|
| |
| ||||||
![]() ![]() ![]() ![]() ![]() ![]() | |||||||
|
||||||||||||||||
![]() |
« Previous Entry | Main | Next Entry » Why Is Deflation Bad? Name:
Hollis Marriott
Question: Why is deflation so bad? I have certainly benefited from the drop in gas prices, so I wonder what is wrong with things becoming cheaper in general? And wouldn't that make up for previous inflation? Paul Solman: Another good question. Like inflation, a little DEflation isn't necessarily a bad thing. But a lot of either is, because they feed on themselves. Gas price deflation by itself is no problem, except, perhaps, for the owners of gas. And as you suggest, they had it great for years. But what about when clothing prices go down? And car prices? And kayak prices? And art prices? Yes, everything becomes more affordable. But what about the people who make and sell the clothes and cars and kayaks and art? How do they pay their employees? OK, you might say, they can cut pay by the amount the prices go down and everyone will stay even. But what about the loans they've taken out to finance their raw materials? Who's going to renegotiate those loans down? Companies are stuck paying higher rates of interest (because banks are scared) and yet the dollar is deflating: gaining value. So businesses wind up owing more. Yet they have lower revenues. So, they lay off workers. The workers have less money to spend and are more afraid than ever. They stop spending. Businesses have to lower their prices even further, stoking the downward spiral. Not good. -- Posted April 7, 2009 | Comments (2) | Permalink
TrackBacksListed below are links to blogs that reference this entry: Why Is Deflation Bad?. TrackBack URL for this entry: http://www.pbs.org/newshour/mt4/mt-tb.cgi/1197 2 CommentsLeave a comment |
||
![]() |
![]() |
| ABOUT US | FEEDBACK | SUBSCRIPTIONS / FEEDS: |
| Support the kind of journalism done by the NewsHour...Become a member of your local PBS station. | ||
| PBS Online Privacy Policy Copyright ©1996- MacNeil/Lehrer Productions. All Rights Reserved. | ||
Ben Benranke and his buddies don't or don't care to understand/admit that monetary manipulations will not bring back demand. We have a DEMAND DEFLATION in everything. The subprime buyers are not coming back to market, and the credit worthy borrowers are not going to get into debt any time soon. We don't need to "unfreeze lending" if nobody wants to borrow (while assests are depreciating). Mr. Bernanke somehow beleives that he can create economic product based on labour and goods it produces by just hitting a button on his computer to add a few zeros to FED's account. His academic theories, being tested on live human beings, will be proven wrong and disastrous soon enough. The prices will go where they naturally want to go. All FED can do is slow the process of decline, not arrest it - that will only prolong this recession.
Hollis,
I have the same question as you had. You mentioned gasoline prices, but neither you nor Paul considered the prices of houses or of stock. I believe that deflation would reward the thrifty people, who saved their money while prices dropped, instead of recklessly spending it and recklessly investing it.