Quote from: sgexpat on May 01, 2013, 09:19:23 AM

Quote from: shadypepe on April 29, 2013, 11:06:22 PM

i think it's not so much about "deflationary spiral" as it is about the simple fact that there is going to be significantly less investment in a deflationary economy. every project would have to have an enormous return on investment in order to be feasible

This is completely wrong. the % return is presumably unaffected by this in Real terms. One can be more sure that projects undertaken are likely the right ones because this 'deflationary' currency is not subject to interest rate manipulations of central planners, which likely result in mal-investment due to incorrect signals (i.e. interest rates that do not reflect individual preferences and are therefore unsustainable).

Thinking about the housing bubble as an example. In the absence of a credit-based flexible money supply would it have played out the way it had? i think the answer is obviously 'no' because 'yes you are right that interest rates probably would have been higher.'

That's different than saying that there would be less investment!! Probably capital would have been invested in more useful activities than building McMansions....

imo, the housing bubble was caused by 1. greenspan being overly generous and keeping interest rates too low for too long following the internet bubble burst 2. lack of regulation and craziness in the mortgage market through the early 2000s. this was in part due to the incorrect credit ratings given to cdos and clos by the ratings agency.