Topic: Deflation (Read 11299 times)

Deflation is something that makes many people happy because the value of money increases, usually the value of money increases because too much stock of goods or services so that the purchase decreases and makes the value of money increases, of course this condition must be able to be set optimally because if it occurs in the long run it will lead to big problems for the economy.

Deflation is good at some level, but over-deflation could be as bad as inflation. In the consumer psychology, consumer will hold their price in hope for a better price, it will definitely slow the economy. The chain effect of that will lead to more debt default since people are holding money, and it will be very bad for banks and the macro economy.

And that's what most people think that when they buy a property for investment, they immediately believe that the price of the property will increase either in the next 5, 10, or 15 years, whereas on the contrary most property prices are currently experiencing a decline which makes them experience potential loss. They don't take into account that people's demand and the ability to buy it is quite reduced nowadays, especially for young people who have limited incomes, coupled with crazy property prices, these are all factors why investment in property is not promising at this time.

Yeah true, but there were a lot of printed ones as well recently which meant that the inflation was high and in order to stop inflation they had to do this, which makes sense because you have to stop inflation one way or another. I believe that it is going to be something important and we should be convinced that we are not going to end up with anything like that.

I feel like we should be considering the situation to be a bit different and if we keep doing it then we are going to be doing fine. Deflation has a great outcome eventually when you get over it, yes the stagflation and all that will hurt the economy and we are not going into a good period right now, but we are going to get out to a good period after that.

Most of you guys probably don’t realize this is a thread started back in 2010. From what I recall we never had inflation issues back then.

There is deflation happening in China actually. Some other countries are cutting rates slightly. However in North America we still got bad inflation. In Canada we had a huge 0.6% increase MoM, and there is no signs of slowing. These rates will be high for many years.

Deflation is bad to any economy because investors or businesses will run at loss. For instance,the house that the price comes down, will be easy for people to pay and live but it is affecting the owner of the house because he will find it difficult to make profits which might lead to him selling off the house. If he built it with a loan,he can just walk away without paying the lian for the bank to take over the property. A country with deflation would suffer economy declination.

I think it is good that now we have to currency which is fiat and bitcoin. but I think inflation and deflation is not only influenced by the money it self. it is always supply and demand. if the number goods that exist in the market is increase then the currency value will be increase and if the number of product is decrease then the currency value will decrease. because are competition among buyers.

Not good for people or small families who bought a house and are now seeing their credit line go down and their collateral for the loan to shrink if home prices fall.

But eventually there will be those who benefit and those who are at a disadvantage because of a certain economic development.

But one thing you mentioned is so important:

"Home prices have fallen to reflect economic reality."

That's what all of this is, it is a correction of tendency that went too far, that was overheated. When people hear the term deflation and immediately tie it to a negative development, the question should be what happened before we entered a deflationary economic phase? When the price for a car goes from $20,000 to $60,000 within a matter of a few years and then pulls back to $50,000, theoretically we are in a deflationary environment (for that car of course). But the truth is that prices unreasonably exploded beforehand and this is what we saw happening over the last few years.

Same thing with rents. Many places are so ridiculously expensive that it feels like playing a weird computer game when running from apartment to apartment to just find out that hardly anyone with an average income could afford an apartment that was a third as expensive 15 years ago. I am curious to see in a few years from now where we are heading now, but the recent price levels have been insane. 

Well, if you look at the nature of the problem, one of the main indicators is the existence of an interest rate policy issued by the Central Bank and the government and this results in a scarcity of money in circulation and causes a continuous decline in prices so that the country's economic condition becomes unstable. and my view is that the application of fiscal policy is needed here. related to how the government's strategy in responding to this and juxtaposing the wishes of many people who are starting to be interested in digital currencies such as BTC will be very interesting for us to follow together.

Deflation can have both positive and negative impacts on the economy.it can lead to the falling or lower prices of goods and services for consumers.
It can also discourage investments and unnecessary spendings,it is very important for policymakers to carefully manage deflation to maintain a balanced economy.

Deflation must be the opposite of inflation. I think is where we have more value of our money so we can be able to spend more than usual but when the people know that an inflation is coming, they can also buy more in bulk in order to save.

