If inflation is bad, why is deflation bad?

[burritos]

Is it like blood pressure. Too high, you get a stroke, too low you pass out? Is no-flation the optimal scenario? And if it is, is it optimal for whom? The people, the corporations? Can't the government control for inflation(and I'm not talking about the BS CPI index) by just not printing anymore money?

[Godiva]

Is that what they're calling it now?

I just love all the new words. Like "market adjustment".

[qbee42]

<div class='quotetop'>QUOTE(burritos @ Aug 19 2007, 12:29 PM) [snapback]498666[/snapback]</div>

Is it like blood pressure. Too high, you get a stroke, too low you pass out? Is no-flation the optimal scenario? And if it is, is it optimal for whom? The people, the corporations? Can't the government control for inflation(and I'm not talking about the BS CPI index) by just not printing anymore money?
[/b]

Printed money has little to do with the money in circulation. Most money is electronic, and is controlled by the cost of borrowing.

Inflation benefits debtors, who get to pay back with lower valued money. The problem with "deflation" is that it doesn't occur unless a country has serious economic problems. It's like losing weight because you have cancer. You might ask: "What's wrong with losing weight? I though it's healthier to weigh less."

Tom

[Sufferin' Prius Envy]

Inflation is good. Deflation is bad.

You should try to keep your Prius tires anywhere between 35/33 to 43/41. Inflate or deflate to keep your Prius running at optimal condition.

Same goes for the economy.

[tripp]

<div class='quotetop'>QUOTE(burritos @ Aug 19 2007, 10:29 AM) [snapback]498666[/snapback]</div>

Is it like blood pressure. Too high, you get a stroke, too low you pass out? Is no-flation the optimal scenario? And if it is, is it optimal for whom? The people, the corporations? Can't the government control for inflation(and I'm not talking about the BS CPI index) by just not printing anymore money?
[/b]

Some inflation is good and works for every. Deflation is bad... here's an example.

You buy a house and have a shiny new, 30 yr mortgage. Let's say you pay $500/mo. With modest inflation, 15 years later, you're still paying $500/mo, but that payment is a lot less of your take home pay, so you're actually ahead because you're paying the same debt with inexpensive currency.

Now, look at deflation. Same payment, but after 15 years $500 is worth a lot more! Now you're paying with expensive currency that is worth a lot more! You can see how that's a bad thing.

[burritos]

<div class='quotetop'>QUOTE(tripp @ Aug 19 2007, 02:11 PM) [snapback]498726[/snapback]</div>

Some inflation is good and works for every. Deflation is bad... here's an example.

You buy a house and have a shiny new, 30 yr mortgage. Let's say you pay $500/mo. With modest inflation, 15 years later, you're still paying $500/mo, but that payment is a lot less of your take home pay, so you're actually ahead because you're paying the same debt with inexpensive currency.

Now, look at deflation. Same payment, but after 15 years $500 is worth a lot more! Now you're paying with expensive currency that is worth a lot more! You can see how that's a bad thing.
[/b]

Wait so are properties going up because of inflation or because the homes are becoming more valuable? If a stock doubles, it's not because of inflation is it?

[Godiva]

<div class='quotetop'>QUOTE(burritos @ Aug 19 2007, 04:31 PM) [snapback]498800[/snapback]</div>

Wait so are properties going up because of inflation or because the homes are becoming more valuable? If a stock doubles, it's not because of inflation is it?
[/b]

Well, if you've got an APR then your interest and payments are going up. But because of the subprime meltdown the value of your home is going down. So some people owe more than their home is worth.

[Stev0]

Deflation is bad (if you're an executive) because if a company charges less for a product, they make less money.

It's not that inflation is bad (if you charge more, you make more money) - it's just too high of an inflation is bad (if you have to pay more to make your product...).

Just like unemployment. A really low unemployment might be great for the average Joe on the street, but to Mr. Executive, it's horrible because they have to work harder (including...*shudder* higher wages and more benefits) to keep their workers.

[Godiva]

With deflation the dollar you earn is worth less. But the cost of everything else will go up, so your paycheck won't go as far. The cost of everything else goes up because this is a global economy, and it will take more U.S. dollars to pay for the foreign goods and manufacturing. Our dollar is worth less, they'll want more of them to pay for their goods and services. That cost will be passed on to us, the consumer. And we consume a lot of foreign related stuff.

[IsrAmeriPrius]

<div class='quotetop'>QUOTE(Godiva @ Aug 19 2007, 07:01 PM) [snapback]498917[/snapback]</div>

With deflation the dollar you earn is worth less. But the cost of everything else will go up, so your paycheck won't go as far.[/b]

No, that is inflation.

Deflation is defined as:

Main Entry: de·fla·tion
Pronunciation: di-'flA-sh&n, "dE-
Function: noun

2 : a contraction in the volume of available money or credit that results in a general decline in prices

Merriam-Webster[/b]

In other words, people have no money to spend on goods so sales decline, prices come down and manufacturers, sellers and service providers suffer and some of them go out of business.

The Great Depression is a prime example of a deflationary economy.