Economists warn of deflation threat.
Why is deflation threatening?
With inflation, each dollar buys less. So it stands to reason that with deflation, each dollar will buy more. On a personal level, this means that I can buy more stuff. It means that, even if I don't manage to get a good interest rate, the real value of my savings isn't going to decrease. It means that if I lose my job, I can stretch my savings further.
On a broader level, if people can buy more stuff that will stimulate the economy, which is generally considered a good thing. If we can buy more stuff, we can buy more discrete consumer products (i.e. instead of buying shoes I can buy shoes AND a dress), each of which has its own supply chain involving several jobs that will be supported by the purchase. If real prices are lower, we'll be able to afford more local and more ethical purchases rather than buying the cheapest made in china stuff from the dollar store, which will support local and ethical businesses and manufacturers and, again, boost the economy.
So why is deflation a threat? What am I missing here?
3 comments:
Deflation is like what has happened in the past in South America where the dollar becomes worthless. ie: you need $100 to buy a can of coke and get paid $5,000,000. When the dollar is worthless it causes "runs" on the bank where everyone runs to the bank to take out all their money in cash b/c of course the bank doesn't have all the cash in demand deposits liquid. Kills the stock market too b/c you don't get foreign investment.
Are you sure? I always thought when the prices get higher that's inflation. Because in general there's always a bit of inflation (they're always talking about how the monetary policy people try to keep inflation at like 2%), and in general prices increase over time (like how back in the day people earned a dollar an hour and could go to the movies for a nickle.)
So with deflation, wouldn't the prices go down? Yes? No?
Deflation is like what has happened in the past in South America where the dollar becomes worthless.
Pretty sure that's inflation.
I don't know the answer to the original question, tho.
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