Ze, 'Ow you say, Deflation Watch. Eurozone edition

Thrugelmir

Graham_Devon wrote: »

Which costs are fixed that cannot also fall in a deflationary environment?

Rent
Rates
Electric
Gas
Equipment Leases
Insurance
Any imported raw material.

ILW

Thrugelmir wrote: »

Rent
Rates
Electric
Gas
Equipment Leases
Insurance
Any imported raw material.

Why can they not fall?

Generali

Graham_Devon wrote: »

As you'll know, I don't really like the fact that we will try anything, and put the masses of the population at a disadvantage, solely to shelter those who took massive risks.

You have now suggested you are talking about the local hairdressers and the local builders. I have to say, I don't think these sort of companies would be devastated and therefore fold if we ran at say 2% deflation.

Even 10% and they would probably cope. I honestly don't think these local companies have drowned themselves in debt.

They have, afterall, coped with everything else thrown at them since 2006, including a large loss in the numbers of customers. No tears have been shed for them. That was just business and those who didn't take risks didn't suceed. So howcome we have to shed atear for them when it comes to deflation? It's not about them, it's about the banks, the large coroprates etc.

I just cannot believe that deflation is such a major problem that will effect everyone badly. I can see how it would effect the banks and and the large coroporate. But to be completely frank....I really couldn't give a fig. They have been bailed out numerous times at our cost. WE today are paying the price via little or no wage inflation and highish, persistent inflation. More importantly, the highest inflation is on the stuff we cannot avoid....of which, the companies offering such products are releasing large profits.

As your hairdressers or local builder what their real problems are and they will tell you. Price increase, running costs. It's not that they can't max themselves out with debt or that they fear the prices of the goods they buy to run their business will get cheaper.

Theres nothing wrong with debt. But there is alot wrong in assuming every company is up to their eyeballs in debt and any decrease in profits will have them fold.

If it's "just business" when they can't compete due to rising costs. It's "just business" that the indebted companies will fold because they can't pay their debts.

Go back to my first answer to you on this post and work through the maths and therein lies your answer.

There is no morality here or bailouts, just maths.

Graham_Devon

Thrugelmir wrote: »

Rent
Rates
Electric
Gas
Equipment Leases
Insurance
Any imported raw material.

Why couldn't they deflate in a deflationary environment?

Deflation is, by definition, the costs of goods and services going down. You can't really have deflation without, well, deflation.

I don't understand why the costs of those goods cannot fall? What would be deflating if it's not those costs?!

ILW

Generali wrote: »

Pretty much every business buys on 90 day terms, that is their supplies are delivered and they're expected to pay for them 90 days later.

That's debt.

And in B2B the customers give the same terms so they cancel each other out.

Graham_Devon

Generali wrote: »

Pretty much every business buys on 90 day terms, that is their supplies are delivered and they're expected to pay for them 90 days later.

That's debt.

Well yes, I accept that.

On a technical level, it's debt.

But it's not like fixed payments to pay off a loan term. It's simply a credit account for goods ordered to aid accounting. It's just easier than buying up front and giving everyone access to financials in order to procure goods.

If for example the business I work in didn't have credit accounts, no one could order anything without having access to the financial details or alternate payment methods such as credit cards....which is opening up a minefield. Credit accounts also allow us to control max orders.

We could do without this "debt" and it wouldn't ruin us, would just make it more difficult to order stuff.

Anyway. I don't mean this to be rude, though it may come across as such.....on asking what the disadvantages are, we appear to be down to hairdressers or companies with high debt levels and procurement credit accounts. It doesn't sound that scary to me.

Generali

ILW wrote: »

And in B2B the customers give the same terms so they cancel each other out.

Not true, each needs to borrow to extend terms to the next.

ILW

Generali wrote: »

Not true, each needs to borrow to extend terms to the next.

Unless financed thru retained profits.

Generali

ILW wrote: »

Unless financed thru retained profits.

If your goods are selling for less and less each month then there aren't going to be profits to retain because you have mostly fixed costs and almost entirely variable revenues.

Work through the maths not the logic.

ILW

Generali wrote: »

If your goods are selling for less and less each month then there aren't going to be profits to retain because you have mostly fixed costs and almost entirely variable revenues.

Work through the maths not the logic.

But you could be increasing your turnover by outselling your competiton due to lower prices, due to not having any financing costs to pay.

Not saying this is how it is, but saying it is possible to run a successful business in times of deflation which could favour the cash rich companies.