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If you actually care and aren’t here to simply be a contrarian, the term is “deflationary spiral” and it exists because interest rates cannot be held below zero

If you actually care and aren’t here to simply be a contrarian, the term is “deflationary spiral” and it exists because interest rates cannot be held below zero indefinitely. It’s very similar in concept to why potential losses on shorting a stock are infinite.

mindslight 5y ago
I'm not being a contrarian - I support deflation. The supposed problem with deflation is that economic activity slows down and enough stuff won't be produced. But we're presently drowning in stuff! I agree it is a concern for a non-developed economy not meeting human needs, especially when price signals travel slowly (high system momentum). But we're in a well developed economy with a near-instantaneous global network. Witness, we've had four decades of deflation in the technology sector. Inflation advocates would tell you that everybody should have put off their technology purchases until computers stop(ped) getting better and cheaper. But yet people were buying new devices the whole time. If we're concerned with natural resource depletion and sustainability, we really need to stop pumping the gas pedal. BTW I don't see your parallel to shorting a stock. Care to explain?
- deelowe 5y ago
  The issue with deflation (on a macro level, one sector isn’t relevant here) is that encourages hording money. To counter that, interest rates have to be lowered. Otherwise you have what’s called a liquidity trap. There comes a point where this lowering of interest rates isn’t sustainable and the economy collapses. The comparison to shorting a stock is that you can never have enough capital to cover the rise in price. Capital is a limited resource while there is no upper bound on the stock. So there comes a point where you can no longer cover and you lose big time.
- Turing_Machine 5y ago
  Price decreases in a specific area due to productivity gains or advancing technology are an entirely different thing from systemic, economy-wide deflation. The last round of significant deflation we had was during the Great Recession of 2008-2009. The last round of serious deflation we had was the Great Depression. Those weren't fun times to live in. Few personal economic events are more catastrophic than getting stuck with an underwater mortgage (it's probably worse than anything beyond major uninsured medical bills). Few large-scale phenomena are uglier than farmers dumping produce (because prices have collapsed to the point that it's no longer is worth the cost of shipping) while, at the same time, people are going hungry. While it's true that people worked less during those deflationary periods, they didn't actually find it quite as enjoyable as you seem to think it is.
- imtringued 5y ago
  >The supposed problem with deflation is that economic activity slows down and enough stuff won't be produced. But we're presently drowning in stuff! The entire point behind deflation is getting rid of that surplus. It's about trimming everything except basic cost of living. If you are a company and your profit is going down every year you are going to cut production. Cutting production also means cutting jobs. It's that simple. The savings utopia also doesn't exist because the 0% lower bound for interest rates prevents money creation to catch up with savings. If everyone saves there literally won't be any money left to save. Deflation is an economic dead end. People believe that money is infallible and the perfect risk free asset, especially if it's value is going up via deflation. The risk free assumption is just an approximation given a properly functioning economy and deflation doesn't reward a properly functioning economy.

mindslight 5y ago

I'm not being a contrarian - I support deflation. The supposed problem with deflation is that economic activity slows down and enough stuff won't be produced. But we're presently drowning in stuff! I agree it is a concern for a non-developed economy not meeting human needs, especially when price signals travel slowly (high system momentum). But we're in a well developed economy with a near-instantaneous global network. Witness, we've had four decades of deflation in the technology sector. Inflation advocates would tell you that everybody should have put off their technology purchases until computers stop(ped) getting better and cheaper. But yet people were buying new devices the whole time. If we're concerned with natural resource depletion and sustainability, we really need to stop pumping the gas pedal. BTW I don't see your parallel to shorting a stock. Care to explain?

deelowe 5y ago
The issue with deflation (on a macro level, one sector isn’t relevant here) is that encourages hording money. To counter that, interest rates have to be lowered. Otherwise you have what’s called a liquidity trap. There comes a point where this lowering of interest rates isn’t sustainable and the economy collapses. The comparison to shorting a stock is that you can never have enough capital to cover the rise in price. Capital is a limited resource while there is no upper bound on the stock. So there comes a point where you can no longer cover and you lose big time.
Turing_Machine 5y ago
Price decreases in a specific area due to productivity gains or advancing technology are an entirely different thing from systemic, economy-wide deflation. The last round of significant deflation we had was during the Great Recession of 2008-2009. The last round of serious deflation we had was the Great Depression. Those weren't fun times to live in. Few personal economic events are more catastrophic than getting stuck with an underwater mortgage (it's probably worse than anything beyond major uninsured medical bills). Few large-scale phenomena are uglier than farmers dumping produce (because prices have collapsed to the point that it's no longer is worth the cost of shipping) while, at the same time, people are going hungry. While it's true that people worked less during those deflationary periods, they didn't actually find it quite as enjoyable as you seem to think it is.
imtringued 5y ago
>The supposed problem with deflation is that economic activity slows down and enough stuff won't be produced. But we're presently drowning in stuff! The entire point behind deflation is getting rid of that surplus. It's about trimming everything except basic cost of living. If you are a company and your profit is going down every year you are going to cut production. Cutting production also means cutting jobs. It's that simple. The savings utopia also doesn't exist because the 0% lower bound for interest rates prevents money creation to catch up with savings. If everyone saves there literally won't be any money left to save. Deflation is an economic dead end. People believe that money is infallible and the perfect risk free asset, especially if it's value is going up via deflation. The risk free assumption is just an approximation given a properly functioning economy and deflation doesn't reward a properly functioning economy.