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Even just minor deflation is disastrous for economies because if there is 3% deflation, you could get 100% of what was generally typical GDP growth for develope

• nostrademons 9y ago
  Japan's the classic one - they've been stuck in a deflationary trap since 1990: https://en.wikipedia.org/wiki/Lost_Decade_(Japan) https://en.wikipedia.org/wiki/Lost_Decade_(Japan) The Great Depression in the U.S. as well. There's a possible counterexample with the Long Depression in the U.S: https://en.wikipedia.org/wiki/Long_Depression https://en.wikipedia.org/wiki/Long_Depression Here, prices fell slowly: 1-2%/year, caused by sharply rising productivity. The period was also called the Gilded Age, and it was a mixed bag economically. On one hand, the structure of American society dramatically changed through massive technological advance, consumer goods became abundant, and businesses who adopted those techniques became fabulously wealthy. OTOH, many small farmers went bankrupt and were forced to sell off their land to service debts they couldn't pay with money that was now more valuable than when they took out the debt. Ditto lower-class laborers, who were squeezed into tenements with dozens of families living together as their wages remained stagnant for a generation but their employers became fabulously wealthy and bought up much of the prime real estate. The Long Depression is largely forgotten today (unless you're an economic history geek), but it was a prime impetus for the monetarist school of thought. The whole idea that the government needs to continually print money to catch up with rising productivity and availability of goods is largely based on the experience of the U.S. in the Long Depression, when they didn't print money. Also, there's a good amount of evidence that our current period of history resembles the Long Depression a lot more than either the Great Depression or 1970s stagflation, and will play out in similar ways. I'd personally put us around the mid-1890s in terms of historical parallels.
  • smallnamespace 9y ago
    The late Roman republic also fell into a deflationary spiral, as the currency was repeatedly debased by successive governments desperate to fund the military. This triggered massive hoarding of currency, despite harsh legal measures that tried to outlaw it. Everyone had an incentive to hoard the old, higher silver coins while shunning the new debased coins being issued [1]. 'Bad money drives out good' [2]. Eventually, the majority of the Roman economy became demonetized, and people had to resort to barter again. Welcome to the feudal ages. [1] http://money.visualcapitalist.com/currency-and-the-collapse-of-the-roman-empire/ http://money.visualcapitalist.com/currency-and-the-collapse-... [2] https://en.wikipedia.org/wiki/Gresham%27s_law https://en.wikipedia.org/wiki/Gresham%27s_law * Note that there is a confusion of terminology here -- things look inflationary if you are counting the number of coins it takes to buy something, but highly deflationary if you measure the amount of silver to buy the same item, as silver was sucked out of the economy and then hoarded. From a certain perspective, both factors actually came together to destroy the late Roman monetary system -- the real 'store of value', silver, was removed from the system and hoarded because it was deflationary. And hyper-inflation in the fiat currency simultaneously made the coins totally worthless and therefore unsuitable for doing transactions.