A working economy means professional activity to make goods and services. Deflation actively kills that by incentivizing people to defer or cancel their purchases in favor of savings. So economic activity collapses.
There is no such thing as a durable deflationary market if it’s not justified by productivity gains and volume - and there is definitely no such thing as a durable deflationary economy.
The US was "a durable deflationary economy" for pretty much the whole 19th century, and first decade of 20th century. Things started to change once FED was created and given power over money supply.
Not sure what you're refering to, the 1873 panic wasn't exactly the finest hour for US economy. I guess that's not what you want to get back to.
As for the rest of the 19th century, the data we have is mostly consumer price indexes, but I can't recollect another durable deflationary period in the century.
Depends how much deflation there is with wages compared to everything else, there's a scenario that they have an opportunity to start saving
The majority of the expenses for the disadvantaged young are housing, gas, and food. With housing being 4x more expensive than 4 or 5 years it basically puts all the disadvantaged from even buying a house and then puts them at the mercy of the renters market
Actually, banks can "create" money from nowhere. It's called fractional-reserve banking. When you deposit money into a bank, the bank is required to keep only a fraction of that deposit as reserves. The rest can be used for lending.
The exact fraction is determined by the central bank's reserve requirements. And since 2020 it has been set to... zero percent.
So essentially US banks can infinitely create money.
What?? This isn’t correct at all. A deflationary economic environment is bad no matter the fiscal policy or monetary policy we have in place. You propose it would be better if we pushed for savings. Well if we all know that prices in a few weeks/months/years will be less than today, then spending drops. Friedman pushed velocity of money, even he would agree that a lower velocity would crush an economy.
I never got this line of thinking. I'm already disincentivized from spending because simple investments are likely to outpace inflation. That's a good reason to save as much as I can, but I still buy things, and it's not like I can put off buying food for a year so that prices drop. What's so different about this incentive to save and it being a part of the economy?
Yes, because most people spend most of their money. I'm saying deflation seems unlikely to change that, since a strong incentive to save money already exists, in the form of retirement fund.
There are a number of issues with this comment. One of them is that debt and saving are just sides of the same coin.
More importantly, everybody can see that debt for investment allows more growth. Just think about how many more people can afford to own their own home thanks to taking on debt. This allows them to pay a mortgage instead of rent, which allows them to build up wealth.
Equivalent effects exist in industry.
Debt is an extremely useful tool. We made the right choice here as a society.
Deflation is only "terrible" because we have collectively decided to build an economy on debt instead of savings (Keynesian instead of Friedmanian).
In a different economic order, prices declining would be a good thing for everyone.
But we're stuck with it, so inflation it is.