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The real problem with inflation, properly understood is that it is essentially a wealth transfer away from the most productive parts of the economy. This causes bubbles and economic fragility.
Money and Banks
The size of an entrepreneur's return on his investment is determined not by how much risk he assumes, but rather whether he complies with consumers' wishes.
The fact that central bank policies become ineffective in reviving the economy is not due to the liquidity trap, but because of the decline in the pool of real savings. This decline emerges due to loose monetary and fiscal policies.
Money and BanksMoney and Banking
In a true market — i.e., without a central bank — banks are intermediaries of real savings in their lending activities, thus promoting genuine and real economic growth.
The US dollar continues to enjoy the confidence of markets, governments, and central banks. But faith in the US dollar is weakening, and many are trying to help the process along.
Would it be possible for the boom-bust cycle to emerge in the free market economy where the central bank does not exist and where gold is money?
Attempts at stabilizing the economy distort economic signals and cause economic instability, rather than preventing it.
As the foundation of the economy weakens, bank lending weakens also. And then money begins to disappear from the banking system.