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Cake day: 2023年7月18日

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  • Deflation can be really damaging because it disincentivizes things like investments and longterm projects. Here are a couple of examples:

    • One of the biggest issues with mortgages is if you are under water (can you pay off your debt if you sell the house). With deflation, you could buy a house today and owe more than the house is worth tomorrow.
    • If the total cost to manufacture a car is $X, but by the time I can sell the car the market would only pay $X-50, then I’m actually better off not making the car.

    Essentially, high deflationary pressure causes people to hold their money and not spend it. It’s what happened in Japan around 1990s-2010s resulting in basically negative growth in their economy - Source

    Hyper inflation is a similar issue, but on the other end. The value of money is lost so quickly that things like life savings can become worthless due to money losing its value so rapidly.