Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?
Deflation mostly happens when people stop trusting in the dollar and trade in other commodities. This makes the dollar essentially worthless.
By design economies need relatively low but stable inflation to maintain itself. This means the trust in the currency is growing and being utilized. If no one uses the currency then your economic system collapses because you cant collect taxes off of traded goods.
The biggest thing I'm learning is that so many people how thing backwards. Inflation is less trust in the dollar. The economy maintains itself by constantly having slightly less trust in the dollar to push people to have to get slightly more of it. It forces people to get more and more of it because it is trusted less and less
Good Inflation is the normal process of a growing economy that has trust in its growth. Its necessary for a stable economy, otherwise the dollar would stagnate and lose its value.
There are bad actors that can increase Inflation, but these are separate from the normal process.
Think of it this way. Imagine you were creating a new standard of currency, potato currency. And you only have 10 potatoes. In theory those potatoes would always trade upwards in value. Starting at 1 item value and increasing each time used and traded. Because the person before wouldnt want the value to go down, only up. But imagine then every so often I add 5 more potatoes. When id add those potatoes to the system their buying power would go down. But more people would want to use and trade in potatoes since they can easily be traded with and for. But if I add too many potatoes, the potatoe value falls through the floor.
Thats ultimately it. I want my potatoes value to remain the same or to slowly decline so that way it'll still be traded with. If everyone has potatoes, then its easy to trade with.
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u/StuartMcNight 9h ago
Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?