Page 182 - TrumpsEconEra_Flat

Chapter 8: Money - The Seeds of Destruction

Congress approves those cuts within 45 days. Under the
Impoundment Act, a simple majority, 51 votes in the
Senate, of Congressional votes is enough to validate
presidential rescissions.
Productivity gains can solve our problems. Lower
costs will lead to lower prices as businesses compete for
customers. Prices would decrease with productivity
gains along with stable money. However, we could
experience inflation over time when the money supply
increases more than goods and services increase within
our national economy.

DEFLATION

Deflation is a persistent and general decline in
prices. People who gain from deflation are those who
are debt free and pay for most things in cash. Creditors
also benefit because they receive more highly valued
dollars from debtors.
Japan became the first major economy since the
Great Depression to fall into extended deflation.
Deflation continues in Japan despite the fact that
Japan’s central bank has been monetizing vast amounts
of government debt for several years in the hopes of
raising prices. The anemic velocity of money explains
why Japan’s economy remains moribund.
A slow but steady decline in prices is one thing; a
sudden drop in prices is something else. With a gradual
decline in prices, the economy has a chance to adjust,
but when prices fall suddenly, adjustments are painful.

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