Ok. One last question. Prices declined disastrous from 1929 to 1933. This was a depression that pushed prices down not the other way around. This extreme of 25% decline is not deflation. It's depression. What would happen if prices declined by 2% each year for 4 years? Wouldn't this be a boon to spending while wages remained static?
Ok. I'm still reading and really enjoying this article. With declining prices OLD debt becomes more burdensome but doesn't this encourage debt replacement either at similar time spans or with shorter terms at new money values?
I have to stop half way through reading this. I will finish in a moment.
I disagree that deflation causes people to spend less. A recession does this. But if that new car, or cruise vacation, or something else costs less, I am much more apt to make the purchase. Thus more purchases are made and corporate NET revenues are maintained. Isn't this the conclusion of simple supply and demand curve theory?
Thank you George for your insightful comments! You’re correct that severe deflation, as in the Great Depression, often goes hand-in-hand with recessions. A milder deflation of 2% yearly could feel less threatening, yet it may still impact behavior. Persistent declines can lead people to delay large purchases, especially when they expect prices to fall further, which can subtly impact corporate revenues.
Regarding debt, refinancing can help, but in deflationary periods, debt burdens grow harder to manage, even with lower interest rates, as wages and profits often stagnate. Your points on supply and demand are well taken - markets are complex, and outcomes can indeed vary. Thanks for reading and sharing your thoughts!
Thank you as well for answering and putting up with my questions. I found it very helpful to understand your work.
Ok. One last question. Prices declined disastrous from 1929 to 1933. This was a depression that pushed prices down not the other way around. This extreme of 25% decline is not deflation. It's depression. What would happen if prices declined by 2% each year for 4 years? Wouldn't this be a boon to spending while wages remained static?
Ok. I'm still reading and really enjoying this article. With declining prices OLD debt becomes more burdensome but doesn't this encourage debt replacement either at similar time spans or with shorter terms at new money values?
I have to stop half way through reading this. I will finish in a moment.
I disagree that deflation causes people to spend less. A recession does this. But if that new car, or cruise vacation, or something else costs less, I am much more apt to make the purchase. Thus more purchases are made and corporate NET revenues are maintained. Isn't this the conclusion of simple supply and demand curve theory?
Thank you George for your insightful comments! You’re correct that severe deflation, as in the Great Depression, often goes hand-in-hand with recessions. A milder deflation of 2% yearly could feel less threatening, yet it may still impact behavior. Persistent declines can lead people to delay large purchases, especially when they expect prices to fall further, which can subtly impact corporate revenues.
Regarding debt, refinancing can help, but in deflationary periods, debt burdens grow harder to manage, even with lower interest rates, as wages and profits often stagnate. Your points on supply and demand are well taken - markets are complex, and outcomes can indeed vary. Thanks for reading and sharing your thoughts!