8 ms·

I thought the same, too. Generally some small amount of inflation is preferable to encourage spending, rather than deflation which discourages it. If you know

I thought the same, too. Generally some small amount of inflation is preferable to encourage spending, rather than deflation which discourages it. If you know a $100 item will probably cost $102 later then you're more likely to buy it now. But if that item will cost $98 in a deflationary environment, then maybe you'll wait to buy it later. Wages also tend to fall in deflation, which makes it harder to pay back debt, so lending slows down - people won't buy houses or cars, etc. Businesses hold back on capital spending. The economy slows to a standstill: if no one is spending money, how can anyone make money?

indoordin0saur 3mo ago
I think its more important for investment. If you have $1mil in cash and know it's losing value every day you have an incentive to invest it in some long-term profitable way. Hire more employees, buy some more trucks for your fleet, renovate your store, do some R&D to improve your product, etc. If it's the opposite you don't feel any urgency because your $1mil is gaining value as it sits in the bank.
Root_Denied 3mo ago
Velocity of Money is the term to look into. Governments also like it because as money circulates it generates tax revenue through sales tax/VAT.
Dylan16807 3mo ago
This is true for investment-level amounts of money and larger percentages, but much less true for everyday purchases and small percentages. For buying a thing, a year of ownership is much more valuable than saving 2%. Look at the computer industry where waiting a year or two almost always gets you significantly better hardware but that doesn't stop people from buying new ones often. And debts adjust their rates along with inflation/deflation so that effect ends up much smaller. As for houses and cars, we desperately need to make the economy less focused on the value of houses and cars...

indoordin0saur 3mo ago

I think its more important for investment. If you have $1mil in cash and know it's losing value every day you have an incentive to invest it in some long-term profitable way. Hire more employees, buy some more trucks for your fleet, renovate your store, do some R&D to improve your product, etc. If it's the opposite you don't feel any urgency because your $1mil is gaining value as it sits in the bank.

Root_Denied 3mo ago

Velocity of Money is the term to look into. Governments also like it because as money circulates it generates tax revenue through sales tax/VAT.

Dylan16807 3mo ago

This is true for investment-level amounts of money and larger percentages, but much less true for everyday purchases and small percentages. For buying a thing, a year of ownership is much more valuable than saving 2%. Look at the computer industry where waiting a year or two almost always gets you significantly better hardware but that doesn't stop people from buying new ones often. And debts adjust their rates along with inflation/deflation so that effect ends up much smaller. As for houses and cars, we desperately need to make the economy less focused on the value of houses and cars...