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
Don't bother arguing with these people. They are wrong about everything. Japan lived with deflation for years, as did the Eurozone sporadically. They didn't predict the GFC, they said that QE straight after would be highly inflationary, they said that there would only be "transient" inflation after COVID. Did you know that their models treat banks as ordinary companies, and that they only just concluded in the last ten years or so that banks create money? Did you know that they don't have a definition of money? It's just a cavalcade of nonsense on stilts that is little better than astrology.
0
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