Yeah, that makes sense if you don't think about it too hard. People will invest provided the expected return of investing is positive. If deflation means cash of 1.00 is worth 1.02 tomorrow. And investing means it is worth 1.04, the rational choice is to invest.
This isn't just for investing in the stock market though. Who would buy a house if they knew that it would be losing value next year? Why would banks ever give out a mortgage if they lose the ability to sell the house and make back the loan amount? Over the length of the loan the house value goes down but the loan doesn't.
The other thing is that deflation causes more deflation. Sectors of the economy sensitive to deflation stagnate, and then the workers in that area of the economy lose their jobs and stop spending, and that affects the rest of the economy, and then those have compounding losses. Money and investments would fly to other countries where there isn't deflation instead of staying here having lesser returns, which would accelerate deflation again. It would cause a full economic collapse.
This is exactly what happened during the great depression.
You're absolutely correct. That's why nobody buys cars... do you guys ever try to apply your theories on a macro level. The contradictions are everywhere and are simple to identify.
Deflationary spiral is purely theoretical and has never been observed. What we have seen is that recessions cause deflation, and as recessions increase deflationary effects increase.
That observation is the same as saying supplementary spiral. People get sick. Take vitamin supplements. As illness spreads more through population more people take supplements. And therefore concluding that the supplements are making people sick
Car loans and mortgages carry vastly different risk profiles and repayment plans to account for the fact that brand new cars are a depreciating asset and houses aren't to the same extent, not to mention the 5-10x difference in principle amount.
And to be clear, it's brand new cars that are considered depreciating assets. Used cars tend to hold value much better.
A mortgage company won't approve a loan on an asset where they don't expect that the asset can cover the principle, because 15-30 years is a long time to assume that a person will stay committed to a single home. PMI exists for this exact reason, in case a person's equity isn't high enough to cover for a gap between the sale of the asset and the remaining principle.
Most car insurance also includes gap coverage for the same reason. Car loans don't typically have to factor resale value because they rarely exceed 8 years or so. Cars get totaled more often than they get sold before the loan is paid off.
In a deflationary environment, unemployment drives market changes. An unemployed person can't afford their mortgage, so they sell, but everybody needs to sell at the same time, so prices fall, which causes mortgage holders to panic because their assets are valued for less, which causes mortgage terms to become much more conservative (no more 30 year loans), which further causes house prices to fall (because less people can afford the new mortgage terms) until a new equilibrium is reached, or mortgage companies are forced to declare bankruptcy (aka market failure).
Deflationary spiral hasn't happened because most nations have a Federal Reserve equivalent that bails out an industry before total collapse. This is what happened in '08.
Didn't bother reading tbe whole thing. I've lost interest in this debate. We're going in circles. Homes are deprecating according to tax law. Only land appreciates. Therefore mortgages on apartments should be near impossible as land value in high density housing is a fraction of the overall spend.
Your theory runs counter to observable facts. Read the other comments. I'm debunking the same claims over and over again. Nothing new is being stated.
Observe the economies of US, China, Japan, Germany from 1990 to 2025. Look at these economies during periods of deflation. Evidence runs counter to theory.
I wonder why my property tax assessment keep going up then... it's almost like home prices don't depreciate every year, even if you can write off asset depreciation as a tax incentive (because maintenance costs usually can't be deferred and the write off is the assumed amortized rate).
Real estate shouldn't exist by your logic, but it clearly does.
If you're not going to read the whole comment, then don't respond. You just look foolish.
Read your whole comment. It's as dumb as I thought. The entire crux of your argument is deflation causes GDP decline. That is an unobserved phenomena. Yes, if you make up random facts, you can justify whatever.
Your commentary on real estate implies that there is no real estate in Japan. And yet people are not all homeless there...
Your points run counter to observable facts. There is no point in this discussion. I'm arguing what we can observe. You are making up observations to support your theory. Your argument is essentially "falling solar panel prices will kill the renewable energy market."
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u/OpenRole 7h ago
Yeah, that makes sense if you don't think about it too hard. People will invest provided the expected return of investing is positive. If deflation means cash of 1.00 is worth 1.02 tomorrow. And investing means it is worth 1.04, the rational choice is to invest.
The rational choice is always to maximise returns