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  1. The US dollar has lost more than 96% of its purchasing power since the inception of the Federal Reserve Bank in 1913 – how’s that for “store of value”? The British Pound has lost value if measured in US Dollars, so it’s track record is even worse.
    Central Banks try to avoid deflation at any cost. They know that banks would collapse during prolonged periods of deflation, as debt would remain same in nominal terms while assets would fall (resulting in losses for banks). But this is only due to the fact banks use leverage.

    Nobody will claim that price deflation in the technology sector has put the monetary system in danger. I can order a replacement camera for the iPhone for 6 Euros, while a much inferior digital camera in 1997 cost 200 Euros.
    However, one has to admit that salaries are much ‘stickier’ as it is hard to convince employees to accept pay cuts in times of deflation (even if their real income would rise). So while deflation in technology-heavy sectors can be positive I have sympathy for the idea deflation could be dangerous for employment in service-heavy sectors.

    Still, any system with an inflation bias is punishing savers while rewarding indebtedness. If you believe that I = S (investment equals savings), a saver-unfriendly environment could lead to lack of investment in the longer run. Neglected infrastructure and / or slowing rate of innovation would be the consequence, as can be witnessed in the US.

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