| The most important one we talked about is the differential
effects that unanticipated inflation or deflation has on debtors and creditors.
If prices rise, then debtors have to give up fewer goods in order to repay
any given dollar debt. Inflation thus makes debtors richer in real terms,
and creditors poorer. Price deflation has the opposite effect |
| The 1896 Presidential election in the US was much conerned
with the effect that price deflation was having on farmers and the working
class, who tended to be debtors. Democrats wanted to see some inflation
to ease the debt burden, and this meant that they wanted to
get the US off the gold standard it was then on. |
| Japan has suffered a period of moderate deflation since
1999. The consequence of this was to raise the real burden of debts owed
by businesses. 2001-2 has consequently seen a big rise in bankruptcies,
to the highest levels since 1984. |