Deflation

The Financial Times said that deflation has replaced Saddam Hussein as the U.S.'s most-feared bogeyman and that the Fed is ready to fight it with all the weapons it has. Central banks and governments don't like to admit that deflation, like inflation, is largely a man-made phenomenon over which they have significant control. Václav Klaus touched on this in April, when he suggested that the Czech National Bank might intentionally be bringing on deflation. This risk has passed now, and the "D" word has gotten little space here in recent weeks. Tomorrow, though, is the anniversary of the biggest deflationary event in Czech history, the devastating monetary reform of 1953. Most savings were wiped out, and government debt was defaulted on. It was an extreme example of what a government can do with your money if its politics are no longer sustainable.