I'm getting tired of this. Deflation is bad, inflation is bad, too (you should have heard them cry when the inflation in the eurozone was quite high some time ago)... these economy guys can't do anything but biatch and complain to conceal the fact that it isn't because of the currency but because of the bad decisions of their colleagues why the shiat hit the fan.

FTFA: In particular, the devastated economies of Spain and Ireland are never going to recover with this sort of thing going on.

This would have been a very apt place for the writer to note that the economies of both Spain and Ireland recently experienced a speculative housing bubble, which undoubtedly contributed to their problems significantly.

It really does not seem to be difficult to get a job writing op-ed pieces. It's like, you don't even have to really know what you're talking about, as long as you deliver some kinda copy by deadline.

The reason why deflation is worse than inflation can be summed up as so: "Why buy today when my money is worth more tomorrow?"

And for people who will say "Why is that a bad thing again?": when you have whole countries thinking this, it kills an economy.

Extreme parity we Eurodollar also?

I wanna go to Amsterdam in October, so hopefully I wont get raped on the exchange rate like last time I went to Europe!

did Borat write this headline?

NEDM: The reason why deflation is worse than inflation can be summed up as so: "Why buy today when my money is worth more tomorrow?"

And for people who will say "Why is that a bad thing again?": when you have whole countries thinking this, it kills an economy.

Don't worry, your beloved inflation will still hit America hard.

GaryPDX: ghare: Some people just enjoy making others upset.

I told you guys the liberals would crash the planet. I'm not happy about it. But ohhh nooo..many of you called me ..insane..yea that's it.

The problem is the European Banks followed the Republican Plan. Thus the US is better off than them right now.

Komplex: GaryPDX: ghare: Some people just enjoy making others upset.

I told you guys the liberals would crash the planet. I'm not happy about it. But ohhh nooo..many of you called me ..insane..yea that's it.

The problem is the European Banks followed the Republican Plan. Thus the US is better off than them right now.

Yeah..."Right now."

Oil spiked and fell, as it rises again we will see inflation, possibly massive inflation.

PirateFreedom: Oil spiked and fell, as it rises again we will see inflation, possibly massive inflation.

Thanks, Obama!

12349876: Lost Thought 00: Good.

What do you mean good. Remember what happened last time Europe was in an economic crisis?

Resin33: Inflation is bad, and now deflation is bad too?

Geez.. what's good?

You know how you can get heatstroke, and you can also get hypothermia?

The Homer Tax: Resin33: Inflation is bad, and now deflation is bad too?

Geez.. what's good?

This was my thought, too. Apparently "flation" is what we need, but no one knows how to achieve flation.

I know how to acheive flatus.

grimnir: Resin33: Inflation is bad, and now deflation is bad too?

Geez.. what's good?

You know how you can get heatstroke, and you can also get hypothermia?

But Farkers have been assuring me that heatstroke is preferable to hypothermia!

WhileAmericaBurns: But Farkers have been assuring me that heatstroke is preferable to hypothermia!

And you listen to Farkers about this?

Actually, inflation is prefereable to deflation. Inflation does not feed upon itself, while deflation does. A shrunken money and credit supply leads to deflation, which leads to the money supply shrinking as people lose jobs and don't want to spend now, which leads to more deflation. Deflation leads to defaults on secured debts of all kinds as the debt collateral's value falls far below the value of the debt it secures. One of the things that can be done about deflation is to increase the money supply. After you've dropped the interest rate to zero, though, there's not a lot you can do to fix it.

Inflation in a modern, free market economy is normal and healthy. It's a sign of growth, and is good for debtors. It encourages people to spend or invest their money rather than sit on it, which stimulates the economy. Moderate inflation helps debtors to pay back their debts also. It keeps the money moving around.

Hyperinflation can also be a huge problem. It encourages people to spend all their money immediately. Creditors lose their value as debtors pay back their loans with hyperinflated money. One of the things you can do about hyperinflation is to decrease the money supply by raising interest rates, and those interest rates can always be raised higher until the desired effect is achieved.

The key is to keep currency values fairly stable, with inflation between reasonable bounds. If inflation is too high or too low, it is unhealthy for an economy.

Texas with a Dollarsign: This is why I thought that a European currency was a stupid idea. In the old days, each country had their own currency, so if one country fell, it would really only directly affect that country, and other more stable countries could step in and offer assistance to minimize the damage. Now, with the Euro, if Germany's economy tanks and the Euro falls, it affects 16 other countries simultaneously. France can't easily step in to help Germany if their economy is in trouble too thanks to the Euro's collapse.

Granted, the domino effect still existed under the old system, but it is much easier to stop 16 smaller dominoes than one large domino.

/Besides, I like collecting foreign coins
//Not an economist

Man is your understanding of that backwards.

DamnYankees: Well that's no good.

Actually deflationary effects are not ALL bad. In the long run most inflationary effects ultimately become deflationary right before the uptick begins. Deflation itself isn't all bad if you keep your head above water, you can easily end up with more than you started with long-term.

NEDM: The reason why deflation is worse than inflation can be summed up as so: "Why buy today when my money is worth more tomorrow?"

Soooo, lower prices are bad and everyone should be glad to have the value of their wages destroyed?

So you mean to tell me that nobody is buying computers, Cell phones, MP3 players, Big-Screen TVs, etc? The prices of those have been falling for years, yet people are still buying them.

In fact, the entire 19th century was a deflationary period, yet we prospered as an economy. Prices in an economy naturally fall as production improves.

