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this post was submitted on 22 Jul 2023
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Asklemmy
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Everyone seems to be missing the most dangerous part of deflation: If prices fall year over year, collateralize credit becomes incredibly unstable. If you borrow a million dollars from the bank to build a house and then in five years that house is worth half a million...well you would be stupid not to walk away for your loan and leave the bank with a half million dollar hole in its balance sheet. If the whole market does this consistently year after year then banking becomes impossible and the whole system collapses. Weve had this happen before, such as during the Great Depression and very briefly during other market crashes like in 2008. If a central bank has to choose between inflation and deflation, they will choose inflation every time.
I don't understand much. What so bad about house losing value, if we never intended it as capitalistic investment?
Everything suppose to be "utilitarian" basis instead of ever-inflating "profit" basis that hurt majority, no?
Just my curiosity why deflation is a bad thing, other than monetary incentive system broke down and no one working (right now, monetary system still broke down on opposite spectrum due to purchasing power collapse, I assume?)
Edit: clarification
Profitable or not, a house is a shelter, not renting or trading item? (This is what I meant by capitalistic mindset, not about corporation, but the very profit mindset of human.)
Edit2: clarification2
Yes, same opinion on investment and passive income. All capitalistic nature. Impossible to earn passively unless someone or some machine enslaved, right? Yet everyone love passive income idea so much, pumping profit everywhere, more money more inflation, no? In the past, people might save years to a house, now, people earn endless passive income to no house, I think that's the very reason to it. Passive income is somehow bad. (Not to be mixed with voluntary welfare system, passive income is auto sucking involuntarily, iinm)
Edit3: clarification3
So about the house worth dropping. In bookkeeping, historical cost don't drop. However, future value inflation exist thanks to "profit future inflation". So, we still have to settle book value of loan, I don't get it how the value dropped though? A liability is a liability, not to be messed with "~~inflating~~ fluctuating market value", no?
I agree, it’s only natural a house would decrease in value after it’s been built. Just like cars or anything else. You could mitigate that by renovating etc of course.
Thats depreciation, not deflation.
Well yes. I have a cold and can’t think but I mean inflation makes the price go the other way.