MSE News: Base rate held and no further QE

Thrugelmir

shortchanged wrote: »

A period of deflation in this country now would be beneficial as people are more likely to increase their discretionary spending.

Inflation is the politicians and central banks way of removing the debt burden. Even with inflation the likelihood of default of some kind is very high.

Deflation would create a death spiral of decreasing asset values.

ILW

RenovationMan wrote: »

Except that the deflation would be on an individual country basis, not on a global basis and so oil and gas would be just as expensive.

I'm amazed that you think deflation is a good think, even short term (how you could control it so that it's short term is beyond me), I can only think that it's because you don't understand what deflation is. Here is a handy guide from the BBC:

http://news.bbc.co.uk/1/hi/business/7754487.stm


"Falling prices might sound great for consumers, but in fact this is bad news for everyone.

Economist and author of 'Credit Crunch', Graham Turner, says it can lead to a vicious circle of decreased spending and increased unemployment.

People wait as prices fall for goods to get cheaper before buying and in fact they become the buyers' strike. Then that creates more deflation, more job losses and so on.

The reason why economists also worry about deflation is because it's much harder to combat than inflation.

If inflation rises there's no limit to how far you can raise interest rates, with deflation there is a limit to how far you can cut interest rates," he added.

The most memorable deflation was during the Great Depression of 1929."

The premise of deflation causing a buyer strike is I believe greatly exagerated.

Essentials such as food, fuel, pharma etc would not be affected.

Wannabee consumer goods such as the latest phone, TV etc would not be affected.

Nor would investment in production and supply of the above.

Many of the costs carried by the public sector would be reduced, thereby allowing reduced taxation.

I would like to see a bit of deflation given a try.