Comments on: Why Is Deflation Bad? Let’s Challenge The Commonly Held View Regarding Deflation/Inflation

By: Martine Bazel

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By: recession

recession — Tue, 17 May 2011 07:01:29 +0000

I am a poor person on a fixed income, so deflation would help me.

If I were rich and owned stocks, had lots of money earning interest or earned a large company then deflation would harm me. If I owned a business my wages would stay the same and what I could sell my widgets for would be less. Interest rates would go down, the stock market would go down…
Deflation hurts only the rich.

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By: fashion guess

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By: finance_future

finance_future — Sun, 13 Mar 2011 10:24:49 +0000

There is a fallacy that if people produce less, then they have less money to spend, thus deflation instead of inflation. There is a total of goods and services in any economy, and a reduction of this total means everyone has less if shared equally. This means those who are producing the same, will demand the same share as they had before others produced less.

Thus the price for those who produce less, will rise. Price has to match where the supply&demand curve intersect. Whether this occurs via monetary inflation or not is irrelevant to whether prices will rise due to a drop in production. Monetary inflation is only relevant as to whether the price rise will be paid by those who are productive, instead of by those who are not. In other words, monetary inflation is a method of theft. And monetary inflation disincentivizes production, and thus can cause inflation to accelerate.

Realize again, that inflation and monetary inflation are not the same. Inflation is the (increase in the) quotient of non-productive to productive. Monetary inflation is a way of stealing net worth from savers (producers) and re-distributing it to others (those who get their hands on the new money first, which is govt and bankers).

By: Tim @ buy snowboard

Tim @ buy snowboard — Tue, 03 Aug 2010 07:59:45 +0000

Hi really enjoyed reading your post.
Just a few months ago, inflation seemed like the thing to fear. Now we've got deflation looming over…?!?

By: Kevin

Kevin — Wed, 06 May 2009 12:31:20 +0000

It may be debatable about a consumption based economy, but it is not debatable that a debt-financed consumption based economy caused our collapse. Simply put we bought too much stuff with money we didn’t have.

As for China, yes they still have poverty, because they are early in the ramp up of standard of living there (they’re just getting started!). I do not believe they want to be just like the US. Do they need a higher level of domestic consumption? Of course. But that does not mean they want to be like the US.

Consumption doesn’t create wealth, it is the benefit of creating wealth. Production creates wealth.

By: Swansen

Swansen — Tue, 05 May 2009 21:16:38 +0000

Its a very debatable point that our consumption based economy created the collapse, so with that model in mind, how can it be good, and how could we possibly come out the other side if our current model has failed us? Extreme amounts of importing, zero exporting, and about the same domesticly produced/purchased goods. The chinese don’t spend as a whole, yes, there is an extremely impoverished section there, but the culture as a whole are savers. The government tries to make people be consumers, they want an economy like the US, but the people just aren’t like that.

By: Entrepreneur Magazine » Blog Archive » Why Is Deflation Bad? Let’s Challenge The Commonly Held View Regarding Deflation/Inflation

Mon, 27 Apr 2009 22:16:01 +0000

[...] I encourage you to stop listening to the re-election focused politicians who think they can run an economy. Ask yourself these questions I’ve listed in this article. I’ll leave you with one last thought… if inflation worked, there would be no poverty in the world. Every society would print away to achieve prosperity! http://20smoney.com/2009/04/24/why-is-deflation-bad/ [...]

By: Kevin

Kevin — Sat, 25 Apr 2009 01:22:51 +0000

Matt,

Thanks for commenting. Why refrain from commenting? I encourage it!

My post is not necessarily aimed to convince anyone that I’m right, but to present an argument we rarely hear. I am by no means saying that every idea I have presented is right and should be implemented. Mainly, I have a tough time accepting that we REQUIRE inflation to grow, which is what I hear from so many “experts”.

I don’t say you should invest in gold in this article, but that wouldn’t it be interesting if your cash didn’t continuously lose its purchasing power?

I completely disagree that a consumption based economy is a good thing. This doesn’t mean we should have NO consumption but that when it outweighs production, this is not positive. China would benefit by having more domestic consumption, but should they become like America? Absolutely not.

Thanks for the comments.

By: Matt Peer

Matt Peer — Sat, 25 Apr 2009 01:13:15 +0000

I ahve refrained from commentying on here for a while, but I’ll bite on this one.

First, the Great Contraction in the 1930′s would have been the garden vareity recession if the Fed were not so tight with M2. The policies the Fed undertook allowed deflation to sink its teeth deeper and deeper into the general economy. Right now, while I’m no fan of these absurd bailout programs and the constitutional boundaries they cross, the Fed by and large is able to fight this thing. When deflation is calming, the Fed can and will remove the excess liquidity out of the system.

Predictably, your next argument will be a resumption of the gold standard. Another flaw. The Depression might not have even occured if the dollar was depegged from gold. When the physical posession of gold is outlawed, like FDR did, gold too is worthless in value. Gold is a crappy store of value and provided no sort of income. If you invested in it 20 or so years ago, you would be in the red.

The savings argument is weak too. It is good to have a domestic, or consumption based economy. Is the very definition saving and investing delay of consumption today to undertake it in the future? You will say that China has a very high savings rate, but guess what? They do that because they CANNOT consume any goods in China! Command economy and everything… Their savings are parked in Treasuries, leaving our nation and theirs in an incestuous relationship. They are export-based and since their is no demand for their low value-added goods in the US, they must stimulate also. (They had the better infrastructure-based package, were I to choose from one). They have no domestic economy, no investment.

I agree with you this nation is heading down the wrong road, but do realize, some Austrian School economic principles are a bit far fetched in my opinion.