking entity in any era. Recent news gives numerous examples of just this quandary.
This vicious circle of "delayed buying" is just one reason why the Fed has vowed to throw all its force behind battling deflation. The fact that debt (our economy's lifeblood, sadly enough) becomes more and more burdensome in a deflationary environment is another.
For more info on economic topics like this, I highly recommend Naked Economics, by Charles Wheelan. It's a really fantastic read for up-and-coming Money Dorks!
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