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>"Well if you target 0% and any actual result below 0% happens, that's deflation which is a disaster for economies." It's not actually clear that deflation cau

by nickff 5y ago

>"Well if you target 0% and any actual result below 0% happens, that's deflation which is a disaster for economies." It's not actually clear that deflation causes economic problems for the commonly cited reason (decrease in consumer spending). I think you're right about most of what you say concerning inflation. https://www.investopedia.com/articles/markets/111715/can-deflation-be-good.asp https://www.investopedia.com/articles/markets/111715/can-def...

015a 5y ago
The bigger issue isn't just a decrease in consumer spending; it's a decrease in investment (public markets, private equity, consumer loans, etc). If a bank can just sit on their dollars, and see a guaranteed rate of return potentially higher than a risk-adjusted rate of return after investment, that will happen more often. It trades a reduction in the long-term health of the real economy for an increase in the short-term health of the currency, but over a long enough period of time all currencies are a projection of the health of their real economy. The Swiss example is a poor one, given the makeup of their economy is nothing like most of the rest of the world, with its bias toward the finance sector. The finance sector would love deflation; they can take no risk and win, or they can take risks (issue consumer loans) and also increase their probability of winning. All that being said: there's a "correlation not causation" issue in that, the US originally set its "inflation as a target" policy back in the late-60s/early-70s. Ever since then, it doesn't matter what metric you look at, they've all gone sour [1]. Theoretically, causatively, some inflation is good for consumers; but correlatively, its difficult to ignore it as a potential cause for why everything sucks. It's moreso a matter of figuring out... why. [1] https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/
- Kon-Peki 5y ago
  > The finance sector would love deflation In theory. In reality, customers have a really hard time making loan payments and their collateral no longer covers their debt. I'd say more financial firms have gone bust in a deflationary environment than an inflationary environment.
smeeth 5y ago
The economic profession developed some serious deflation PTSD from the great depression. I always heard deflation was bad. Nobody ever seemed to have a great case for why based on good historical data. This is a chart of the US annual inflation rate. Note that consistent inflation only occurs after ~1930. https://commons.wikimedia.org/wiki/File:US_Historical_Inflation_Ancient.svg https://commons.wikimedia.org/wiki/File:US_Historical_Inflat... This is a log-scale chart of US GDP per capita adjusted for inflation and international price differences. https://ourworldindata.org/grapher/gdp-per-capita-maddison-2020?yScale=log&time=1650..2018&country=~USA https://ourworldindata.org/grapher/gdp-per-capita-maddison-2... Do you see a discernible change in growth trend since the shift to consistent positive inflation? I don't. To be clear, I'm not saying this is even close to conclusive evidence, I just feel like its a compelling enough side-by-side to warrant further questioning.

by nickff 5y ago

015a 5y ago

The bigger issue isn't just a decrease in consumer spending; it's a decrease in investment (public markets, private equity, consumer loans, etc). If a bank can just sit on their dollars, and see a guaranteed rate of return potentially higher than a risk-adjusted rate of return after investment, that will happen more often. It trades a reduction in the long-term health of the real economy for an increase in the short-term health of the currency, but over a long enough period of time all currencies are a projection of the health of their real economy. The Swiss example is a poor one, given the makeup of their economy is nothing like most of the rest of the world, with its bias toward the finance sector. The finance sector would love deflation; they can take no risk and win, or they can take risks (issue consumer loans) and also increase their probability of winning. All that being said: there's a "correlation not causation" issue in that, the US originally set its "inflation as a target" policy back in the late-60s/early-70s. Ever since then, it doesn't matter what metric you look at, they've all gone sour [1]. Theoretically, causatively, some inflation is good for consumers; but correlatively, its difficult to ignore it as a potential cause for why everything sucks. It's moreso a matter of figuring out... why. [1] https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/

Kon-Peki 5y ago
> The finance sector would love deflation In theory. In reality, customers have a really hard time making loan payments and their collateral no longer covers their debt. I'd say more financial firms have gone bust in a deflationary environment than an inflationary environment.

smeeth 5y ago

The economic profession developed some serious deflation PTSD from the great depression. I always heard deflation was bad. Nobody ever seemed to have a great case for why based on good historical data. This is a chart of the US annual inflation rate. Note that consistent inflation only occurs after ~1930. https://commons.wikimedia.org/wiki/File:US_Historical_Inflation_Ancient.svg https://commons.wikimedia.org/wiki/File:US_Historical_Inflat... This is a log-scale chart of US GDP per capita adjusted for inflation and international price differences. https://ourworldindata.org/grapher/gdp-per-capita-maddison-2020?yScale=log&time=1650..2018&country=~USA https://ourworldindata.org/grapher/gdp-per-capita-maddison-2... Do you see a discernible change in growth trend since the shift to consistent positive inflation? I don't. To be clear, I'm not saying this is even close to conclusive evidence, I just feel like its a compelling enough side-by-side to warrant further questioning.