Deflationary Spiral

Basics of a deflationary spiral

Category:

Education

Tags:

• finance
• depression

[00dfm00]

@CharlotteBaseball25 Well said. Also, as prices get lower, fewer people save/hoard. Christmas proves this even in the depths of recessions.

[CharlotteBaseball25]

Never once in the history of the planet has there been a deflationary spiral. There have been corrections in price, but never a spiral. You can't horde money forever, because you have to eat, pay rent, etc. Seriously, try to find a deflationary spiral. You can't find one.

[JinGwee]

@omgiheartpie well,supply is more important than demand. Everyone can have demand: a baby can demand for milk, i demand for a private jet, etc. but the more important question is whether I have the capacity to produce the milk or the jet myself, or at least produce something else and trade for the stuff that i want. Recessions are always preceded by booms, and the booms are created because of money-printing, which creates artificial demand. This is unsustainable and the bubble has to burst

[omgiheartpie]

@JinGwee I respectfully disagree. During recessions aggregate spending, more specifically consumer spending, decreases dramatically. Since consumer spending makes up about 70 percent of GDP, an appreciable reduction in it and the subsequent deflationary spiral it induces cripples businesses. These businesses reduce capital investment when they see an aggregate demand shock; this creates uncertainty for them which makes them lay people off; this decreases spending, and the cycle persists

[JinGwee]

@omgiheartpie demand is not the problem, as keynesians would like to believe.. i would suggest reading peter schiff's "how an economy grows and why it crashes"

[omgiheartpie]

@JinGwee it isn't a bad thing when it is a consequence of increasing labor productivity and technology gains that might have come from R&D. It is a bad thing when a shock in aggregate spending or aggregate demand induced deflation. <--- this is not the deflation you want.

[Bestbeatstherest]

@Xolition Dude if demand goes down there's less demand for products therefore companies wouldn't need to produce as much as before meaning that supply will also decrease and maybe there will be redundancies even in order to keep costs low. So yes as demand goes down so does supply....

[JinGwee]

according to austrian economics, Deflation is not a bad thing.

It is only those keynesians and politicians who try to make this look scary

[dlstb]

@mrhnm close, the value of an item is whatever two fools decide it will be. The seller and buyer mutually agree on a price and that is immediately the market price for said good. The overall or average market price may be different, but at that instant, those two people decided the worth of that good on the market. Need proof? Go buy a car and see how much you can get them to come down from the sticker price. Tip, go at the end of the month and not during a "sale".

[dlstb]

@Xolition Wrong! If the demand for cheerios drops because someone finds a toe in their cereal, the company has less profit which means that they cannot buy as much raw material to make new boxes of cheerios and the supply of cheerios drops. This is of course the longer term scenario and the end state of the market correction. In the short term, yes, cheerios would abound on the shelf, but they would be there because no one would buy them. Then they would get trashed or marked down.