Deflation bad for savers?

JoeCrystal

@bendix Indeed, the big time saver would benefit from it considerably. Especially these who fix their savings with high interests.

BenL

So they are trying to hoodwink us into inflation to make reckless peoples debts reduce in real terms and then they can feel rich and borrow more again.

tomterm8

Both deflation and inflation are aggregate measures, though. Just because the economy as a whole is in a mild deflation, doesn't mean that the things you actually spend money on will decrease in cost. Pensioners spend the majority of their money on things that are essential, and so much less likely to reduce in price.

nickmason

bendix wrote: »

I cant believe GB would have said that. It stands to reason. If I have £1000 in my savings today and I leave it there for a year (even at 0% interest) and we have deflation of -1%, then after that year I will only need to spend £990 pounds to get goods worth £1000 a year ago.

Thus the purchasing power of my cash savings is greater next year, than it is now, even if it hasnt increased in actual terms.

Absolutely agree. I think there is some confusion in here (isn't there always:mad:) about what inflation/deflation we're talking about.

TomTerm's point re price-inelastic baskets for pensioners suggests that food and bills will continue to inflate despite deflation affecting "other stuff". Which is where, I guess, the latest spectre of biflation is coming from :eek:

Honestly, I'm getting lost. It's been said before, I think some of the text-books are getting ripped up here.

I'm deeply suspicious that at some stage of all this redistribution, we're going to be asking each other "well who's got the money now?" and find the answer to be no-one.

tomterm8

nickmason wrote: »

I'm deeply suspicious that at some stage of all this redistribution, we're going to be asking each other "well who's got the money now?" and find the answer to be no-one.

Seems quite possible to me, after all we are seeing tremendous amounts of wealth being destroyed. Some of it was even real wealth, not just paper wealth. It seems quite likely that everyone will be worse off.

Graham_Devon

tomterm8 wrote: »

Seems quite possible to me, after all we are seeing tremendous amounts of wealth being destroyed. Some of it was even real wealth, not just paper wealth. It seems quite likely that everyone will be worse off.

There are some winners of this recession and credit crunch.

Fred Goodwin being one who's done very well thankyou very much. More money for less, indeed, no, work

tomterm8

Given how much money he had in RBS shares which are now worth... well.... not very much, I don't think he would see it that way. He's also lost the ability to have dozens of non-executive directorships at £200,000 pa a pop.

Not that I feel sorry for the ******.

ad9898_3

I heard this today too, I believe either

1. She doesn't know what she is talking about, or
2. She mis-spoke.

Deflation is good for savers and those who have cash, as in real terms your money will buy you more, this is certainly the case if you are saving to buy house, as we all know where prices are heading there.

Deflation is very bad if you have debts, as these in real terms become bigger. We now see why Brown will do anything, and I mean anything to stop deflation as his 'house of sand' that he has built over the last 12 years as been built on debt.

nickmason

ad9898 wrote: »

I heard this today too, I believe either

1. She doesn't know what she is talking about, or
2. She mis-spoke.
.

As you can see from the biog I found, she is an economist. So it must be, ahem, either (1) or (2).

(Just trying to make life easier for StevieJ to put me back in the "rabid, crazy Tory" box.)

In reality, she is very bright, and connected/on-message, and I doubt it was a mistake. Which is what has me curious about it. Is this becoming a recognition that they will inflate away the debt, and however horrible that will be for savers, they need to get the message out that deflation would have been worse? After all the public will never be able to judge whether the alternative would actually have been as bad - so does it make sense for the gov to be saying that the effects of deflation are simply impossible to countenance ("we'd have to suspend the NHS, adult care, etc, etc?")

tomterm8

Could it be neither (1) or (2) but

(3) she is lying?

After all, at this stage the only Labour strategy that has a hope of winning the next election is convincing us all we were heading to armegeddon and by miraculous grace Flash Gordon has instead landed us in 1982 without a paddle.