IMF head Christine Lagarde warns of deflation risks

dryhat

michaels wrote: »

Tell that at to the people with loans fixed in nominal terms and incomes/assets priced in real terms and their creditors...and those with cash who have deposited it with the creditors...

I will if I see them.

purch

As my olde chum Dr Jim would say, "Economics is a Social Science.....as much a study of human behaviour as it is a study of facts and figures"

Both Deflation and Inflation are measures of human behaviour as much as anything else.

Generali

Masomnia wrote: »

Is there such a thing as 'nice' deflation?

The price of one or two items falling isn't really 'deflation', imho.

Yes there is.

If there is a rapid increase in productivity, wages and output can rise while prices fall.

There would still be winners and losers as with any change but many more winners.

An example was the UK in the early 1870s. Trade with the US increased in the post Civil War period, increasing productivity in both countries. The UK saw a boom which led to falling prices and big increases in output.

Unfortunately by the late 1870s, a banking crisis led to a big bust and a horrible deflationary depression. Google 'dragons tooth houses' and you might get more colour.

purch

Generali wrote: »

Yes there is.

Google 'dragons tooth houses' and you might get more colour.

Or just ask Loughton, he remembers it well :eek:

wotsthat

purch wrote: »

As my olde chum Dr Jim would say, "Economics is a Social Science.....as much a study of human behaviour as it is a study of facts and figures"

Both Deflation and Inflation are measures of human behaviour as much as anything else.

Some were predicting an inflationary spiral as a result of QE - they failed to understand that it's not the amount of money that matters but what you do with it that counts.:)

Wonder if we'll see alternative ways of getting money into the 'real' economy supported. There's about £1bn about to hit Birmingham bingo halls shortly...

http://www.theguardian.com/uk-news/2014/jan/15/birmingham-council-land-equal-pay-cases

The UK's biggest local authority is to consider selling off land and property to help pay a £1bn bill to settle thousands of equal pay cases.

Birmingham city council accepted that its review would include one of its landmark buildings – the NEC – but said there were no imminent plans to sell off the venue.

The Labour-led city council has agreed settlements with female staff including home care workers and school cooks who were paid less than men for work of equal value.

Graham_Devon

wotsthat wrote: »

The nice sort is where the price of 'essentials' falls, there's no downwards pressure on wages, the 'prudent, who have been sat on cash find it increases in value with no effort and we all live happily ever after.

i.e. it's a fantasy but some do live in hope

All true in the extreme, but, in reality...

The majority have seen very low pay rises anyway - alongside higher inflation.

If we did have deflation in the UK, surely this would be seen by the general average joe as a respite. I very much doubt they would see their wages cut, as you put it.

The same as just because inflation rises, they don't neccesarily see wage rises.

Sure, it will send the bankers and business into a spin. But they've had a very good run in the last 5 years, and I'm not sure I could say that for the average joe.

Isn't it just a case of "different people benefit".

shortchanged_2

Personally I don't see deflation as a bad thing. It could help reverse some of the squeeze that has been felt by households over the last few years.

Lower fuel and food costs etc would be great for many although I'm sure it would send a shiver down Osbournes spine.

wotsthat

Graham_Devon wrote: »

Isn't it just a case of "different people benefit".

At the margins maybe but I rather suspect there would only be a limited movement of people between the 'winners and losers' camps and vice versa. Winners make the most of the circumstances that present themselves.

The nice sort of deflation, as described by Generali, is reliant on a rapid increase in productivity with higher pay rises as a reward whilst prices fall. Our average Joe isn't really getting more productive and isn't being rewarded with pay rises as a result (the productivity gap). Therefore any deflation is likely to be unpleasant for him.

We've seen already how people are willing to be pragmatic when it comes to keeping their jobs. Joe won't see deflation as a respite other than on a very temporary basis. If wage rises lag inflation then wage falls could lead price falls and Joe will have to spend a higher proportion of income on 'essentials' despite them getting 'cheaper'.

grizzly1911

Generali wrote: »

Unfortunately by the late 1870s, a banking crisis led to a big bust and a horrible deflationary depression. Google 'dragons tooth houses' and you might get more colour.

Jeez you would think they would learn...... More likely to find dragons teeth or rocking horse pooh.

A Google search didn't throw up anything??

Graham_Devon

wotsthat wrote: »

At the margins maybe but I rather suspect there would only be a limited movement of people between the 'winners and losers' camps and vice versa. Winners make the most of the circumstances that present themselves.

Wasn't really talking about "winners and losers". Just stating that the average joe on the street, in a period of deflation is highliy unlikely to see their wages physically cut, and highly likely to benefit from the lower costs.

As I say, unless we look to extremes, such as an extra long period of deflaiton, or very serious deflation, it appears to me, for the average person, deflation would be very much welcome.

If you hold assets....and more importantly, hold debt or have leveraged on those assets, it's probably not so good. But then these people are not the "average joe" people I'm talking about.