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Author Topic: Is deflation truly that bad for an economy?  (Read 24916 times)
Allurestorm (OP)
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March 04, 2015, 01:07:24 AM
 #1

We are being told deflation is bad for our economies and this is used as excuse from our central banks to print more money and destroy our savings/currencies. What they say is that in a deflationary environment, the price of goods falls so people would not buy anything and would rather wait to buy in future, therefore slowing the economy. If so why smartphones sell like hot cakes?their price is falling and people are buying them actually because of that. Maybe because each time the price decreases customers feel like they are getting a good deal, therefore are prompted to buy!!
If our economies are not growing it means that there isn't much inflation pressure, so I don't see any reason to artificially induce inflation by destroying our currencies. I would like to know your view on that..also do you think bitcoins (deflationary) will see a wider adoption by retailers in future?
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V for Varoufakis
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March 04, 2015, 09:00:14 AM
 #2

Yes it is. According to the laws of economics, the amount of banknotes in circulation, must correspond to the quantity of goods and services in the market.
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March 04, 2015, 10:19:17 AM
 #3

I can't see anything good in deflation. But it's inevitable.

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March 04, 2015, 10:38:49 AM
 #4

to be honest I prefer to see some deflation rather than artificially inflate prices by destroying currencies. Maybe there will be some pain in the beginning but eventually the market would adjust itself. However I am not so convinced the fall of prices is inevitably bad for shoppers or merchants, if this was the case why hi-tech products whose prices are constantly falling, sell so much?
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March 04, 2015, 10:55:21 AM
 #5

Deflation is falling prices. It sounds good, but it's not good for the economy.

Delayed spending slows the economy and government revenue is expected to fall. The you might get falling wages, debtors finds it increasing hard to finance debts. Some argue that short term moderate deflation is not that evil, but governments in general tries to avoid that.
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March 04, 2015, 12:35:22 PM
 #6

they are both bad, deflation or inflation, if they are extended too a high degree, like everything in the world

equilibrium is the key
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March 04, 2015, 01:26:30 PM
 #7

Deflation is falling prices. It sounds good, but it's not good for the economy.

Delayed spending slows the economy and government revenue is expected to fall. The you might get falling wages, debtors finds it increasing hard to finance debts. Some argue that short term moderate deflation is not that evil, but governments in general tries to avoid that.

If slower spending means you do not buy thing you do not have to buy, then it is good for the environment/society.
Allurestorm (OP)
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March 04, 2015, 02:06:22 PM
 #8

Deflation is falling prices. It sounds good, but it's not good for the economy.

Delayed spending slows the economy and government revenue is expected to fall. The you might get falling wages, debtors finds it increasing hard to finance debts. Some argue that short term moderate deflation is not that evil, but governments in general tries to avoid that.

I agree about the debt part, that is actually why our governments prefer inflation to deflation, because they can devalue their debt..
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March 04, 2015, 02:11:28 PM
 #9

The problem is that the nominal interest rate cannot fall below zero, because that would mean reducing savers’ bank balances every month, and would prompt them to withdraw their deposits from banks and stash cash under the bed. Together with inflation, this puts a floor on the real interest rate too. If inflation is low and real rates can’t fall far enough to boost demand and perk up prices, demand will weaken still further. This is the dreaded deflation trap.


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ffe
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March 04, 2015, 03:45:34 PM
 #10

Deflation is bad.

The adjustment period is bad because wages are sticky and won't fall fast enough without a lot of unemployment pain (and forever lost production). But, more important, loans are quoted in fixed currency amounts so current loans become a much larger burden on families and companies if incomes are falling.

Investment will fall. People will be fired. Consumption will fall. And we all will be on a lower standard of living path.

(and don't give me the "people will adjust to falling wages" argument. That's just a recipe for a lot of needless pain and ignores the fact that people have existing loans.)
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March 04, 2015, 04:02:42 PM
 #11

Wow the neo-keynesian trolls have certainly gone to town here already, I should point out there are those who believe it's a bad thing because of falling prices, what they fail to grasp, is that's only a bad thing for people who rely on high prices in order to make money, such as speculators and people holding various assets, who these neo-keynesian economists are on the side of.

