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No Reason to fear Deflation

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'Historically, there is no reason to fear deflation,' Nobel Laureate Thomas Sargent explains to Germany's Wiwo.de, 'we all benefit from lower prices.'

Crucially, he continues, 'countries with declining prices, such as Greece, must improve the competitiveness they have lost in recent years,' requiring falling wages and rising productivity which will lead to companies cutting prices, 'this is not a dangerous deflation, but part of the necessary correction so that these countries are internationally competitive again.' That central banks pursue an inflation rate of around 2%, Sargent says, is because they consider it their job to 'make bad debt good debt,' adding that inflation is 'a major redistribution machine, reducing the real debt burden for the benefit of creditors and devaluing the assets of the creditors.'

A return to a gold standard, he concludes, to prevent governments and central banks from limitless money-printing 'would not be foolish.'

Full article at ZeroHedge.com

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