Hat tip to “Seeking Alpha” for pointing out this interesting paper by William White of the BIS.

“The historical record provides stark evidence that a preceding period of price stability is not sufficient to avoid serious macroeconomic downturns. Perhaps the most telling example is that of the Great Depression in the United States in the 1930s. The period was characterised by massive and continuing losses in terms of both employment and output, accompanied by a cumulative deflation process and associated financial distress in response to accumulated debt. Indeed, almost one third of US banks failed over the course of the 1930s. The crucial point is that this outturn was not preceded by any noticeable inflation. Indeed, prices were essentially stable for most of the 1920s and were actually showing signs of measured deflation before the decade drew to a close. Rather, the period was characterised by rapid technological innovation, rising productivity, rapid increases in the prices of equity and real estate and strong fixed investment. Behind these developments were ongoing technical innovations in the financial sector, not least the much greater availability of consumer credit.”

Hmm. Notice a pattern here?