[tolbiny]

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Deflation rewards savers. If you save your money you will be able to buy more goods and services with it tommorrow. Inflation rewards debtors, so it is no wonder why the US has steadily become the largest debtor nation in history.

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Wouldnt this lead to less spending---> less production ---->less jobs?

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There are many factors working in opposite directions, and while common sense may point to this possibility there are many reasons why it doesn't happen in actuality. Take inflation for example- inflation means that money must be either invested or spent or lose its value, there is risk in simply holding money (ie capital) which in turn makes risky investments appear relatively less risky (when compared to holding dollars), the result of this is many more businesses would be expected to fail under inflationary standards. Anecdotal evidence in the US? generally accepted numbers for small businesses are that 70-90% of them close within 5-10 years, with the majority closing because they are unprofitable (2/3rds is often quoted, no data or links to back that up right now). In the short term thats a lot of jobs, in the long term thats a lot of mis allocated resources. In a deflationary (due to fixed money supply) setting investors are more cautious with their money, fewer businesses will be started, but one would expect those businesses to have far higher success rates, short term growth is slower but with out the corresponding liquidations of unprofitable businesses so available resources are greater. A deflationary scenario can lead to lower overall productivity when measured in total units, but much greater efficiency when measured in actual utility, mush steadier growth and more security for the individual.