Methinks you and others need to learn more about economics. Inflation is not good nor is it needed. Once the fallacy of our fiat currency is exposed and we ride out the painfull correction, we will be able to rebuild our economy using sound economic theories and not Keynesian and other economic voodo.



The federal reserve was supposed to maintain the dollars value. Instead, it has debased it.

Crosshair: NEDM: The reason why deflation is worse than inflation can be summed up as so: "Why buy today when my money is worth more tomorrow?"

Soooo, lower prices are bad and everyone should be glad to have the value of their wages destroyed?

So you mean to tell me that nobody is buying computers, Cell phones, MP3 players, Big-Screen TVs, etc? The prices of those have been falling for years, yet people are still buying them.

In fact, the entire 19th century was a deflationary period, yet we prospered as an economy. Prices in an economy naturally fall as production improves.

Methinks you and others need to learn more about economics. Inflation is not good nor is it needed. Once the fallacy of our fiat currency is exposed and we ride out the painfull correction, we will be able to rebuild our economy using sound economic theories and not Keynesian and other economic voodo.



The federal reserve was supposed to maintain the dollars value. Instead, it has debased it.

I'm not a Keynesian, but I think you're mistaken about what deflation is. Deflation is not necessarily a general fall in prices, but a contraction of the money supply.

WhileAmericaBurns: I'm not a Keynesian, but I think you're mistaken about what deflation is. Deflation is not necessarily a general fall in prices, but a contraction of the money supply.

Deflation isn't necessarily relative to prices as much as value. Deflation is the same as devaluation. Specifically devaluation of assets. Inflation is valuation of assets and devaluation of currency.

Managed inflation encourages investment and spending in general. Average inflation runs about 5-8%.

Deflation is typically accompanied by unemployment due to market contraction which can cascade into a much worse scenario when the value of everything is questioned.

See neighborhoods that have empty lots that have sat fallow for decades because no one can value them because no one actually wants them. Now imagine the whole country that way.

Deflation means everyone trying to sell assets/hoard currency at once, and no one trying to buy.

Inflation means that people are encouraged to trade currency for 'hard assets'. It can be a bad thing if unmanaged, but deflation is almost invariably a negative economic indicator.

kasmel: WhileAmericaBurns: I'm not a Keynesian, but I think you're mistaken about what deflation is. Deflation is not necessarily a general fall in prices, but a contraction of the money supply.

Deflation isn't necessarily relative to prices as much as value. Deflation is the same as devaluation. Specifically devaluation of assets. Inflation is valuation of assets and devaluation of currency.

Managed inflation encourages investment and spending in general. Average inflation runs about 5-8%.

Deflation is typically accompanied by unemployment due to market contraction which can cascade into a much worse scenario when the value of everything is questioned.

See neighborhoods that have empty lots that have sat fallow for decades because no one can value them because no one actually wants them. Now imagine the whole country that way.

Deflation means everyone trying to sell assets/hoard currency at once, and no one trying to buy.

Inflation means that people are encouraged to trade currency for 'hard assets'. It can be a bad thing if unmanaged, but deflation is almost invariably a negative economic indicator.

Here's a part of the equation I don't understand. If more people are saving, then (assuming they keep their money in banks) isn't there more money available for lending? I just don't understand why it's assumed that if people aren't spending then their money is just sitting under a mattress.

WhileAmericaBurns:
Here's a part of the equation I don't understand. If more people are saving, then (assuming they keep their money in banks) isn't there more money available for lending? I just don't understand why it's assumed that if people aren't spending then their money is just sitting under a mattress.

Just increasing the money supply to banks will increase money for lending, but if you're a consumer buying a new car or a company buying a new IT system, and the economy's in the shiatter and you don't know if you'll have a job next week, plus prices are falling, you might put off borrowing and spending for a bit. If everyone stops spending you'll end up with severe deflation but everyone has saved lots of cash, like Japan where consumers have an average of four years of outgoings saved.

bartink: thirdspade: Pretty sure, yeah. I don't follow the exchange rates between countries, but pre-economic collapse, the Euro and Pound were surpassing the dollar significantly because the dollar was inflating at a higher rate.

And the dollar came roaring back once the collapse began.

Where's the roar?

Something got screwed up with those links. I'll try again:
http://www.x-rates.com/d/EUR/USD/graph120.html
http://www.x-rates.com/d/GBP/USD/graph120.html
http://www.x-rates.com/d/CHF/USD/graph120.html

WhileAmericaBurns: I'm not a Keynesian, but I think you're mistaken about what deflation is. Deflation is not necessarily a general fall in prices, but a contraction of the money supply.

Oh I know what deflation is. I was just pointing out that the idea that "deflation = bad" is a crock cooked up by politicians who want to inflate a currency because it allows them to tax us through inflation.

People buy and invest when they feel it will make them the most benifit.

unyon: Wait, you mean to tell me that prices are declining from the highs generated during an artificially created speculative bubble?

Shocking. I implore you all to initiate irrational activity based on the belief of your imminent demise.

Please check back in with us when you have had an intermediate macro course. You also might want to look into the difference between commodity and asset inflation.

WhileAmericaBurns: Here's a part of the equation I don't understand. If more people are saving, then (assuming they keep their money in banks) isn't there more money available for lending? I just don't understand why it's assumed that if people aren't spending then their money is just sitting under a mattress.

Deflation causes banks to fail. An average banks value is only 10-15% liquid at most. The rest is in assets and financial investments(loans-liens). As those assets lose value and no one will buy them, people see the bank lose value and put their cash deposits at risk. Which is why runs on banks happen.