When your money is going to gain some value, you might as well take a risk and invest it for an even greater potential reward.
People always want more money.
Deflation does encourage delayed consumption of none staples and big ticket items. This is a feature not a bug.
You are correct that deflation adds on top of interest, which makes loans more expensive.
No. There is less interest charged on loans in a deflationary environment. Loans are cheaper. Remember the Argentinian counterexample ? Inflation high, interest rates high.
If you’re an individual investor, given the choice between the 2 scenarios, would you rather exist in a world with 2% deflation, where you have to make more than a 2% return on investment in order for it to have been worthwhile, or a world with 2% inflation, where you don’t even need to correctly pick a growing investment, and even an investment that just holds a stable value is worthwhile.
The choice is obvious, of course the individual would rather have the deflation scenario, because then they don’t even need to invest or take any risk to grow their wealth. They can literally just sit around and do nothing, and their wealth grows for free without any risk.
But this is naive and childish to think that an environment where you just get free wealth for no reason by doing nothing is healthy for an economy as a whole.
Argentina had very high inflation, and I agree that’s bad. The amount of inflation is key. What dictates the amount of inflation that is healthy? Hint: you’ll have to scroll all the way to the beginning of this lesson in order to know. (jk I’ll just tell you here, it relates to the growth rate of the economy). Argentina’s inflation was out of sync with its economic growth.
Technically, deflation isn’t always theoretically bad and inflation isn’t always theoretically good, but we live in a reality of moderate economic growth, so therefore moderate inflation is required to maintain it.
And now we’ve circled back to the start and my position has remained entirely self-consistent, while yours has been easy to poke full of holes and point out the inconsistencies.
If you’re an individual investor, given the choice between the 2 scenarios, would you rather exist in a world with 2% deflation, where you have to make more than a 2% return on investment in order for it to have been worthwhile, or a world with 2% inflation, where you don’t even need to correctly pick a growing investment, and even an investment that just holds a stable value is worthwhile.
Deflation world. Invest $100 in a 2% risk free bond for a year. End up with $102 nominal ($104 real)
Inflation world. Invest $100 in a 2% risk free bond for a year. End up with $102 nominal ($100 real)
As an investor, the deflation world looks better to me.
But this is naive and childish to think that an environment where you just get free wealth for no reason by doing nothing is healthy for an economy as a whole.
You are literally describing the current world of investment. You have to go full communist to live in your “healthy” world.
I suspect this is not at all what you meant to write, but it’s hilarious that came out like this.
we live in a reality of moderate economic growth, so therefore moderate inflation is required to maintain it.
This is not true. But you may be referring to the money supply rather than price inflation so I’ll let it pass.
Technically, deflation isn’t always theoretically bad and inflation isn’t always theoretically good.
Agreed. We could leave the discussion here and part amicably.
You are literally describing the current world of investment. You have to go full communist to live in your “healthy” world.
The current world of investment involves returns without risk? 😂
Given you’re demonstrated lack of understanding of even the most basic fundamentals of economics, I can already tell you can’t actually correctly describe communism. Seems like at this point you’re just typing words that you think sound smart. There wasn’t really any coming back from when you mixed up loans and investments, and got deflation and inflation entirely backwards lol.
This is not true.
But it is true, and expert economists agree with me. Sorry! You’re wrong again.
you may be referring to the money supply rather than price inflation
Duh. I can’t believe you’re only getting this at this point in the conversation, but at least you’re starting to figure it out?
People always want more money.
Deflation does encourage delayed consumption of none staples and big ticket items. This is a feature not a bug.
No. There is less interest charged on loans in a deflationary environment. Loans are cheaper. Remember the Argentinian counterexample ? Inflation high, interest rates high.
If you’re an individual investor, given the choice between the 2 scenarios, would you rather exist in a world with 2% deflation, where you have to make more than a 2% return on investment in order for it to have been worthwhile, or a world with 2% inflation, where you don’t even need to correctly pick a growing investment, and even an investment that just holds a stable value is worthwhile.
The choice is obvious, of course the individual would rather have the deflation scenario, because then they don’t even need to invest or take any risk to grow their wealth. They can literally just sit around and do nothing, and their wealth grows for free without any risk.
But this is naive and childish to think that an environment where you just get free wealth for no reason by doing nothing is healthy for an economy as a whole.
Argentina had very high inflation, and I agree that’s bad. The amount of inflation is key. What dictates the amount of inflation that is healthy? Hint: you’ll have to scroll all the way to the beginning of this lesson in order to know. (jk I’ll just tell you here, it relates to the growth rate of the economy). Argentina’s inflation was out of sync with its economic growth.
Technically, deflation isn’t always theoretically bad and inflation isn’t always theoretically good, but we live in a reality of moderate economic growth, so therefore moderate inflation is required to maintain it.
And now we’ve circled back to the start and my position has remained entirely self-consistent, while yours has been easy to poke full of holes and point out the inconsistencies.
Deflation world. Invest $100 in a 2% risk free bond for a year. End up with $102 nominal ($104 real)
Inflation world. Invest $100 in a 2% risk free bond for a year. End up with $102 nominal ($100 real)
As an investor, the deflation world looks better to me.
You are literally describing the current world of investment. You have to go full communist to live in your “healthy” world.
I suspect this is not at all what you meant to write, but it’s hilarious that came out like this.
This is not true. But you may be referring to the money supply rather than price inflation so I’ll let it pass.
Agreed. We could leave the discussion here and part amicably.
The current world of investment involves returns without risk? 😂
Given you’re demonstrated lack of understanding of even the most basic fundamentals of economics, I can already tell you can’t actually correctly describe communism. Seems like at this point you’re just typing words that you think sound smart. There wasn’t really any coming back from when you mixed up loans and investments, and got deflation and inflation entirely backwards lol.
But it is true, and expert economists agree with me. Sorry! You’re wrong again.
Duh. I can’t believe you’re only getting this at this point in the conversation, but at least you’re starting to figure it out?