It means price can't go up anymore because ppl can't afford, businesses need to slack ppl off to stay afloat, which make ppl poorer and even less capable of buying stuff.
but they werent trying to curb deflation, they printed more money to pay debts to other countries. i imagine if we are trying to curb deflation then we'd increase the monetary supply by a calculated amount to not increase inflation too much
This concept is called quantitative easing (QE) and it doesn't always work. Though notably, it did work in '08 after the Great Recession.
Deflation cause people to be afraid of spending money because aggregate demand is much lower. It's certainly possible that QE doesn't fix consumer spending habits. Money is typically not given to people directly because that may cause separate issues. For example, some of the COVID era inflation was due to people receiving money directly from the government, which signaled to businesses that excess capital could get soaked up with price increases.
We print money and inject it into the economy all the time. But wealthy people have made sure that they're the ones who get the injections. If the money we printed was, say, given to schools and used to build roads, we would have a more just society.
You need the other nations that you trade with to not freak out when you magically just generate a whole bunch of new value.
It’s a lot easier to do when you have a gun to the world’s head. So it does and will happen in convoluted ways. But why it doesn’t happen anywhere else like Japan.
Well put, the world bares the pressure of the US Federal Reserve printing money. The US 40T debt it carried by the world.
This is because the US Dollar has been the reserve currency of the world.
People are so unaware of how good the USA had it before Orange started ruined all our socioeconomic ties around the world. He's vastly accelerated USD not being the world reserve currency anymore. US Citizen have no clue how much that will hurt us, it's unrecoverable too. Once USD loses that status, it will never get back.
Covid really underlined this for me. When things just kept ticking after everything went down cause they printed a bunch of money. The entire game is rigged in favour of keeping that established power structure in place.
If it ever stops being the reserve currency that’s it for the US empire. It’s a wonder everyone let the US have its way for so long, at the same time insane that the US is just ignorantly throwing it away now.
He's vastly accelerated USD not being the world reserve currency anymore.
This is the intent. Crash our economy, buy up big swatches of wreckage for dirt cheap, and finally push your own crypto for further grift on the desperate.
Nonsense. When the fed does quantitative easing without a sufficient amount of tightening a shit ton of money is put into circulation that is created out of thin air. This absolutely happened over the last decade.
It is put on a balance sheet as debt. The debt is purchased. At no point is money being created freely. The "reserves" created for banks to stabilize aren't circulated.
Because printing new money normally goes with economic growth. If you print new money during economic contraction instead, you're making things worse in a different way.
You printed more money. More money in circulation. People know that the $1 you have today is worth less than the $1 printed tomorrow.
So bread prices increase based on that expectation. You buy bread, but it’s $1 more. How would the people buy more bread - by printing money. Cycle repeats. Hyperinflation.
Also its self reinforcing. Inflation erodes the real value of tax revenue. This worsens the government’s budget deficit. The government then often finances that deficit by printing more money. That fuels more inflation, which erodes real tax revenue further, and so on
This isn't true. Weimar's economy was on the upswing for the better part of a decade when the Nazis took over. In fact, their economic recovery was largely hampered by the US stock crisis which halted loans
Thats not really what happened. Hyperinflation was only an issue early into Weimar Germany, certainly not what lead the whole Republic to fall. Hyperinflation was resolved years before the Nazis began to rise
Plus the hyperinflation was moreso an intentional tactic used to devalue their currency to such a point that they could effectively get out of paying reperations and the significant loans they took out from WWI, and then they made it worse by printing tons of money to support striking workers in the French occupied Ruhrland. The whole thing then spiraled out of control
Weimar like conditions are the result of deliberately destructive policies and a series of terrible circumstances. It shouldnt be considered anywhere close to the average or expected result of 'printing more money' because its far more complex than that
This is factually wrong. You’re confusing the hyperinflation crisis of 1923, which was a response to foreign policy, with the deflationary crisis of the Great Depression in Germany starting 1929.
