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this post was submitted on 03 Nov 2024
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one of the really big problems with deflation in a system like the one we currently have is that there is no way to set a "negative" interest rate, at least trivially. So if something spicy happens, and you spiral down to a really aggressive negative interest rate, everything explodes instantly.
This is actually why we target a 2-3% interest rate, and in the times of financial struggle (globally) use it to create new money in order to stimulate an economy, which in turn raises inflation significantly, but beats another literal depression.
The primary difference between the great depression is that covid was significantly worse, and that modern monetary policy is incredibly resilient compared to back then.
you could theoretically have a system with deflation, but then the problem is that you have very little money moving through the market, and arguably you will move away from a currency based market, to a goods based market instead, which is quite literally a bad thing.
China recently deflated and is still having problems. It's incredibly dangerous because it causes a negative feedback loop. Prices go down -> people wait to get a better price on something -> prices sink further -> people wait longer -> your economy starts stalling out and going into a nosedive.
Nobody wants to be the chump holding the bag if they buy an apartment for $50k and it drops to $20k in the next five months. :/
If deflation worked, everyone would be doing it, and we'd still be using half-cent coins just like the family in Little House on the Prairie did. (Which would kinda be awesome, I'd love to pay a half-cent for an orange.)
Deflation is actually bad because it would be an incentive to keep rather than spend money as its value would just increase by itself.
Money that is kept and never spent is worthless. Currency has to be used to have value, otherwise it's just paper (or bits). The working class won't hold on to their money, they have bills to pay, groceries to buy, etc. Only the wealthy would hold on to their money, which they're already doing.
That was my point, pretty much. The issue is that money that's kept is useless for society, but if its value increases it gains potential usefulness for its owner. I'm not saying that ordinary people will stop buying food and I'm not saying that corporations are doing community work right now, but the world in which the rich get even richer without even spending their money on something will be problematic at best. The economy will crash while everybody will hold on to whatever moves they have.
to be clear, "holding" on to money is innately going to be investing. Not only is holding onto significant piles of cash incredibly sketchy, it's also really bad financial strategy, because you lose money over time, so you're highly incentivized to invest the money you don't actively need, into something that can do productive work for the market economy instead.
If we're talking corporate money, which is different, and not the type of money you mentioned, things work a bit differently, but generally the mechanism is roughly the same, with some tax benefits, and mechanisms to create productivity rather than provide it instead. There are some funny things you can do like stock buybacks, but those do have some market utility though.
No, they invest it otherwise it loses value over time. Invested money is put to work.
Work? Like "buying" yet another company? Or stock buybacks?
Like loans to companies and individuals, startup investments, stock purchases, etc. Money that moves around is useful. Money that is tucked under a mattress is not.
No, like paying your wages. You should read a bit about how things work before getting upset.
The fuck you think investors do at all? What value do they create? They definitely don't pay my wages from their own "investment". My wages are paid from the profits created by myself and coworkers working to create, market, sell, distribute the product. Soon as those profits don't hit targets investors will absolutely vote to downsize or shutter entirely, not "invest" and continue paying wages.
I'm not going to explain all of macroeconomics to you, but the whole point of this discussion is decreasing prices is bad because money stops moving. If money stops moving, you stop getting paid. Is that simple enough for you to understand or does it need to be dumbed down further?
And I'm pointing out that the rich aren't actually moving money to anyone but themselves. So yes, the (rich) investors ARE hurting the economy for their own gain.