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> nerfhammer probably meant a nominal return of 5%, which when combined with 5% deflation is 0. What nerfhammer meant was that a 5% deflation is EQUIVALENT to
by PantaloonFlames 11y ago
> nerfhammer probably meant a nominal return of 5%, which when combined with 5% deflation is 0.
What nerfhammer meant was that a 5% deflation is EQUIVALENT to a 5% nominal rate of return in a 0% inflation market.
In other words, during deflation, sitting on cash makes the cash more valuable. Deflation is a dis-incentive to invest, share money, start projects, or seek profits.
- evanpw 11y agoExcellent point. In other words, if you can earn a 5% (real) risk-free return by stuffing $100 bills under your mattress, you're much less likely to make a risky investment expected to make a 6% (real) return, and definitely won't make any investments earning 4%.