We did that in 2009-2011 with a high degree of success. I'd argue interest rates were kept too low for the time after and that is a reason we're having trouble fighting inflation now.
Yes, but it wasn't only that. The Weimar Republic was a very functional democracy (by our standards - proportional representation is used in the Netherlands for example) that was unfortunately established in a country which had very recently been a monarchy. The Kaiser strategically abdicated to avoid blame for losing WWI.
There were coups, terror attacks, assassinations, and street fights between the socialists, communists, monarchists, and Republicans. The republicans were outnumbered and unpopular because the Republic took the blame for the treaty of Versailles.
I also remember one time I think zambia or SMTH(if I remember correctly) printed am insane amount of money for some reason I don't why like have some brain cells
Money printing through QE addresses the currency becoming too valuable it doesn't actually address what's causing the deflation of the economy which is consumer demand decreasing.
And by design QE does not go into the hands of the average consumer it goes into financial institutions, increases assets prices (houses stocks bonds etc.)which because asset prices explode eventually they become divorced from reality in a speculative bubble. Over valuation of assets eventually leads to money becoming a safer bet than investing in overvalued assets. Which eventually leads right back to deflation.
So basically
People spend less(for whatever reason)>people are fired because no one is buying>
less taxes>less effective money printing>austerity is enacted>people spend less
Cycle continues. Unless something interrupts it like massive taxation of assets to redistribute wealth or it eventually craters out
And once it craters out well:
You need a tax base to print money off of, other than like the dollar for other reasons most other countries rely on solely on taxation to give value to fiat currency, in deflation people lose jobs which affects taxation disproportionately because workers are taxed more proportionally than capital is.
That just makes it cheaper to use the money as fuel and wallpaper instead of buying either of those, usually you buy things based on weight of the cash instead of counting it manually.
That's exactly what they do. And it works and it's good, as long as they don't overshoot. The only thing the Fed can really do is set rates and give people money. With those two things they have the job of keeping the value of money more or less stable and with an inflation rate of ~3%.
If the value of money goes up (deflation), they just print more.
If the value of money goes down (inflation), they just print less.
"printing money" is really just setting the rate of how cheap it is to borrow money. If the rate is low, people can go borrow a billion dollars (that comes from no-where, the banks just make it up) and now there's a billion extra dollars in the market. Nobody every really pays this loan back. The plan is to use the money to make more money faster than the rate of the loan. This is how ALL our money has come into existence and why the world is however many trillions of dollars in debt.
"But there's a limit! They can't set the rate less than ZERO percent!" wellll, the Fed rate is just what they charge the 12 regional reserve banks, which then charge whatever rate they want to actual banks, which then charge whatever rate they want to actual businesses, which then charge whatever for the actual goods or services to actual people. The fed could go negative to poke the layers under them to get off their ass and do business. And, also, this is where we got "QE" from. Quantitative Easing, which is big'ol fancy term for "we're just going to give money to our friends". More money in the system, value of the dollar goes down, and deflation isn't a worry.
Really, deflation is super-easy to fix. The things that CAUSE deflation are generally kinda terrifying though.
... That's what we're doing now. That's why our currency is inflating and slowly becoming worthless.
Damned either way basically. Someone with a brain correct me if I'm wrong, but either everyone winds up broke or winds up with a ton of money that isn't worth anything.
Inflation is not just the amount of money, it's the velocity of money too. If you print money and everyone just keeps it under their mattress, you still have deflation.
That said, deflation isn't much of a worry anymore because we have fiat currency. When you have hard currency like gold, you get deflation if you can't add to gold reserves. This was an issue during the Populist era in America.
inflation is not just a number that may go up or down, it's a reflection of real, more fundamental economic problems. Printing money solves exatly one problem: lack of money availability, which is almost never the root issue. If you are in a deflationary spiral because people can't afford stuff, printing money and spending it might make some people a bit more able to afford stuff (those who get their income from government spending), but everyone else will be worse off, and in the end you'll just tank the value of your currency against every other... and having a combination of deflation and a rapidly devaluation currency on the global market is a monetary fate worse than death.
countries do that, when their money is worth so much, they print more of their money and buy foreign currency with that money so foreign currency increases its value and their own currency lose value.
