Here are Mr. Bullard's major conclusions:
...moderate deflation need not be viewed in the negative light in which it is often portrayed. The U.S. economy has experience with sustained deflation, and that experience suggests that the real economy can flourish against a backdrop of declining prices.
The U.S. experience with sustained deflation stretches over a quarter century in the post-Civil War era, from 1875 to 1900. During this period, the United States became an industrial giant and a world power. While recessions did occur periodically, the real economy performed well, on average. Part of the policy mix that helped produce this outcome was a gold standard, which constrained the growth of the U.S. money supply and led to a long period of declines in the U.S. price level. Thus, the qualitative story is that the last quarter of the 19th century can be characterized by relatively strong growth in real output coupled with deflation.
...the evidence from the late 19th century suggests that we should be careful about assuming that deflation per se has serious detrimental effects on the real economy. Instead, the evidence seems to suggest that strong economic performance and mild deflation are wholly compatible.I fully expect the Ministry of Truth to redact this unauthorized paper by Mr. Bullard or change it to agree with the current party line of deflation bad, inflation good, gold standard bad, and money printing good. After all, Mr.Bullard has dramatically changed his views regarding inflation and deflation as is now the most vocal advocate of money printing. He was out today arguing that the Fed must vigorously defend its inflation target and prevent deflation. Why the change by Mr. Bullard? It is almost like Mr. Bullard was put through a Soviet style brainwashing program before becoming a Fed President to "correct" his thought crimes. It sure seems to have worked.
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