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Can you provide more details or share a link where this is explained? I don't get this: If purchasing power decreases - how does that benefit us?

orwin 6y ago
Let's say the money is deflationary: the more you sit on it, the more you have. Why create a company or invest in one when you're sure that you will still get richer by doing nothing? Just keep cash under your pillow and wait! Now let say your parents died when you were young and all the inheritance was used for your phd in math. Who will pay you when the ROI on math discovery is so low? Every dollar you receive will make your employer poorer. You will have to become a teacher, but then, who will you teach? Other future teacher? Us had deflationary events. From 1930 to 1933 an 2007-2008 more recently.
imtringued 6y ago
If you pay less for goods the salary of the producer has to be compensated downwards to match the fall in price. Essentially your salary is going down every year. Your highest salary will be in your 20s and from that point on you will earn less and less. Now imagine that your dad is a wealthy business man in the 20th century. He keeps all his wealth in dollars and never does anything with the wealth. You inherit his dollars and will become more wealthy than your father will ever be just from deflation alone, without having to do anything to earn the additional wealth. Here's the irony. Old people are entirely dependent on the work of young people. Once old people retire and decide to spend their money it will be worthless because there won't be enough young workers to provide for all their spending. It's simply not possible to buy enough apples and water in your 20s to last until your 80s. The ability to save money over long periods of time would imply that such a thing is possible. A dollar is basically the promise that someone, somewhere in the US will work for you and provide you with a service or good. The value of the dollar is entirely dependent on the existence of an economy that lets you exchange the dollar for a service or good. In short, the dollar is backed by the economy of the US. If that economy disappears or shrinks then so does the value of your dollar. By having an inflationary currency you basically promise that future income will be greater than current income. Businesses love growing incomes and grow their business accordingly and employ workers along the way. Thus the existence of an economy that allows you to exchange dollars for goods and services is guaranteed. It's quite easy to see how deflation is bad for business. You put money into resource inputs and transform them into goods. With deflation you want to buy as late as possible and sell as early as possible. The obvious problem with this is that you must produce before you sell. It's not possible to buy inputs after selling the product. Any company that keeps an inventory of goods is discouraged to do so because the value of the goods is constantly going down.

orwin 6y ago

Let's say the money is deflationary: the more you sit on it, the more you have. Why create a company or invest in one when you're sure that you will still get richer by doing nothing? Just keep cash under your pillow and wait! Now let say your parents died when you were young and all the inheritance was used for your phd in math. Who will pay you when the ROI on math discovery is so low? Every dollar you receive will make your employer poorer. You will have to become a teacher, but then, who will you teach? Other future teacher? Us had deflationary events. From 1930 to 1933 an 2007-2008 more recently.

imtringued 6y ago

If you pay less for goods the salary of the producer has to be compensated downwards to match the fall in price. Essentially your salary is going down every year. Your highest salary will be in your 20s and from that point on you will earn less and less. Now imagine that your dad is a wealthy business man in the 20th century. He keeps all his wealth in dollars and never does anything with the wealth. You inherit his dollars and will become more wealthy than your father will ever be just from deflation alone, without having to do anything to earn the additional wealth. Here's the irony. Old people are entirely dependent on the work of young people. Once old people retire and decide to spend their money it will be worthless because there won't be enough young workers to provide for all their spending. It's simply not possible to buy enough apples and water in your 20s to last until your 80s. The ability to save money over long periods of time would imply that such a thing is possible. A dollar is basically the promise that someone, somewhere in the US will work for you and provide you with a service or good. The value of the dollar is entirely dependent on the existence of an economy that lets you exchange the dollar for a service or good. In short, the dollar is backed by the economy of the US. If that economy disappears or shrinks then so does the value of your dollar. By having an inflationary currency you basically promise that future income will be greater than current income. Businesses love growing incomes and grow their business accordingly and employ workers along the way. Thus the existence of an economy that allows you to exchange dollars for goods and services is guaranteed. It's quite easy to see how deflation is bad for business. You put money into resource inputs and transform them into goods. With deflation you want to buy as late as possible and sell as early as possible. The obvious problem with this is that you must produce before you sell. It's not possible to buy inputs after selling the product. Any company that keeps an inventory of goods is discouraged to do so because the value of the goods is constantly going down.