The problem with deflation is shown if assets lose enough value to cause the banks to go bankrupt. If assets are allowed to deflate enough to break the banks, then everybody that has their money in a banking institution loses their money.

In addition, politicians, bankers, and government cronies lose control over the printing press. No longer will easy money be able to be doled out to special interest groups including connected businesses, entitlement recipients, and government employees. It’s much easier to get money out of a printing press than through taxation or borrowing (which is really future taxation).

At the point before the banks break, the bankers, politicians, and government cronies will have to decide if they will give up their control over the printing press, take the heat for not being able to fund entitlements and government jobs, and allow depositors to lose their bank deposits, or if they print enough money to cause inflation and save the banks. The correct choice is not to increase the rate of printing, but I believe that increasing the rate of printing will be the choice that is made.

Americans are suffering because artificially cheap money is destroying productivity. Mis-pricing money causes resources to flow into unproductive areas, creating malinvestments. Returning to market-priced money will expose the malinvestments and cause short-term pain, but will also cause a boom in productivity because resources will once again be allocated much more efficiently.

Postponing the pain by providing more artificially cheap money only causes more malinvestments and therefore even greater pain in the future. Bankers and politicians enjoy their control over the printing press and do not want to be blamed for the pain, which is why the pain will likely be delayed until so much artificially cheap money is created that the USD becomes worthless.