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But wouldn't prices of goods go down too? Wouldn't that even things out with lower wages? You'll still be able to afford the same amount of stuff. Continuing t
by AznHisoka 9y ago
But wouldn't prices of goods go down too? Wouldn't that even things out with lower wages? You'll still be able to afford the same amount of stuff.
Continuing the example of buying homes... wouldn't that be a good (or neutral) thing since it means we wouldn't have so many people speculating on real estate, and taking out easy loans to buy homes, leading to unhealthy increases in home prices?
- ufo 9y agoPrices of goods go down, but the price of existing debts doesn't, which is the big problem. I agree that the housing market is not the ideal example but we need to look at debt in general when talking about deflation. In a deflationary setting, reduced lending reduces the speed that money moves around and depresses the economy. Business have trouble closing the book because falling prices of goods sold today are not enough to cover the cost of supplies from when they were manufactured a month ago. Periods of deflation have tended to go hand in hand with major economic busts, which is why modern monetary policy tries to avoid even the mildest form of deflation.