[John Kilduff]

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So deflation is bad for those in debt. It also must be conversely good in the same sense sense for those who are debt-free and holding money. Is debt a thing to be encouraged? Generally speaking I would think probably not. Rather, savings and investment are the basis of future prosperity, so if anything should be encouraged I would think that those things should be encouraged rather than debt.

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You'd certainly get your wish in a deflationary economy, because one of the first and surest outcomes of a prolonged period of deflation is that the entire lending cycle would completely collapse. Forget the wave of both personal and business bankruptcies crashing into everyone above the consumer on the food chain and let's just focus on the basic economics. If the future value of money becomes *greater* than the present value of money, why would you ever make a loan - especially at a low interest rate - when you could hang onto the cash instead? Even if you were willing to make that loan, what kind of sucker would it take to accept it?

The real issue with your statement is that

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Is debt a thing to be encouraged? Generally speaking I would think probably not.

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this simply isn't true. Properly leveraged debt in an economy with free lending is an asset, not a liability, and results in far greater economic growth than the same amount of money sitting in a mattress. Further, what do you think 'investment' means, other than some individuals lending money to others in exchange for some kind of asset? And why would you assume that a deflationary economy would encourage investment?

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Thanks for your response.

You seem to be explaining why a prolonged and strong deflationary trend would be bad. OK, I accept that would probably be the case. And debt isn't necessarily bad in an absolute sense but rather can sometimes depending on conditions be beneficial. Generally speaking though, having hard assets > being in debt. Investment > being in debt; it's generally better to be the one lending or investing than the one borrowing. At the very least, it's better to be in a position where you have enough assets to be able to lend or invest. And you can't invest as much as long as you are in debt (same with countries: how much of the U.S. GDP now goes entirely to service the debt? And I think that debt service percentage keeps growing...)

Prolonged and extreme inflation is bad also. What I don't understand is why mild or temporary deflation is so terrible. If mild inflation isn't so bad then why is mild deflation so bad?

edit: or how about neither inflation nor deflation; my guess would be that that would be better than either.