[Editorial of the year candidate] Deflation theory is lemon we have been sold – (Bloomberg) Thank you, Matthew Lynn.

“Deflation may be bad for particular interest groups, which happen to be very powerful. It is bad for chief executives. It is easier to keep your profits rising in a mildly inflationary environment. You can just jack up your prices a bit, and you can often cut workers’ wages by stealth by holding wages steady.”

The banking industry, which has come to rely on inflation to make highly leveraged loans sustainable, also dislikes deflation. Likewise, it is bad for governments, which use inflation to reduce the value of their debts.

Will It All Come Tumbling Down? – (Karl Denninger) “This much we know for certain – you’re being screwed – systematically – to cover the sins of these banksters who made loans to people who they had no reason to believe could pay:”

Tim Geithner will Answer Diggers’ Questions – This should be good. One the questions that TTT will have to answer, “Are you, yourself, troubled by the massive amount of government spending? What do you think will happen to the dollar over the next 10 years?”

China reduces US debt holdings by most in 9 years – (BBC) In June, China cut its holdings of US securities by about $25bn, a fall of 3.1%.

Does deflation really cause depressions? – (Minn Fed, PDF) Or does it fix them? Deflation is a natural market reaction to disastrous policies and past binges. Drinking off a hang-over doesn’t work, either. Well, maybe for a bit…