It's just not happening "to" the investing class. Deflation is when they, the investors, are harmed. Which is why it's an actual problem, as opposed to ever rising prices with stagnant wages which just kills the poor and homeless so that's ok.
Deflation is actually good for the wealthy because they can afford to keep their money under the mattress.
Why take any risks with investing in businesses when you can just do nothing and watch your money increase in value over time? The reason people are incentivized to take risks and invest is because their money would otherwise lose purchasing power.
Workers, on the other hand, NEED to spend on basic needs. However, because spending/investing slows down, there’s lower demand for goods to be produced, and businesses need to lay people off.
Good luck paying for your basic needs when you don’t have a job. This turns into a feedback loop where people are spending even less on just the bare minimum and even more jobs are lost.
And I haven’t even mentioned debt yet. Yeah, that gets worse over time too, because the $100 that you owe someone is now worth more in value.
Governments issue bonds to fund infrastructure and cover deficits. Not only is government debt now a much bigger problem, but with less people working, there’s less revenue that can be collected with taxes.
And that’s how everything comes crashing down. Someone pointed out that people not believing in the dangers of deflation are like the flat-earthers of economics, and that’s a good way to put it.
No deflation is a systemic crissis, tech is a bad point becasue of optimization of costs and manufacturing. But think a 10$ shirt, it will cost 9$ the day after, then 8.50, then 8 etc why would you ever buy a shirt unless you absolutely have to?
Let's say you can afford a 10 buck shirt, but it hurts. But if you now know that prices are steadily going down, why wouldn't you hold out until it costs only 7 bucks? Then you would have 3 bucks left to spend on something else!
It finally goes down to 7, and you think, it went down so far, maybe if you wait a liiiittle bit longer it might drop a little more. If it stops dropping, you'll buy it at 7, but imagine it dropped to 5! You'd have like 5 bucks over!
And then it goes to 5, and maybe it will drop some more and it will be an absolute steal. You can wear the ratty shirt you have a little longer.
This is taking place over several weeks or even months, where you don't buy that shirt. And so do tons of other people trying to save money. Meanwhile the retail stores and manufacturers are freaking out because no one (meaning not enough) people are buying shirts and their revenue goes down. They have to stay afloat somehow. So layoffs. And suddenly the pool of people who need to watch their money and for whom 10 bucks for a shirt would hurt is much larger. Couple months ago, they had the income that they'd just go into a shop and pay whatever for a shirt, but money is tight now. But! Prices have been consistently going down, so they can wear that ratty shirt a bit longer, just to see if maybe prices go down further...
And this isn't just a shirt industry crisis. This happens simultaneously with all things everywhere around you. So you personally know ten people who have recently been laid off and can'tfind work because seeminglyno kne is hiring. So you fret about getting laid off at some point, so you try to safe and keep spending down. Thank got prices are steadily going down. If you wait a bit to buy that stuff you want, it will be much cheaper!
So deflation would force the 1% to pool money back into their companies, but they lay people off instead not to lose a fraction of their money that already surpasses multiple countries' whole ass wealth.
Deflation is only 'bad' it looks like, because only the select few are worthy to hoard money, your regular Joe with minimal wage can kick rocks.
Even if then 1% were to pool their money into companies, it wouldn’t magically fix the problem.
People have expectations on inflation/deflation and that creates a self perpetuating cycle. Employees would be willing to accept less pay and consumers would be willing to continue delaying purchases, not to mention the various problems that would have caused deflation in the first place
I think people don't understand how much worse it could be. The economy isn't great but is nothing like talking to my grandparents/great grandparents about the Great Depression (which had periods of high deflation. You can search for deflation in this article if you're curious https://en.wikipedia.org/wiki/Great_Depression or look at this article comparing it with inflation https://en.wikipedia.org/wiki/Deflation#Compared_with_inflation).
