The Biggest Myth in Economics - Deflation

[SmarterthanYou]

Inflation merely encourages investment.

Deflation would have a severe negative effect on investment, as the returns would shrink to the point where it wasn't worth the risk. If you can make 3% a year on stocks in an environment with 10% deflation a year, you just aren't making enough to justify the risk. So people pull their money en masse out of the market.

Also, deflation is extremely good for bankers, as it effectively increases interest rates.

the missing link is the actual value of cash. What good is making 8% on your investments if in the reality of cash value, it is only worth 3%. It's the incessant desire to have as much as possible that produces the ignorance in what is real.

 

[FUCK THE POLICE]

the missing link is the actual value of cash. What good is making 8% on your investments if in the reality of cash value, it is only worth 3%. It's the incessant desire to have as much as possible that produces the ignorance in what is real.

Too much inflation or deflation has negative effects on investment. That's why the fed tries to target around 2% inflation. Inflation or deflation is almost always going to happen no matter what they do, but deflation tends to spiral out of control so they have to avoid that.

 

[Cancel10]

You know every time Alan Greenspan or Ben Bernanke cite the risk of deflation it just wants to make me puke....

The myth of deflation is the same as the myth of supply side economics....

It doesnt work in the real world....

Nobody pays less for McD's in 2008 than they did in 2002.

Nobody drinks cheaper milk at Wal-mart in 2008 than in 2004.

Nobody has a cheaper latte at Starbucks in 2009 than in 2005.

It has never happened. Period.

CK

When I lived in Canada, I saw the value of the dollar increase substantially and for the most part, prices dropped (including McDonalds). How do you explain that?