Why is deflation bad?
- Thread starter noob_trad3r
- Start date
1. deflation was a harmful byproduct of the depression which magnified it. Aggregate demand dropped, so prices dropped, companies made less profit and had to lay off people or cut wages, furthering the drop in aggregate demand.
2. A weak japanese yen hurt the japanese. The price of imports rose, while they became a export-driven economy. We've been buying TV's and Car's cheap from Japan the past 10 years, they have not been able to afford american products.
"weak yen" what are you talking about?
http://moneycentral.msn.com/investo...ayForm=1&D4=1&D5=0&D3=0&ViewType=0&CP=0&PT=11
your remark is only slightly better than the other poster who said we had more price stability since 1913 while prices rose 10x.
If what Napolitano said on FOX is correct, it is stable in it's approach to approaching 0 value
I and others on this board have harped on about the dangers of deflation many, many times in the past. Do a search, it's the link on the top right of the screen.
I will throw you one last bone here in an attempt to get you to understand why deflation is bad. Think of the USA. How many trillions of dollars is the USA in debt? How can they pay that back in a deflationary environment? They can't. Please don't make me explain to you why they wouldn't be able to pay this back, it is elementary. Think of the series of events that will take place if the USA were to suddenly default on their payments. Economic catastrophe.
I won't even bother getting into the whole consumer price/spending habit side of things as this has been said many times and should be obvious to those with knowledge of economics.
You also might want to review your definition of "price stability". Prices were much more volatile in the years preceding 1913 than in the years succeeding it. A low, steady inflation rate is infinitely healthier for the economy than wild and unpredictable inflation/deflation rates.
But that's exactly what you're doing... You're committing the very same basic fallacy. Specifically, Event A occuring at the same time as Event B doesn't imply that Event A caused Event B. Contemporaneity doesn't imply causality (and vice versa). That should be obvious.
Excellent... Your use of the word "reasonable" suggests that you realize that you're speculating (and not doing it particularly well, given the poor quality of your reasoning). You're entitled to your opinions and theories, of course, but you do realize that not every plausible theory is correct? While I obviously can't prove that it's NOT the Fed's fault, I am pretty sure that I can come up with a much more compelling theory of why realized inflation in the 20th century has been higher than before. It would take a wee bit of work though.
That's yet another silly argument. Who gives a rat's ass about the change in the nominal value of one dollar? What matters is the purchasing power of the population in the year 1913 and after. Here's one measure for you (using the same helpful website): US real GDP per capita in 1913 was about 4 times what it was in 1820; in 2006 it was about 7 times what it was in 1913. How about 'em apples? Shouldn't we all be praising the Fed for the wonderful job that they've done?
I personally would like to see a good dose of it in the economy, because the U.S. economy couldn't sustain deflation very long and it would put some perspective back into corporate margins (which in the end would make U.S. manufacturing more competitive IMO). Might make existing real estate deflation a bit more palatable as well.
Another attractive prospect would be to take some air out of all the government inflation-indexed payment systems and statistical models.
Another attractive prospect would be to take some air out of all the government inflation-indexed payment systems and statistical models.
Maybe thank them that a dollar will purchase less and less of that output.
Isn't that like they are taxing people? Can the Fed levy taxes?
Huh? This is "real" output, measured in the same 2005 dollars throughout. Moreover, it's value added that's been created and purchased, so how can there be less or more of it?