I'm not saying things are great or anything about how the Great Depression specifically interacted with deflation (I have no idea personally) but the answer to whether we are in the scenario economists are worried about with deflation is a very clear "absolutely not". They are imagining much worse.
I think people don't understand how much worse it could be. The economy isn't great but is nothing like talking to my grandparents/great grandparents about the Great Depression
It's not great, but it's a lot closet to great than bad. Wages/incomes are high, unemployment is low. That's pretty good at least.
It is hard to judge because, at least where I live, the way things work is that there are a lot of people with informal employment, several people working delivery services or Über and the kind, jobs that do provide some income but are irregular, without security
And if you exclude those people's employment, you get a CONSIDERABLY higher unemployment rate than our national "5.3%". Especially because, per the government counting, people who gave up job hunting due to HR backwards policies, LinkedIn scams, ghost jobs and etc, my government does not count those people as unemployed. Nor does it count the homeless as unemployed. And my country has A LOT of homeless people.
So the key difference is that those people still have jobs and are still making money. The Great Depression saw unemployment rates as high as 25% in the US. Imagine if a quarter of the population was without income... people would get awfully mad and start looking for someone to blame...
It is a matter that, in my country, even people with full time jobs AND these extra incomes end up in debt just to put food on the table. Everyone around me is becoming increasingly more religious fundamentalist, mixing up blaming communists, colored people, LGBT, immigrants and atheists for everything going wrong while ignoring the agro sector which sells most of our food abroad because selling abroad they earn in dollars and euros instead of our broke currency.
We are a plague away from our own Irish Potato Famine.
I struggle considering that my country's wages are increasing faster than the inflation if most jobs are specifically exempt from the wage increase because they are irregulated jobs AND because we work 6X1 days AND it looks like we will adopt the Argentinian "your boss an pay you in food, has no hours limit and no minimum wage" attitude next year
Kind of but also not. Were you working in 2008 during the recession? The job losses and affordability issues were even worse then. Millions of jobs just deleted, millions of homes foreclosed. That's deflation. The great recession, or the great depression before our time, are periods of significant prolonged deflation. It's the worst.
As bad as it is right now companies are still making money, it's a tight labor market absolutely but this is nowhere close to mass unemployment. When everyone needs a job and all the companies are broke because literally nobody is buying anything it would be significantly worse than our current situation. This would absolutely not be good news by any measure
Companies, at least the larger ones, aren't making profits. They're basically just pumping stocks. No one has a job right now, and no one's buying anything. The entire global economy is just running on assets going up. There are literally no drawbacks to deflation anymore. The only thing that would happen is that stuff would stop getting more expensive.
I don't even know where to begin but you did not live through the 2008 recession if you think nobody has a job right now. As bad as today's economy is, and no one is arguing its good, it's not even close to an actual recession. Unemployment at the peak of 2008 was over double what it currently is. "There are literally no drawbacks to deflation anymore" the economy will crash, businesses will close en mass, large corporations will be protected by the government while everyone else will go broke. The value of ANY debt you have will increase in real terms while you would be lucky to get a pay cut if not lose your job entirely, so you'd be paying 10% higher in real money while making 10% less in real wages. There is a reason the only real deflationary periods in modern US history have been during recessions.
Honey, we all lived through Covid. Do you really think 2008 unemployment numbers scare anyone anymore? As for the debt and not really making "real" money, this is literally happening right now.
It's like me saying I earn 0 dollars and you arguing that during deflation you will earn 1000 times less. Real scary shit there bud. Not being able to eat because you can't afford it and not being able to eat because no one's making food are still the same thing at the end of the day lol.
Economic growth basically only matters to businesses and governments.
And even then, Japan managed to do quite well with decades of deflation.
Also, I was there in 2008 and guess what, the world didn't end and we're all alive.