For the rest of us like you and me, deflation is absolutely fantastic, it makes everything easier to afford and allows you to build up savings, you aren't being forced to work twice as hard for half as much and it protects you against market manipulation of the money supply which is what causes these price swings neo-keynesian economists are so afraid of. Another thing to bear in mind of course is that for some baffling reason particularly on this forum the words inflation/deflation have been twisted in their definition to suit the neo-keynesian viewpoint, when I talk about inflation/deflation I am talking about the currency supply, when you print currency and increase the supply that's inflation, when you keep things the same or in fact reduce the amount of currency supply in circulation that's deflation and it causes the exchange rate of that currency to rise against others which is what's happening with Bitcoin and the dollar.

Yes, you're actually recognising that the idea of falling prices being a bad thing is a load of shit, I am building my investments right now and the rising price of Bitcoin is helping me a lot and is a perfect example of why deflation is a good thing, the idea that inflation helps people is a joke because while it may make a short term rise happen as is what's happening in the stock markets right now everything is going to collapse and be a catastrophe. The central banks are advocating the printing of money to keep things going, it isn't out of any benign purpose but it is to keep all these prices we're seeing artificially high, eventually it is all going to collapse in on itself, the only question is how long they'll keep things going, all inflation is, is a very sophisticated form of market manipulation.

Don't fall into the trap of arguing in a debate with people who use made up definitions for words or alternate realities in order to help them win, inflation/deflation is to do with currency supply, it isn't anything to do with prices, prices falling and rising are a result of inflation and deflation they aren't actually the process itself, people who argue using these terms are trying to sweep the issue of currency supply under the rug.
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March 04, 2015, 04:21:35 PM
 #12

Wow the neo-keynesian trolls have certainly gone to town here already, I should point out there are those who believe it's a bad thing because of falling prices, what they fail to grasp, is that's only a bad thing for people who rely on high prices in order to make money, such as speculators and people holding various assets, who these neo-keynesian economists are on the side of.

For the rest of us like you and me, deflation is absolutely fantastic, it makes everything easier to afford and allows you to build up savings, you aren't being forced to work twice as hard for half as much and it protects you against market manipulation of the money supply which is what causes these price swings neo-keynesian economists are so afraid of. Another thing to bear in mind of course is that for some baffling reason particularly on this forum the words inflation/deflation have been twisted in their definition to suit the neo-keynesian viewpoint, when I talk about inflation/deflation I am talking about the currency supply, when you print currency and increase the supply that's inflation, when you keep things the same or in fact reduce the amount of currency supply in circulation that's deflation and it causes the exchange rate of that currency to rise against others which is what's happening with Bitcoin and the dollar.

Yes, you're actually recognising that the idea of falling prices being a bad thing is a load of shit, I am building my investments right now and the rising price of Bitcoin is helping me a lot and is a perfect example of why deflation is a good thing, the idea that inflation helps people is a joke because while it may make a short term rise happen as is what's happening in the stock markets right now everything is going to collapse and be a catastrophe. The central banks are advocating the printing of money to keep things going, it isn't out of any benign purpose but it is to keep all these prices we're seeing artificially high, eventually it is all going to collapse in on itself, the only question is how long they'll keep things going, all inflation is, is a very sophisticated form of market manipulation.

Don't fall into the trap of arguing in a debate with people who use made up definitions for words or alternate realities in order to help them win, inflation/deflation is to do with currency supply, it isn't anything to do with prices, prices falling and rising are a result of inflation and deflation they aren't actually the process itself, people who argue using these terms are trying to sweep the issue of currency supply under the rug.

