patrick.net

Ok, so Ecomony is Deflating, so what, the money in my pocket is worth more, I'm better off right? But if no one is spending money (or less money, everyone needs to buy food, but there many things one could live without), companies have to lay off workers because they do not have enough income coming in to pay those workers, which in turn causes a weaker job market, which in turns makes people spend even less, leading to more layoffs, and so on. If you one of the people that has a lot of money in the bank (or under your pillow) then deflation is great for you, providing of course you do not have very much debt and do not relay on your job for income week to week. But the bulk of the population will suffer.

Which makes me wonder if were in a deflating ecomony already. While the Fed is printing up money like it's going out of style, inflation really hasn't been increasing. What I think is happening is the deflating housing market is offsetting the money expansion effort to fed it doing. They are counteracting one another. If the Government wasn't printing money, I think the ecomony would be deflating, and if housing wasn't crashing, inflation would be much worse then it currently is.

jeff .... you're right. Deflation for a saver is good, but that depends to on where his savings are. There was a common saying in the Great Depression; “cash is king.” Vast fortunes were made back then by people that had cash to purchase, for example, real estate for pennies on the dollar. Of course if you had your ‘savings’ in the stock market, instead of cash, you lost plenty because of the deflating of the stock market. Holders of hard assets, such as debt free housing, collectables, art, etc. in a deflationary market are also hurt. If deflation continues for any length of time, it depresses the entire economy. Businesses usually will not expand because along with prices going down, their profits are as well. Businesses do not hire in deflationary economies because business per say is not expanding. With deflation, many consumers wait on the sidelines because prices continue to decline, i.e. the longer you wait, the better "deal" you get, which of course depresses demand and further drives prices lower. Deflation is usually viewed as a plus when it comes to exports, because goods are more affordable to overseas consumers, that is, provided their economy isn’t depressed as well. Obviously, deflation is the exact opposite of inflation, where people see prices rising and buy durable goods, etc. because they feel (rightfully so) that their DOLLARS will buy less in the future. The unusual demand and pressures that comes with inflation forces prices even higher, that eventually causes a bubble. What happened to the recent housing bubble is a prime example.

IMO, mild, continuous deflation is a very good thing. The media paints deflation as bad because according to the government it's bad (sinec they are massively in debt).

Fractional reserve banking requires mild inflation for debt service. The economy grows and everyone is happy. Deflation breaks the system.

Wage deflation is already here. Everybody I know has taken pay cuts for the past year or more
and there is no sign that these pay cuts will be restored despite the so-called "economic recovery".
In fact I am hearing that there may be more pay cuts this summer, so how can inflation even begin?
Talk of new hiring is a joke if existing employees are still getting reduced pay and hours.
Who would take on the greater expense of a new hire when current experienced workers are grossly underutilized? The proposed tax credits only cover a small percentage of the cost of hiring new workers.
The aggregate pay lost by 20 million unemployed also constitutes deflation since in
vastly reduces buying power that would be needed before prices could rise.
When state and local governments finally started laying off overpaid government workers big time
later this year we will see plenty more deflation. Most of them now own houses that they will
have to dump on the market.

Deflation isn't bad. Bernanke is full of crap. Once prices decline enough, the economy can rebuild itself. America survived a handful of sever deflationary episodes without ever resorting to Keynesian nonsense and America got out of all those episodes much quicker than the first time they ever tried to solve the problem, which was the great depression.

lookforevan says

The destruction to the system far outweighs the benefits for the savers.

No, not true. The destruction is to rich bankers, who find their collateral worth less than their outstanding loans. The Fed and indeed the whole US is set up to protect the mega-rich at the expense of everyone else. Deflation is their achilles heel.

It is an aggressively propogated myth that deflation is bad. Deflation is GOOD! Very good, very democratic. People who save benefit, people who are in debt suffer.

The same is true of businesses: good businesses prosper in deflation because their weaker (indebted) competitors are all killed by their debt. Yes, jobs are lost and wages decrease, but it's only temporary, until the bad debt goes away.

Yes, jobs are lost and wages decrease, but it’s only temporary, until the bad debt goes away.

That's the problem. You can't just turn off deflation like it's a light switch. Once it takes hold it feeds on itself and becomes almost impossible to stop. As others have said here, it's all about jobs and with deflation, you lose so many jobs that it is incredibly destructive to the economy. Saying yes, jobs are lost, but... is like saying but other than that Mrs. Lincoln--how was the play?

Also--the bad debt will never go away with deflation. It will get larger...

lookforevan says

In the end, even the creditors become losers.

yes, that's my perspective too. The mexican standoff.

Back in 2006-2007 I was buying 5% 90-day bills. Now you won't get that for a 30 year bond. Lots more USD out there now I guess, sloshing around, no place good to put it.