> > If your job depends on receiving income then you can appreciate why it also depends on other people spending money.
> Well the point is prices adjust. If people aren't spending money, then prices just fall until the people that are spending money can afford it.
But remember that the reason the prices are dropping is because no one is spending money. This is a positive feedback loop: the only reason that sellers are dropping prices is because they are under extreme pressure to make some income somehow. So they drop prices and receive a bit of income. So these businesses are then unable to pay their suppliers, who are forced to either drop their prices or suffer default, and so on straight up the chain.
So it's not that deflation itself is hazardous per se, but that it tends to amplify its own effect. If you reach the "flashover" point the whole economy goes to crap, much as what happened when the mortgage failure rate finally got high enough with the sub-prime mortgage derivatives.
> Exporting more things isn't necessarily a good thing. Ideally we could import everything we need and not have to actually work to produce things to export.
That would perhaps be ideal, but it can't possibly occur that every country only imports and doesn't export. Someone has to lose in that transaction. Is that ethos really what we want to base a global financial system on?
>So it's not that deflation itself is hazardous per se, but that it tends to amplify its own effect.
It will stabilize eventually though as no new people start saving instead of spending, or as the people who were saving eventually need to buy things or decide to finally cash out and spend their money.
>That would perhaps be ideal, but it can't possibly occur that every country only imports and doesn't export. Someone has to lose in that transaction. Is that ethos really what we want to base a global financial system on?
The point was that we shouldn't strive to export more things as if that was a good thing in and of itself. The benefit of exports is the foreign money you get in return, and the benefit of that is the imports you can get in exchange for it.
> Well the point is prices adjust. If people aren't spending money, then prices just fall until the people that are spending money can afford it.
But remember that the reason the prices are dropping is because no one is spending money. This is a positive feedback loop: the only reason that sellers are dropping prices is because they are under extreme pressure to make some income somehow. So they drop prices and receive a bit of income. So these businesses are then unable to pay their suppliers, who are forced to either drop their prices or suffer default, and so on straight up the chain.
So it's not that deflation itself is hazardous per se, but that it tends to amplify its own effect. If you reach the "flashover" point the whole economy goes to crap, much as what happened when the mortgage failure rate finally got high enough with the sub-prime mortgage derivatives.
> Exporting more things isn't necessarily a good thing. Ideally we could import everything we need and not have to actually work to produce things to export.
That would perhaps be ideal, but it can't possibly occur that every country only imports and doesn't export. Someone has to lose in that transaction. Is that ethos really what we want to base a global financial system on?