The median american is earning 65k a year; you might not have a job but unemployment is not over 10%, so no "everybody" is not broke and unemployed. I don't know where you get your condescending tone but people's lives were literally massively affected by 2008 to the point where it's still felt today.
It's not like saying you'll earn 1000x less if you're unemployed, because the average american needs to pay rent and eat and they're working to do that; your unique work experience does not mean that the average american would have the same experience.
"And even then, Japan managed to do quite well with decades of deflation." Japan is famously not doing very well, people have had literally stagnant wages for decades, and they're about to have a bond market crisis because for decades they've been attempting to inflate their currency away to prevent that deflation from getting worse. Possibly the worst possible example you could've brought up barring the Great Depression.
Also if you have any kind of debt at all (mortgage, credit card, student) you should never ever want deflation or you are 100% cooked financially.
Again, I'm not saying everyone's unemployed right now, and I know what costs of living are. Do you know what a metaphor is?
AND I'm not just talking about the US here. All I'm saying is that the majority of the global economy isn't based on people making stuff anymore, but on investment. I'm saying that the average person isn't really affected by deflation the way you think they are.
Deflation basically means no one buys anything -> companies don't make money -> people are laid off -> no one buys anything.
The only thing I'm saying that under the current inflation market, all of these things are already happening. The only thing that would change is that companies couldn't make imaginary gains as easily for their shareholders. And the more this continues happening, meaning that the more wealth gets concentrated to a few individuals, the less it will matter if its deflation or inflation except if you're very rich.
If we started calling our economy a deflation economy tomorrow literally nothing would change except economic outlooks.
And don't get me started on poor Japan with its insanely high standard of living and its place as the forth largest economy. Those poor people...
houses are a good exanple. house prices start dropping, great! first time home buys can buy a house now! so great! but when it comes to sell, you lose money. 100k, 200k maybe more... people stop buying b/c it will be cheaper later. people dont sell unless they are forced to b/c they dont want to or cant afford to take a loss on it. unemployment rises as companys have to lower prices to sell. less jobs, less people with money. interest rates go up and mortgages are harder to get b/c the bank doesnt know if youll be abke to pay back the loan, and if the asset will be worth what you borrowed etc
Bad news is we're already there, it's just being masked by AI allowing companies to keep stock prices inflated and the illusion of things continuing to grow.
Also just on a practical level, in situations like a shock to the economy, which happens not infrequently, real wage cuts are necessary. Without inflation, how are you going to implement real wage cuts, try telling everyone we’re reducing your wages? Unlikely everyone will just agree to that. With inflation, you can let inflation be the real wage cut. You can easily increase everyones nominal wage, which theyll likely be happy about, even though their real wage is actually still going down
Nah. If a farmer has favorable weather one year and grows more crops now the supply has increased which lowers the price.
The farmer has to hire more workers to harvest the increase in crops the trucking company has to send an extra truck to pick up the extra harvest and the grocery store has to hire and extra stock boy. All this and lower prices.
Economist actually agree that supply side deflation is a good thing.
I would argue than inflation such as quantitative easing is a tax on those who lives on a salary while the rich who depends on their investments can't care less. It's also beneficial for ppl with large debt (again rich people's) gor the actual value of the debt is diminished. Imagine buying a 6 plex for a million and now it worth 2 millions...the real value didn't changed but your debt got cut in half.
Deflation is what happens when the system breaks because the gap between the rich and the poor is too wide. Imagine the same example of a 6 plex that cost now 2 millions but some renters now rather live in a tent because your rent to make your investment just even is too high for these renter. Now you loose money because you can't rent all the units. Everyone looses in Deflation, it's a hard reset when the gap between rich & poor is too wide
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u/SuspiciousSnotling 8h ago
Deflation is worse than inflation.
It means price can't go up anymore because ppl can't afford, businesses need to slack ppl off to stay afloat, which make ppl poorer and even less capable of buying stuff.
It's a death spiral