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Why would deflation increase spending? In a deflationary period, production slows, which results in less jobs, which results in higher unemployment, which results in more saving/less spending, which results in higher inventories, which results in less production...
Inflation isn't the sole problem. The real problem is that incomes are not keeping up with inflation. Deflation is not going to fix that.
Why would deflation increase spending? In a deflationary period, production slows, which results in less jobs, which results in higher unemployment, which results in more saving/less spending, which results in higher inventories, which results in less production...
Inflation isn't the sole problem. The real problem is that incomes are not keeping up with inflation. Deflation is not going to fix that.
Deflation would increase spending if it equates to consumers having more disposable income.
For example. Say housing drops 10%. That's 10% more income the consumer has to spend on other goods and services.
Deflation would happen ultimately happen whether we like it or not if the current trends continue. Not only that, but people could change their spending habits for the long term.
Deflation would increase spending if it equates to consumers having more disposable income.
Unfortunately, more and more consumers would have no income at all because they would be laid off from their jobs. In a deflationary scenario, it costs me $10 to produce a widget that I can only sell for $9. How long am I likely to keep doing that?
Compare and contrast to a situation where I can produce a widget for $9 and sell it for $10.
Deflation would increase spending if it equates to consumers having more disposable income.
Sure, and you can drive from NYC to London if your car drives on water.
Deflation means, first and foremost, that your money is worth more the longer you wait to spend it. That reduces incentive to spend, and since spending = income it also reduces people's incomes, which further decreases spending and so on. It would be a repeat of the 2008 recession, but worse.
Sure, and you can drive from NYC to London if your car drives on water.
Deflation means, first and foremost, that your money is worth more the longer you wait to spend it. That reduces incentive to spend, and since spending = income it also reduces people's incomes, which further decreases spending and so on. It would be a repeat of the 2008 recession, but worse.
To the bold, I highly doubt the avg. consumer is going to try to guage, or be able to guage when the dollar will bottom out. I would say a much more likely scenario than saving for prices to go down, would be saving until certain items are affordable.
If deflation occurs in major markets 1st (let's say housing), then it could spur spending in other areas as American's #1 expense would decrease.
As far as spending = income I don't follow outside of the revenue of a corp. And with price drops there's usually a rise in demand for most items.
We're still not out of the '08 recession despite what the gov is telling you. We're still seeing the effects from that Economic crash. It's a big reason for us being in the situation we're in. What we need to do is start reducing our debt, nationally and personally and get back to an economy based on resources and sustainability.
Unfortunately, more and more consumers would have no income at all because they would be laid off from their jobs. In a deflationary scenario, it costs me $10 to produce a widget that I can only sell for $9. How long am I likely to keep doing that?
Compare and contrast to a situation where I can produce a widget for $9 and sell it for $10.
That actually makes no sense at all.
If deflation were to occur your inputs would decrease reducing the price it would costs you to make your widget. And as a business owner you'd never sell a widget for less than it cost to make
If deflation were to occur your inputs would decrease reducing the price it would costs you to make your widget. And as a business owner you'd never sell a widget for less than it cost to make
I think this particular argument is done.
Sigh...but that also means you can pay your workers less, or just leave it flat. So that mortgage? Its going up every year. Maybe not the actual amount, but your ability to pay it goes down. With inflation it drives your income up in general though, making the mortgage lower year after year.
The weak dollar floods the world with cheap US Dollar debt, which allows the global debt bubble to grow, and commodiites prices also. This is what QE and ZIRP were all about: weakening the Dollar so the world could keep the expansion going. The strong Dollar harvests the global economy, and deflates the toxic debt bubble.
Now we have the default crisis or deflation season back with us. The world borrowed billions in relatively cheap US Dollar debt in the last decade of Dollar-killing; now the Dollar rises; and all that US dollar debt now must be repaid, refinianced, or defaulted on at MUCH HIGHER US Dollar costs. The Dollar is rising because so many borrowers must now buy more expensive Dollars with their much less valuable local currencies to mostly try to refinance the debt. Dollar strength will last many years, as competition to buy expensive dollars lights a fire under the Dollar market.
King Dollar is now bringing about the deflation that central banks all over the world tried so hard to avoid for the last decade. We can either choose more US QE, and more global debt and negative interest rates -- NIRP is NOT a solution to anything or we face the Deflation Darkness, which we should have begun to face in 2001 when the Business Cycle ended, when interest rates should have begun to rise.
We tried to buy more time, stall, afraid of the truth: afraid of that much of the debt created in the inflation must be destroyed during the deflation. That is where we are now: with billions of debt that needs to be destroyed as quickly as possible. Of course, our leaders are afraid of this truth. They are cowards. They would rather do anything than what they need to do.
Only one way out of this mess, we must go thru Dark Forest of Deflation.
Only deflation will give us real and organic growth again. Time to wake up!!!
You keep mentioning this all the time. Who said that we need to pay off our debt? What we need is the "reduction of our debt". Our total debt to GDP is now about 330% and we need to reduce this debt to 130%.
If we can learn anything from history 130% is rock bottom and we will need to knock some 200% debt to GDP off the ledger. How do we do this? Well, higher interest rates will help. Another Great Depression and a World War, of course. Another possibility. A global world war is a very graphic picture of the destruction of debt.
To the bold, I highly doubt the avg. consumer is going to try to guage, or be able to guage when the dollar will bottom out.
It's not some matter of market-timing, it's a simple case of realizing that things are continuing to worsen, and the "average consumer" in every actual example of deflation has realized that acutely and responded accordingly.
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Originally Posted by Gtownoe
I would say a much more likely scenario than saving for prices to go down, would be saving until certain items are affordable.
To be learned at Square-1: Deflation is a GENERAL decline in prices.
Quote:
Originally Posted by Gtownoe
If deflation occurs in major markets 1st (let's say housing), then it could spur spending in other areas as American's #1 expense would decrease.
We have seen selective disinflation in energy costs. Consumers this year have saved hundreds of billions of dollars at the gas pump. What has come of that?
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Originally Posted by Gtownoe
As far as spending = income I don't follow outside of the revenue of a corp. And with price drops there's usually a rise in demand for most items.
MICRO- and MACRO-economics are two different things. Stop confusing them.
Quote:
Originally Posted by Gtownoe
We're still not out of the '08 recession despite what the gov is telling you.
A recession ends when things stop getting worse, not when things are all better again. Once that first corner is turned, a trough is defined and you are in a recovery, aka, an expansion. Pretty much just basic nomenclature there.
Quote:
Originally Posted by Gtownoe
That actually makes no sense at all.
You mean not to you personally at this point in time.
Quote:
Originally Posted by Gtownoe
If deflation were to occur your inputs would decrease reducing the price it would costs you to make your widget. And as a business owner you'd never sell a widget for less than it cost to make
Which comes first, producing a widget or selling it? In a deflationary environment, you cannot recover all of the dollars spent on production when your widget finally sells -- if indeed you can sell it at all. You confront built-in losses of one sort or another.
Quote:
Originally Posted by Gtownoe
I think this particular argument is done.
Argument? More like a group tutoring session.
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