What does this sound like to you?

"Throughout the 1990s, while the U.S. markets were soaring in an ever-hotter speculative boom, Japan was undergoing a painful depression that helped clean out its excesses, especially bad debts." -Martin Weiss, Money and Markets Newsletter, Jan. 20, 2006.

Classic ATBC (this article isn't about that particularly, but this is a nice summary of the theory in light of events we all remember).

In the aftermath both of the 2001 recession and the September 11 attacks, it was all too clear that many large businesses were overextended, having predicted a much more rosy future than what actually came to pass. Furthermore, the previous business boom had followed the classic pattern as explained by the Austrian Theory of the Business Cycle (ATBC), with the Federal Reserve System aggressively pumping up bank reserves, something that ultimately led to speculative bubbles, malinvestments, and the near-collapse of some business sectors most influenced by this artificial boom. As I pointed out five years ago, the vaunted "New Economy" was little more than the same Fed-induced, boom-fed delusion that ultimately brought us the gloomy economic climate of the 1970s and the disastrous Great Depression of the 1930s.

[Friedman and Schwartz disagree with the latter. As I understand it, Rothbard and the Austrians claim that more things act like money than our governors account for, though they claim to be able to manage the Economy.]

It is not surprising that many firms became highly-leveraged during this boom; indeed, it makes perfect sense for companies to increase their indebtedness during a time of easy money, since it permits them to pay back the debt in the future with cheaper dollars. Those associated with the Austrian School of Economics do not endorse such behavior, and certainly condemn the Fed's inflationary policies, but the response of firms to this situation is quite rational.

But back to the original point: deflation isn't all bad. It's left Japan with a very strong business base from which to face Asia's great economic expansion.

When Bush started flinging money around after 9-11 he propped up a lot of stupid ideas that should have died. A lot did, but not enough.