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posted by martyb on Thursday March 28 2019, @01:05PM   Printer-friendly
from the should-not-embrace-deflation-either dept.

Currently we can observe a general slowdown in the annual growth rate in price inflation across major countries around the world. [...] Most commentators are of the view that deflation generates expectations for a decline in prices. As a result, it is held, consumers are likely to postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. This weakens the overall flow of spending and in turn weakens the economy. Hence, such commentators believe that policies that counter deflation will also counter the economic slump.

Inflation is not about general increases in prices as such, but about the increase in the money supply. [...] For instance, if the money supply increases by 5% and the quantity of goods increases by 10%, prices will fall by 5%. A fall in prices however, cannot conceal the fact that we have inflation of 5% here because of the increase in money supply. The reason why inflation is bad news is not of increases in prices as such, but because of the damage inflation inflicts to the wealth-formation process.

The economic effect of money that was created out of thin air is the same as that of counterfeit money — it impoverishes wealth generators. The money created out of thin air diverts real wealth towards the holders of new money. [...] So, countering a falling growth momentum of the CPI by means of loose monetary policy (i.e., by creating inflation) is bad news for the process of wealth generation and hence for the economy. [...] Furthermore, if a fall in the growth momentum of prices emerges on the back of the collapse of bubble activities in response to a softer monetary growth, then this should be seen as good news. The less non-productive bubble activities the better it is for the wealth generators and hence for the overall pool of real wealth.

https://mises.org/wire/central-banks-shouldnt-fight-deflation


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  • (Score: 1) by khallow on Friday March 29 2019, @03:55AM (1 child)

    by khallow (3766) Subscriber Badge on Friday March 29 2019, @03:55AM (#821657) Journal

    This is by design. No better way to prop up the stock market than to force people to "invest" into it if they just want to keep what they have because traditional safe investments now lag well behind inflation and barely beat the stuff-it-into-a-mattress method of storing your money.

    It's not design, it's just a standard bias against risk in investors. Suppose you have a choice between a very safe investment and a very risky one which both pay the same when they work out. Why would you ever put money into the crap shoot? Naturally, the riskier investment will have to offer a higher return in order for investors to consider it.

  • (Score: 2) by toddestan on Sunday March 31 2019, @06:24AM

    by toddestan (4982) on Sunday March 31 2019, @06:24AM (#822655)

    Of course I don't expect a big return from a completely safe investment like a savings account or a CD, but historically a safe investment more or less keep up with inflation. That hasn't been the case for some time. It really boils down to the Fed's policy of keeping the interest rates as low as possible. The banks really have no reason to entice depositors to keep money in savings accounts when they can just borrow the money they need to balance their sheets from Uncle Sam for almost nothing.