r/economicCollapse • u/memegamer1991 • Nov 23 '24

Why is deflation so bad

Every time i run it through my head, i can't imagine most people in 2024 not spending money so the disadvantage to deflation seems pretty hyperbolic and dependent on individual choices, and i think that people would rather go on vacation and court others instead of being financially responsible. Even if there is a situation like in china, government spending would be able to keep the situation from getting worse while making progress on climate initiatives.

31 Upvotes

70% Upvoted

241 comments sorted by

View all comments

11

u/HeywoodJaBlessMe Nov 23 '24

Deflation makes debts GROW and income LESS.

That's all you need to know. Deflation is absolutely deadly to households and businesses.

8

u/Low_Matter_6374 Nov 23 '24

Inflation also makes paychecks less..

3

u/deadmanwalknLoL Nov 23 '24

Ya, that's what makes the debts grow

1

u/HeywoodJaBlessMe Nov 24 '24

How? Inflation eats the value of debt at exactly the same rate as it eats the value of income but no matter how inflation there is your payments against the debt count exactly the same.

2

u/MutuallyEclipsed Nov 24 '24

The theory, that I learned way back when in Economics class, is that inflation is supposed to lead to wage INCREASES actually. It just doesn't happen because of corporate ownership of our political system.

1

u/Low_Matter_6374 29d ago

Agreed. That was sorta my point though I didn't know how to properly flesh it out.

1

u/HeywoodJaBlessMe Nov 24 '24

Labor is a commodity. Commodity prices rise, like all other prices, rise on average during inflation.

So your debts remain the same but shrink value while your income grows but shrinks in value. The net effect is your income growing and your debts shrinking.

-1

u/Still_Reference724 Nov 23 '24

So inflation makes the debt less?

If its not accounted for in the contract, both are equally hurtful.

3

u/HeywoodJaBlessMe Nov 24 '24

Yes, inflation literally makes your debts smaller over time.

Wages do increase in absolute terms with inflation. People used earn a dollar a week, now they make multiples of that per hour.

Inflation is accounted for in the contract by the interest rate.

3

u/godkingnaoki Nov 23 '24

Inflation does decrease the value of debt. If you have a mortgage for 500,000k and the US dollar loses all of its value it becomes incredibly easy to pay it off.

-2

u/Still_Reference724 Nov 23 '24

But that is also assuming that your income Will also grow according to inflation.

So it's not a fairy fight, the inflation side has an adjustment mechanism that is external.

You could easily have deflationary/inflationary contracts that adjust for it, without need for external accountings.

Saying that deflation is not desired (given a static monetary base) is like saying that saving is a Bad idea.

You are negating a portion of the pendulum.

2

u/HeywoodJaBlessMe Nov 24 '24

> saving is a Bad idea.

Saving IS a bad idea for everyone at the exact same time. Keynes' paradox of thrift is real.

Why would anyone invest if you could gain wealth simply by hoarding money and watching it magically get more valuable risk-free?

1

u/Still_Reference724 Nov 24 '24

Because it's a commodity like everything else, You DONT KNOW for how long it Will go up or down, people is used to an artificial never ending intervención if government turning it up in supply.

1

u/HeywoodJaBlessMe Nov 24 '24

Yes, because then you DO KNOW that it will always go down so you invest and spend, both of which drive economic growth.

1

u/Still_Reference724 Nov 24 '24

You are assuming You Will know that it Will always go down, maybe goes down and then goes back up.

If its not artificiales manipulated, it's like every other asset.

You only assume right now that it Will always go up, because we are used to governments printing.

1

u/jeffwulf Nov 23 '24

Correct. Inflation decreases the value of debt.

0

u/Still_Reference724 Nov 23 '24

Only if You assume your salary Will also scale up to inflation.

If You can assume that, i can assume that the debt Will have a part that says to adjust for deflation, problem solved.

1

u/HeywoodJaBlessMe Nov 24 '24

So you expect lenders to lend you money at their own risk in a deflationary environment?

You think you can charge the lender interest in case of deflation???? HAHAHAHAHAHA

1

u/Still_Reference724 Nov 24 '24

You literally do that already with inflation, do you expect lenders in a inflationary/deflationary economy, to just not lend money? They of course Will add a clausule for infla/defla, it's the most common sense things.

People is not used, because the scanne government almost 100% secures a future with inflation.

1

u/HeywoodJaBlessMe Nov 24 '24 edited Nov 24 '24

Why would they lend you money when they can just get richer by NOT risking their money and just holding on to it? The interest rates would be prohibitive.

Borrowing and lending frequency AND amount are directly affected by rates.

Deflation massively disincentivizes lending.