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posted by janrinok on Saturday February 21 2015, @08:30AM   Printer-friendly
from the what-me-worry? dept.

Some time ago we discussed negative interest rates here on Soylent News. At that time there was some discussion of deflation and why it is such a mixed bag for consumers, companies, and countries.

The Economist has an article that explains deflation rather succinctly.

It turns out that deflation is bad because we are all so burdened with Debt. Not only personal debt, but corporate debt, and national debts. You end up paying debts with money that is more and more dear as time goes on.

Deflation poses several risks, some well-understood, one not. One familiar danger is that consumers will put off spending in the expectation that things will get even cheaper, further muting demand. Likewise, if prices fall across an economy but wages do not, then firms’ margins will be squeezed and employment will stagnate or decline. (Neither of these dangers is yet visible; indeed, America and Britain are seeing strong employment growth.) A third, well-known risk is debt deflation: debts become more onerous because the amount that is owed does not fall, even as earnings do. This is a big worry in the euro zone, where many banks are already stuffed with dud loans.

But in addition, all tools of Monetary Policy become useless.

The least-understood danger is also the most serious, because it is already here. Deflation makes it harder to loosen monetary policy. All of which means that policymakers risk having precious little room for manoeuvre when the next recession hits.

While some have been eager to see monetary policy reigned in, we did see the effects of this during the height of the recent depression, (which some claim we are still suffering from).

The US Federal Reserve had run out points it could cut when lending money to large banks. There were periods in 2010 where the Fed was lending money to banks at Zero Interest Rate. The link explains a number of serious risks with this policy.

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  • (Score: 2) by Justin Case on Sunday February 22 2015, @01:30AM

    by Justin Case (4239) on Sunday February 22 2015, @01:30AM (#147946) Journal

    > they can make a profit WITHOUT WORKING just because they own what is necessary for others to work.

    Obviously you've never invested, because if you had, you'd know that doing it successfully is a lot of work.

    You seem to think The Rich just landed in a spaceship one day complete with their billions of dollars, champagne, yachts, and phat ass girls. I guess nobody ever anywhere worked to earn the money that provided them a little extra to invest.

    Oh, and when I do invest in your employer, I provide them a loan they can use to hire numbskulls like you, on the expectation that you'll do something useful so your employer can pay me back. You're welcome. And get back to work, slacker!

    Starting Score:    1  point
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  • (Score: 2) by nishi.b on Sunday February 22 2015, @04:40AM

    by nishi.b (4243) on Sunday February 22 2015, @04:40AM (#147991)

    First, this was Marx's opinion, not mine. The ones who produce are not the ones owning the mines, the land, or the machines, but the workers.
    Second, you don't invest in my employer, as I am working in a domain where most investers don't go, but the state goes : long-term medical research.

    • (Score: 1) by khallow on Monday February 23 2015, @09:18AM

      by khallow (3766) Subscriber Badge on Monday February 23 2015, @09:18AM (#148346) Journal

      First, this was Marx's opinion, not mine.

      Please next time state it as such and not your own. I read the same phrase and I had the same impression as the grandparent post that it was your opinion.

      Second, you don't invest in my employer, as I am working in a domain where most investers don't go, but the state goes : long-term medical research.

      Sounds like there's a possibility that no one invests in your employer then. Investment implies an expectation, reasonable or not, of greater return than what was put in. When the state puts money in, there often is no such expectation even when claimed otherwise.