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> Deflation is widely considered to be worse than inflation, reasons for which we can discuss if so desired. I'd love to discuss it. Questions: Why is a 3% in

> Deflation is widely considered to be worse than inflation, reasons for which we can discuss if so desired. I'd love to discuss it. Questions: Why is a 3% inflation rate desirable yet 15% is catastrophic? Why is the 2-3% inflation goal set in stone and unable to be ever changed? Many developed countries keep targeting this rate despite being unable to achieve it. Is someone going to mention the emperors clothing eventually? Why is deflation itself bad? Why is cheaper food, shelter and consumer items a bad thing for society as a whole? People save more, consider their purchases more carefully and tend to be more cautious about their money. Some examples of deflationary products are computer hardware and new cars. People tend to take these purchasing decisions quite seriously and research far more than not, is that a bad thing?

manfredo 8y ago
Deflation doesn't mean cheaper food and shelter. Remember, deflation reduces the dollar value of labor, too. But the dollar-value of all other goods and services decreased tenfold as well so in the end nothing has changed. However, there's one big factor you're missing: debt. Simply put, inflation favors debtors while inflation favors creditors. Imagine you bought your house with bitcoin, and took out a mortgage of 500 bitcoins to pay for said house, back when bitcoin was $500. Total debt, $250k. Now, the price of bitcoin is over $6,000. Did your loan magically shrink from 500 bitcoin to ~42 bitcoin? No, your loan is still 500 bitcoin. So your $250k mortgage has become a $3 million mortgage. So inflation hurts people that loan out more money than they owe: mostly banks and rich people. Deflation hurts people that owe more money than the loan out: poor and middle class people. Benefiting the wealthy at the expense of the poor is broadly considered to be immoral. An ideal world might see zero inflation and zero deflation, but predictions are always off so the Fed plays it safe and targets ~2% inflation.
- ShorsHammer 8y ago
  > Deflation doesn't mean cheaper food and shelter. It's the literal definition of it. https://seekingalpha.com/article/4085479-food-deflation-hurts-grocery-industry https://seekingalpha.com/article/4085479-food-deflation-hurt... > So inflation hurts people that loan out more money than they owe: mostly banks and rich people. General controlled inflation doesn't hurt banks at all, they simply put their margin on top and that's the interest rate. In fact people are far more likely to use their services in a high inflationary environment. "Rich people" and large corporations are far more indebted than the average person, they disproportionally benefit compared to a simple wage earner purchasing a house or running a small business. Also the headline inflation rate and individual sectors are two entirely different beasts. If wage inflation moves nowhere but overall inflation goes up it's absurd to claim this benefits the poor and workers. It only encourages more people to borrow and speculate on assets in a feedback loop. Inflation is not some magical gift from the financial heavens bestowed upon the masses to balance out society, in fact it's the opposite.
NeedMoreTea 8y ago
15% was not catastrophic for those of us old enough to have lived through rates that high. Just different. Unless the devaluation of a currency actually matters to you. My country has had a currency devaluing for well over 100 years, in high and low inflation, so the point is mostly moot. Wage rises were aimed at say 5% ahead of inflation as anything smaller would instantly get eaten. Mortgages inflated down to pocket change, so after ten years of mortgage the percentage of your pay that went on the mortgage was so low it felt like housing became essentially free. You didn't keep £20k in a savings account as inflation would chew into it quickly, despite the account maybe paying 12%. Deflation means everyone is putting off all possible spending. Why buy that car when it'll be cheaper next month? As companies react to lower demand they lay people off, which increases unemployment and adding more deflationary pressure and reduces demand further. When enough companies have laid enough people off few are going to risk starting a company, as all the money in the economy is under mattresses waiting for things to get cheaper.

manfredo 8y ago

Deflation doesn't mean cheaper food and shelter. Remember, deflation reduces the dollar value of labor, too. But the dollar-value of all other goods and services decreased tenfold as well so in the end nothing has changed. However, there's one big factor you're missing: debt. Simply put, inflation favors debtors while inflation favors creditors. Imagine you bought your house with bitcoin, and took out a mortgage of 500 bitcoins to pay for said house, back when bitcoin was $500. Total debt, $250k. Now, the price of bitcoin is over $6,000. Did your loan magically shrink from 500 bitcoin to ~42 bitcoin? No, your loan is still 500 bitcoin. So your $250k mortgage has become a $3 million mortgage. So inflation hurts people that loan out more money than they owe: mostly banks and rich people. Deflation hurts people that owe more money than the loan out: poor and middle class people. Benefiting the wealthy at the expense of the poor is broadly considered to be immoral. An ideal world might see zero inflation and zero deflation, but predictions are always off so the Fed plays it safe and targets ~2% inflation.

ShorsHammer 8y ago
> Deflation doesn't mean cheaper food and shelter. It's the literal definition of it. https://seekingalpha.com/article/4085479-food-deflation-hurts-grocery-industry https://seekingalpha.com/article/4085479-food-deflation-hurt... > So inflation hurts people that loan out more money than they owe: mostly banks and rich people. General controlled inflation doesn't hurt banks at all, they simply put their margin on top and that's the interest rate. In fact people are far more likely to use their services in a high inflationary environment. "Rich people" and large corporations are far more indebted than the average person, they disproportionally benefit compared to a simple wage earner purchasing a house or running a small business. Also the headline inflation rate and individual sectors are two entirely different beasts. If wage inflation moves nowhere but overall inflation goes up it's absurd to claim this benefits the poor and workers. It only encourages more people to borrow and speculate on assets in a feedback loop. Inflation is not some magical gift from the financial heavens bestowed upon the masses to balance out society, in fact it's the opposite.

NeedMoreTea 8y ago

15% was not catastrophic for those of us old enough to have lived through rates that high. Just different. Unless the devaluation of a currency actually matters to you. My country has had a currency devaluing for well over 100 years, in high and low inflation, so the point is mostly moot. Wage rises were aimed at say 5% ahead of inflation as anything smaller would instantly get eaten. Mortgages inflated down to pocket change, so after ten years of mortgage the percentage of your pay that went on the mortgage was so low it felt like housing became essentially free. You didn't keep £20k in a savings account as inflation would chew into it quickly, despite the account maybe paying 12%. Deflation means everyone is putting off all possible spending. Why buy that car when it'll be cheaper next month? As companies react to lower demand they lay people off, which increases unemployment and adding more deflationary pressure and reduces demand further. When enough companies have laid enough people off few are going to risk starting a company, as all the money in the economy is under mattresses waiting for things to get cheaper.