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
You'll buy a car if you have to, because the old one broke or whatever. But you won't buy a car now if you know it'll be several thousand cheaper next year.
So yeah, essentials are gonna keep selling like they always have, but most non-essential purchases are going to grind to a halt. Not all of them, mind you, but majority, which is enough to topple businesses and cause massive layoffs across basically all sectors of economy.
Not all of them, mind you, but majority, which is enough to topple businesses and cause massive layoffs across basically all sectors of economy.
Heavily assumption based. We don't knoe why prices are falling. You are assuming a reception. Assuming productivity simply increased so that the cost to make a car dropped by 20%
We can have people buying more cars, cars selling for less, overall expenditure on cars being down and yet corporate profits still increasing due to reduction in expenditure.
China has grown in near deflationary environments. Japans economy has remained stable in deflationary environments while QoL improved.
Median QoL in the US has gone down despite slight inflationary environment. When we observe the biggest economies in the world, the observable facts do not support the deflation = recession hypothesis
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u/saera-targaryen 6h ago
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.