If you worked for a living and your wages were in Bitcoin and Bitcoin deflated (i.e. its value went up) say from $200 to $400, you would be fired. If you claim you'd agree to a wage drop then you're really saying your salary is not valued in Bitcoin. It's valued in bananas or something and only paid in the equivalent Bitcoin.
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March 04, 2015, 04:44:31 PM
 #13

Bitcoin is broken by design because the gold standard (deflation) is dead. Read this:

"How can we design a digital currency to be more like a self-regulating, homeostatic living organism? One way would be to use a more sophisticated kind of formula, one that contains among its parameters feedback from transaction metrics. For example, more new money could be issued as its value relative to goods and services rises, and less could be issued (or some removed) in the opposite, inflationary case. Or perhaps an even better parameter would be the velocity of money. If the number of transactions per “coin” per month falls, indicating deflation, more money could be created. If economic activity starts overheating, money could be removed."

http://blog.p2pfoundation.net/charles-eisenstein-on-the-next-step-for-digital-currency/2013/07/22
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March 04, 2015, 05:09:22 PM
 #14

Depends on the cause of the deflation. Deflation due to a collapse in aggregate demand is bad. Deflation due to an increase in aggregate supply is good, at least in a healthy economic system. Any deflation is bad in the current system because there's way too much debt.
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March 04, 2015, 05:18:32 PM
 #15

Depends on the cause of the deflation. Deflation due to a collapse in aggregate demand is bad. Deflation due to an increase in aggregate supply is good, at least in a healthy economic system. Any deflation is bad in the current system because there's way too much debt.

This sums it up better for me than the countless numbers of posts on this topic. A little monetary deflation is just the opposite of a little monetary inflation. Nothing dramatic.

I would really like people to finally put the non-argument of people postponing purchasing of goods due to falling prices to rest. No one has unlimited time on this planet so no one is going to walk for another year (and then again as in perpetuity) because a car would be 2% cheaper the next year.

We deserve better thinking.

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March 04, 2015, 07:06:04 PM
 #16

...
I would really like people to finally put the non-argument...

Whelp, calling an argument you can't counter "non-argument" seems like a good start.
inb4 [any negative reply]:  I'd really like people to finally put non-arguments like that to rest.
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March 04, 2015, 07:27:05 PM
 #17

Quote

If you worked for a living and your wages were in Bitcoin and Bitcoin deflated (i.e. its value went up) say from $200 to $400, you would be fired. If you claim you'd agree to a wage drop then you're really saying your salary is not valued in Bitcoin. It's valued in bananas or something and only paid in the equivalent Bitcoin.

You clearly don't understand how inflation and deflation works, you're forgetting that because the prices will lower due to the currency becoming more valuable that it will make costs cheaper for employers as well when it comes to materials and other expenses.

Stop trying to exclude one or the other to suit your arguments and agenda.
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March 04, 2015, 09:01:01 PM
 #18

Quote

If you worked for a living and your wages were in Bitcoin and Bitcoin deflated (i.e. its value went up) say from $200 to $400, you would be fired. If you claim you'd agree to a wage drop then you're really saying your salary is not valued in Bitcoin. It's valued in bananas or something and only paid in the equivalent Bitcoin.

You clearly don't understand how inflation and deflation works, you're forgetting that because the prices will lower due to the currency becoming more valuable that it will make costs cheaper for employers as well when it comes to materials and other expenses.

Stop trying to exclude one or the other to suit your arguments and agenda.

Sorry, but some costs for employers will not fall. His debts will remain the same and so will your salary.
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March 04, 2015, 09:40:45 PM
 #19

...
I would really like people to finally put the non-argument...

Whelp, calling an argument you can't counter "non-argument" seems like a good start.


Would you seriously argue that someone will not purchase a car because he expects it to be 2% cheaper next year?
And what about the next year: again no purchase due to the same reason?

Asking the question is answering it. It's really a non-argument.

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March 04, 2015, 10:01:40 PM
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...
I would really like people to finally put the non-argument...

Whelp, calling an argument you can't counter "non-argument" seems like a good start.


Would you seriously argue that someone will not purchase a car because he expects it to be 2% cheaper next year?
And what about the next year: again no purchase due to the same reason?

Asking the question is answering it. It's really a non-argument.

Would I put off buying a fleet of new cars for my company if cars depreciated more substantially?  The answer is "obviously yes."
No one is talking about necessities, like morning coffee.  I don't care if I have to pay double @ 7am for the same cup I could buy for its regular price @ 7pm.  Don't extrapolate from this that I don't care about saving money, and that 200% daily deflation would not alter my buying habits.

My turn:
Would you invest in car company stock that nets 2% a year, knowing that keeping your money in your mattress Trezor would be both safer & net the same end result?
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