Whats wrong with deflation ?

bluey890

needahome wrote: »

I'm confused about why deflation is bad ?
?

The UK is an indebted country. Deflation increases the real value of this debt. Inflation decreases it. QED.

The situation in the UK is very different to Japan, where savings are/were more prevalent.

Ps. I avoided posting an erection joke.

ess0two

zappahey wrote: »

It does, you know. I know loads of people who keep putting off computer purchase because they "will get a better one next month for the same price"

'Loads' how many?

bluey890

ess0two wrote: »

'Loads' how many?

10 people.

tomstickland

It doesn't matter how many they know, it matters that a proportion of people do wait. I do, for example.

purch

Deflation is bad, because ultimately the economy will grind to a halt.

Currently, even if the Sony Bravia ZZ40LCDGGHH1345 Super Wega Engine 40" LCD retails for £1,100...and next month will cost £990, it will be replaced by a 'brand new' Sony Bravia etc etc Super Dooper Wega for £ 1,150.

But with real Deflation, not only will the old model fall in price, they won't be able to sell the new model at a higher price either, so the incentive to innovate is lost. There is no point in spending millions on R & D if the ultimate price you can sell for, is falling.

Manufacturers cannot afford to hold inventories of raw materials, if the price of the finished product is falling, so they order less raw material, and that continues on down the manufacturing chain.

Retailers cannot afford to hold stock, as the price keeps falling so they order less, so the Manufactures get hurt, and then their suppliers.

Ultimately everything will grind to a halt.

why deflation is bad ? isn't that afterall been the goal of goverment policy ?

Government policy is to have an Inflation rate of about 2%

ess0two

bluey890 wrote: »

10 people.

20 maybe.......

ruggedtoast

needahome wrote: »

inflation erodes living standards, deflation increases it, why the fcuk is it bad news ?

The capital reserve banking system, is predicated on a process of compound debt to create money. Interest is charged on the debt so, crudely speaking (and ignoring things like the speed money changes hands) the amount of money which needs to be repaid is always slightly larger than the money that actually exists.

If the cost of living goes down and people repay their debts rather than borrowing more, the money supply further diminishes. The less money there is the more people have to default on loans because the cash doesnt exist to repay them.

This creates inertia in the money supply, people save and worry rather than spend and borrow.

Sounds like a stupid way of managing an economy? Yes, and it was invented by us and inflicted on the rest of the world.

ess0two

tomstickland wrote: »

It doesn't matter how many they know, it matters that a proportion of people do wait. I do, for example.

Perhaps so,i tend to be the kind of person that buys something when i need it.
I needed a new TV i could wait a month and listen to the radio,or buy straight off and enjoy it.

bluey890

purch wrote: »

Deflation is bad, because ultimately the economy will grind to a halt.

Currently, even if the Sony Bravia ZZ40LCDGGHH1345 Super Wega Engine 40" LCD retails for £1,100...and next month will cost £990, it will be replaced by a 'brand new' Sony Bravia etc etc Super Dooper Wega for £ 1,150.

But with real Deflation, not only will the old model fall in price, they won't be able to sell the new model at a higher price either, so the incentive to innovate is lost. There is no point in spending millions on R & D if the ultimate price you can sell for, is falling.

Manufacturers cannot afford to hold inventories of raw materials, if the price of the finished product is falling, so they order less raw material, and that continues on down the manufacturing chain.

Retailers cannot afford to hold stock, as the price keeps falling so they order less, so the Manufactures get hurt, and then their suppliers.

Ultimately everything will grind to a halt.

Government policy is to have an Inflation rate of about 2%

Supply and Demand carries on regardless. Deflation would reduce consumption, and in doing so make the planet more 'green'.

Masomnia

ruggedtoast wrote: »

Sounds like a stupid way of managing an economy? Yes, and it was invented by us and inflicted on the rest of the world.

Us? Who do you mean exactly? I doubt it was the British who invented fractional reserve banking, I guess that's what you meant.