4 ms·
The problem is that people hoard money in anticipation of even lower prices down the road. Why should I buy good X for $Y today, when I anticipate that good X w
by quanticle 16y ago
The problem is that people hoard money in anticipation of even lower prices down the road. Why should I buy good X for $Y today, when I anticipate that good X will be available for $(.85)Y tomorrow? If enough people think like I do, the quantity of X demanded drops, causing the market to create the very price drop I was anticipating.
In addition, deflation increases the value of debts - any spare cash I have is going to be soaked up by the increasing value of my debts, and will not be available for further consumption.
- vrotaru 16y ago> Why should I buy good X for $Y today, when I anticipate that good X will be available for $(.85)Y tomorrow? And why should you buy the good X for $(.85)Y tomorrow, if it will cost $(.7225)Y the day after tomorrow? Right? I see that's why people never spend money on new phones and computers!!!1!! Now seriously, the assumption that people will forever postpone consumption is absurd and wrong. But the whole deflationary spiral theory falls apart without that assumption.