In America's Great Depression by Murray Rothbard, the argument is made that the "Roaring 20s" was a time marked by a natural trend of deflation, which was distorted by the intervention of government. Now, deflation is normally a dirty word and most presuppose that the state should step in to help out; but, in that case, it was a function of increased productivity -- in the same way that technological advances now have made the costs of TVs, computers and other similar items more affordable than 10 or 15 years ago (a type of deflation most people, I would argue, don't complain about).
The problem in the twenties, and what led to the bust, was the prolific money printing done by the Fed. Now, the statistics as it relates to CPI-type measures would not bear that out -- again, the natural trend was deflation, so most prices ended up looking flat on a net basis. But, if you look at the money supply, it increased by nearly 62% from 1921 to 1929, a robust 7.7% per year. The logic, of course, was the Fed's mandate to keep prices stable -- and it doesn't hurt that, as an institution, its historical bias has been to prefer inflation to deflation. So, not surprisingly, the easy money that resulted found its way into the economy, caused distortions, and culminated in the contraction.
So, with the Rothbard context in mind, I have been thinking through what we've seen today. I think it's safe to say that most people feel that we are in the midst of a deleveraging cycle, which is deflationary. And, as I've commented before, but for the machinations of activist monetary and fiscal policy, deflation would be the obvious trend. However, even though inflation is not raging per the statistics, CPI is still up about 4% YoY already. And that's without bank reserves really getting unleashed. And without the impact of the Fed's likely next bold step. Circumstances are always different, but I guess my point is that a lack of substantial "inflation", as many pundits like to think about it, does not tell us the real story. And its "absence" certainly does not preclude a bust premised on the foundations of what caused the crashes in 1929 and 2008.