Both inflation and deflation has a positive effect in the value of the assets or commodities but I think inflation is still a bad thing. Their price could have grown more if there are no frequent high inflations. Deflation can affect everything not only about the housing/houses. I believe that anyone can build their own house and it does not matter if it will meet up the development of an environment or locality.

Deflation encourages consumers to postpone buying decisions, which has a detrimental impact on the velocity of money and negatively affects commodity prices (including real estate). This means it will diminish the value of your properties.
Deflation on houses surfaces when the house is not built to meet up the the sudden development within that environment or locality.

Yeah, nothing could be worse than an increase of buying power. The reason you experience deflation there is because people lost their buying power in the first place. Or rather because that buying power didn't have anything to back it. Thus in order for businesses to survive they have to lower their prices to match the actual buying power people now have.

talking about deflation as a "thing" is the wrong paradigm to use.

deflation is simply an arbitrary term used when a group of assets prices you measure have decreased.

In terms of Bitcoins being deflationary, that is very much subject to their acceptance(demand) outpacing the supply, also, given that prices tend to be sticky to the upside and that Bitcoins are not a defacto legal tender, I would be surprised if they were to have any sort of seriously detrimental impact.

Yep, Babylon is referring to a credit boom which eventually leads to a credit bust. He is right that it is "bad" when things bust, but he must also then recognize that the "bad" began when credit was extended too easily in the first place, driving up prices in the first place.

Without such easily available credit, prices wouldn't go as high in the beginning, and it would be easier to save up and purchase goods with savings instead of credit. The problem with a credit bubble is that as prices go higher, more credit is required to purchase the assets, which drives up the prices, which requires yet more credit.

Under sound money, credit would be limited by savings and investment, and the nature of sound money means that as society gets wealthier and goods get cheaper in real terms, they also get cheaper in nominal terms as well. Price deflation is a good thing whether you're a creditor or debtor. If you borrow money and prices get cheaper due to an increase in total wealth, it means that your share of the pie is fixed. You borrow 1% of the pie, you pay back 1% of the pie. You don't start out owing 1% of the pie and end up having to pay 10% of the pie.

This is instead a problem of monetary deflation. If the supply of money decreases while the total wealth in society remains fixed (or also decreases), then what happens is that if the borrower borrowed 1% of the pie (i.e. one house), and prices declined by 90% due to a large credit bust, the borrower would end up having to pay back 10 houses to the creditor. The problem here is that the price decrease is due to a monetary contraction, not an increase in society's wealth. Therefore, he actually has to pay back 10% of the pie. This is where the imbalance comes into play.

The difference between these two forms of deflation (and the circumstances under which they arise) is where many people get tripped up. They look at Bitcoin, see that it is price deflationary, and then attribute all the problems of monetary deflation when they are talking about two different things.

Even if they don't invest it, they've still deferred present consumption of goods and services that they have hopefully justly earned.  They've provided value to the market, and until they spend the money received for it, they have not consumed any in return.

Present consumption is more valuable than future consumption, so it seems reasonable to me if his claim to future consumption - money - grants him more consumption the longer he waits to use it.

The idea here is that with 'sound money', such an unsustainable amount of credit would not have been extended in the first place, and there would be no sudden and inevitable deflation during a time of massively increased indebtedness.

If deflation is more or less steady and predictable, then I don't see why it wouldn't be factored accordingly into interest rates.  This is done all the time in today's inflationary environment.

deflation of house prices is a bad thing because houses are bought on credit.  Deflation of car prices would be bad as well, and for the same reasons.  If you have a loan which is guaranteed by something which is worth less than the loan then the temptation is to walk away from the loan.  This either leads to possible severe losses for banks or inescapable debt, depending on the structure of debt in society.

But even if they did hoard it that would be good, not bad, as that would mean investment instead of consumption.

Shouldn't the most effective money reflect that things get cheaper if they do? What would be the gain in some convoluted monetary mechanism trying to hide the fact that stuff is actually getting cheaper?


Now this could be a real issue. What would happen? What did happen historically in gold economies when there was great population expansion?


Look at this list: http://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hyperinflation

Generally it goes on for several years with what looks like exponentially increasing and ever more ridiculous denominations. (And often it doesn't collapse even then!) Those 1 000 000 000 000-bills don't pop into existence out of a lack of confidence.