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The issue with deflation is expectations. If there's expected inflation or deflation it's not too bad; purchases get pulled forward or delayed but people can s
by astrange 3y ago
The issue with deflation is expectations.
If there's expected inflation or deflation it's not too bad; purchases get pulled forward or delayed but people can still make plans for it.
Unexpected inflation makes people unhappy because they have to increase spending on essentials, but they usually survive, and it's good for debtors because they get nominal wage increases which make nominal debts easier to pay off.
But the opposite happens with unexpected deflation - it gets harder to pay off loans, which is bad if your business has loans and can kill it. So if a company got a profit hike, reinvested all of it, then had a deflation shock, they might go bankrupt.
This is okay if it only happens to a few companies, but greedflation relies on some companies being extra important to customers, so that seems extra disruptive if they fail.
- didibus 3y agoSo if a company got a profit hike, reinvested all of it, then had a deflation shock, they might go bankrupt If they reinvested all of it, it wouldn't have counted as profit. The study points out at outsized increased profit.
- astrange 3y agoThat just means the issue moves to the shareholders.
- didibus 3y agoYour thesis doesn't really make sense to me. You're assuming someone that is making outsized profit this year, somehow is gambling all of that profit and their existing money in some risky bet that depends on the continuation of greedflation, and if that stopped and their price gouging were forced to come back down to normal level, they'd lose their bet, and somehow that would be so catastrophic that the biggest most depended on juggernauts would collapse into bankruptcy causing a country wide recession?