Try and think of our global system as an engine that's purpose is to make fuel for itself. It needs to keep it's input above the output in order to keep powered on. As soon as the input drops below output the machine starts to slow down and can no longer sustain itself. The engine is not designed to slow down so it very quickly breaks down
This is a very rudimentary example I'm about to give and is based on my very limited and underdeveloped understanding of economics, so anyone that knows more feel absolutely free to correct me.
Imagine you have a 2020 Toyota Corolla. It's treated you well, but it's time for an upgrade due to mileage, maintenance, what have you. A brand new 2027 Corolla, base model is about 23k, and your current Corolla has a trade in value of about 12k. One day, deflation hits, now the 2027 Corolla is worth 22k, but accordingly your trade in is now 11k. Ok, that Corolla is cheaper, but the trade in is also less valuable so why don't we wait a little bit, that new car price will go down and it will become even more affordable, right?
Next price drop hits, and it drops a little more this time and the car is worth 21k, accordingly your trade in goes down to 10k. Ok, your trade in has gone down but the prices are still dropping so maybe I'll wait a little longer, get a better deal. Next drop the new car is 19k, and your trade in is now worth 9k.
Your trade in car is now closer to the new price of the new car, your trade in is getting stronger, so why not wait a little longer? Next drop the new car is 17k, and now your trade in is worth 8k. Your trade in now has less than a 10k difference between cars, if you can stretch it out just a little longer, your trade in will be better leverage, so let's wait just a little bit longer. Next drop new car is 15k, and your trade in is now 7k. Your car is almost half of what the new car is, this is fantastic, right?
Well, imagine all of the people who have that same exact thought around the country, and all of the lost revenue for Toyota as a result. A new Corolla has gone from 23k to 15k and people still aren't buying them, they keep waiting for the next price drop to get the most out of their current situation. Factories will likely have to close, as Toyota is just unable to turn a profit. This will be spread across multiple industries and eventually will lead to low prices for things but a desire to save as much as possible in all aspects you can afford to.
This is not indicative of any real world numbers, all the numbers I used were extremely simplified for the sake of the example and lack so much nuance and should NOT be taken as hard numbers for anything. But this is the worry when it comes to deflation to my understanding, there's a psychological aspect that overtakes logic in a lot of aspects regarding spending that lead to a downward spiral.
E: Editing to add since I forgot to actually add this comment in the example, the initial trade in was over half of the new car, but the difference between 23k and 12k looks bigger than 15k and 7k, this is part of the psychologocal reasoning for holding the trade in. That's why I talk about logic vs psychology in the last paragraph, I just forgot to actually add it in the actual comment lol
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u/IrksomFlotsom 8h ago
Try and think of our global system as an engine that's purpose is to make fuel for itself. It needs to keep it's input above the output in order to keep powered on. As soon as the input drops below output the machine starts to slow down and can no longer sustain itself. The engine is not designed to slow down so it very quickly breaks down