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> Deflating currencies act as value holders, not as currencies, they don't promote trading or commerce, buying and selling it for physical things. I know this
by snikeris 9y ago
> Deflating currencies act as value holders, not as currencies, they don't promote trading or commerce, buying and selling it for physical things.
I know this is the commonly accepted reason why inflation is good and deflation is bad. But isn't this just coercion? Here's your paycheck. You better go out spend it like a good consumer because we're going to ensure its value is going to slowly erode over time.
Modern man already needs to buy and sell things to survive. It's not clear to me why his currency needs to further promote this behavior.
- bryananderson 9y agoYes, that’s exactly what it is, but with one crucial additional factor: investment. Mild inflation does not discourage saving, it discourages saving the actual currency, which does nothing for the economy. It encourages saving in the form of investment, which stimulates the economy. If my dollars were guaranteed to get more and more valuable over time, why would I spend them (more than absolutely necessary) or invest them in economic ventures? This is why deflationary currency is bad.
- snikeris 9y agoIt might be bad for the economy/GDP but what about for the individual? Consider a blue collar worker just making enough to get by and saving a little cash on the side. Why are you forcing this person to learn about inflation, interest rates, the SP500, etc.
- bryananderson 9y agoIf they are saving a little bit on the side for the short term, inflation will not noticeably hurt them (I am speaking of a well-managed monetary system with mild inflation such as the US). If they want to save for the long term, then they should invest it if they want to maximize gains. That’s what’s best for the individual.
- deleted 9y ago[deleted]
- snikeris 9y agoWhat if they're not interested in maximizing gains? What if they don't want to learn about investing? What if they just want their hard earned money to not evaporate on them?
- basch 9y agotarget funds https://www.schwabfunds.com/public/file/P-9430864 https://www.schwabfunds.com/public/file/P-9430864
- snikeris 9y agoMy uncle told me these cryptocurrencies are an even better investment!
- em500 9y agohttps://en.m.wikipedia.org/wiki/United_States_Treasury_security#TIPS https://en.m.wikipedia.org/wiki/United_States_Treasury_secur...
- mitchellberry 9y agoYour dollars already do get more valuable over time wrt consumer electronics and cars, yet people still purchase them en masse. Many still spend in a deflationary environment, they just do so with far more care about the product and it's longevity. People will invest also, though only with a expected return greater than deflation gains. Instead the status quo is being forced into overvalued equities or real estate investments. There's no real option to be a saver in the western world anymore.
- chris_wot 9y agoInflation is either good or bad, depending on the circumstances. Same with deflation. A currency is important only because it is a medium of exchange. A currency is actually working well if it is slowly decreasing in value, because if it does not then people will hold onto it and not use it, thus making it a commodity. In the longer term, what happens is that people will switch to another method to transfer value, and your currency then becomes worthless as the reason for it storing value is removed. This is one of the reasons why a deflationary by design cryptocurrency is so dangerous. It seems intuitive in our current thinking to increase value by design, but actually this can have dusasterous consequences. Japan, for instance, has had massive problems with deflation and eventually had to work to counter this for their economic health. Obviously rampant inflation is dreadful, but that’s not what we are talking about here. Low underlying inflation is, somewhat ironically, an excellent indicator of a healthy economy.