Sunday, April 18, 2010

Deflation - Devaluation

A simple analogy of the choice between deflation and devaluation might be that of the man who has put on weight and is having a hard time fitting into his clothes. He can either choose to lose the weight—that is, deflate—or alternatively accept that his larger waistline is now irreversible and have his clothes altered—that is, devalue. The burden of deflation falls on workers, businesses, and borrowers, and devaluation on savers.

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