In a recent article, I discussed some of the ways the Fed could brew some inflation. The reason for this action is the central banker’s nightmare of deflation. But what does deflation look like, or rather, what is the face of deflation?

Deflation is both a monetary and psychological phenomenon. The monetary part of deflation means there is a reduction of outstanding money and credit. Since people are not in the habit of burning, literally, the cash in their wallets or blowing up other forms of money, the monetary component centers on the reduction of outstanding credit. It’s not just that credit gets extinguished, if there is not new credit to replace old credit that condition becomes deflationary.

In a simplified example, if you had maxed out a credit card and needed cash to meet a minimum payment, you might secure another credit card and obtain a cash advance. If you were unable, the account may well go into default, suggesting a write-off for the issuing bank, which means a reduction of credit. The existence of that credit implied consumer power, portending demand for goods and services. Extinguishing that credit eliminates that consumer’s power.

The psychological component centers on fear, a lack of confidence and an expectation of lower prices. Inflation means expansion, while deflation suggests contraction. There are other components that get brought into the psychology including:

In Japan, the face of deflation looks like a surge of purchases of cup noodles. Economic data in the Land of the Rising Sun shows spending on the noodles ($1.65 per cup) rose 26% in the first quarter compared to the same period the previous year. Moreover, it was the fourth straight quarter of double-digit growth. This spending increase accompanied a decrease in spending for utilities, education, recreation and transportation. The Japanese public showed great faith in their economic wizards who were unable to awaken the country from its multi-year economic stupor. There is consideration now being given to suspending the consumption tax increase slated for 2017. They may want something else but they’re focused on what they have. More Ramen anyone?