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I have heard lots of hand-waving arguments for why a deflationary currency is bad, but they have never made much sense to me. A deflationary currency doesn’t m

by lowkey 5y ago

I have heard lots of hand-waving arguments for why a deflationary currency is bad, but they have never made much sense to me. A deflationary currency doesn’t mean no one will ever spend or invest. It simply means that there is less forced incentive to spend and consume in order to avoid inflation. Inflationary currencies are like a tilted playing field, they artificially force savers to spend or invest in risky assets while skewing economic metrics to make the economy look better than it is. While the gold standard was not deflationary, the relatively fixed supply resulted in strong stable economic growth until countries in Europe began secretly debasing their currencies in the run up to WWI. Inflating fiat currencies gave the European countries the power to perpetuate the first endless war - I strongly believe if they had been forced to tax their citizens to pay for WWI instead of stealing the wealth of the people by inflation, the World wars would not have been so severe and so prolonged.

thehappypm 5y ago
Since inflation and deflation are just monetary things, things like wages and asset values should move in lockstep with it, and this has historically been true. Wages go up over time, as do things like gold prices and stock indices, in dollar terms. So why do governments prefer slight inflation? A slight amount of inflation first allows governments to print a bit more money than they're collecting, which allows them to spend a bit more. Comparatively, in a deflationary world, they would need to collect more taxes than they spend, which would be tough both politically and tough for balanced budgets, since government spending is useful. Deflation would mean that you basically get a net worth bump just from holding on to cash. You would have a real, tangible benefit of not spending money but rather keeping it in a bank account. Money in a bank account does not contribute to productivity. Money spent, or invested in companies doing productive work, is preferable. To counter inflation you at the very least need to invest in something like a CD, which the bank can then use to loan out mortgages and the like, keeping the money flowing.

by lowkey 5y ago

thehappypm 5y ago

Since inflation and deflation are just monetary things, things like wages and asset values should move in lockstep with it, and this has historically been true. Wages go up over time, as do things like gold prices and stock indices, in dollar terms. So why do governments prefer slight inflation? A slight amount of inflation first allows governments to print a bit more money than they're collecting, which allows them to spend a bit more. Comparatively, in a deflationary world, they would need to collect more taxes than they spend, which would be tough both politically and tough for balanced budgets, since government spending is useful. Deflation would mean that you basically get a net worth bump just from holding on to cash. You would have a real, tangible benefit of not spending money but rather keeping it in a bank account. Money in a bank account does not contribute to productivity. Money spent, or invested in companies doing productive work, is preferable. To counter inflation you at the very least need to invest in something like a CD, which the bank can then use to loan out mortgages and the like, keeping the money flowing.