Also: I believe that the whole “consumers will put off purchases if prices are dropping” thing is way overblown, in this tutorial and elsewhere. People might put something off for a little while, but that would only last for so long because A) life goes on and B) people would eventually want to capitalize on the good deals. Look at the computer industry as evidence, prices are constantly dropping there and yet people somehow buy computers.
The more harmful aspect of deflation, in our society, is that if the society is highly indebted then deflation causes the real burden of the debt to rise.[/quote]
Thank you, Rich!
This one always gets me, too.
I’m a long-time deflationist bear, but even I have certain price levels and conditions in my mind where I would start buying. I don’t believe for a moment that everyone would stand back and let prices drop to zero.
It’s like an elevator going down. At every floor, some people are getting off while others are getting on. While there might be some instances where there are no bids, at some point, a buyer will step up and set the price (and it WON’T be zero).
Agree with your last part, too. The **real** reason they don’t want deflation to happen is because we have a debt-based monetary system.
The wealthiest (asset owners/creditors) would be hurt the most in a deflationary environment — and they benefit the most in an inflationary environment, too. Their “wealth” is dependent on stable/rising asset prices, while the “wealth” of workers is dependent upon wages. Deflation actually helps working people because wages are fairly sticky on the downside and their income affords them greater purchasing power (assuming asset prices decrease faster than wages decrease), while harming investors whose assets lose value with deflation.
