Deflation is basically falling prices, but with incomes falling to match them.
Of course, many jobs have fixed, or agreed, income levels and those concerned reject attempts to cut wages.
Then, those involved are relatively better off, for a while, but the added costs make the employer uncompetative, so he closes.
Thus you get rising unemployment.
At the end of it, the ex-employees take lower paid jobs, for that is all that is available, so it all balances out, but only after many companies have closed and people lost jobs.
Then, look at those who have borrowed money.
They are effectively having to pay far more for their borrowings as, even if interest rates have fallen, the worth of the money being less, means the loan cost them more (of the "new" money).
Thirdly, to cushion the negative effects of deflation, governments try to assist ceertain groups (perhaps businesses that are considered essential) or people (the unemployed for example) thus adding to govt debt, which all of "us" has to repay in the future, thus raising taxes for a prolonged period in the future. _________________ The Middle Eastern states aren't nations; they're quarrels with borders.- P. J. O'Rourke
If you got a lot of cash it ain't bad at all. As most people don't speculate with keeping cash but rather land or goods, deflation is usually quite good to get down on speculators. _________________ Thailand Forum - Korat Forum..
That's true, although its actual purchasing power might be less than hoped if the currency is devalued, and also, with low / zero bank interest, it isnt earning anything. _________________ The Middle Eastern states aren't nations; they're quarrels with borders.- P. J. O'Rourke
It's probably psychological. Human beings are greedy and always want more.
For example, if one has an apartment, he wants to see its market value going up, even though he is not gonna be able to get a better apartment because the whole property market is going up too! It just makes him feel good _________________ Absolute Power Corrupts Absolutely!
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