Coin Rampant
Why is deflation considered a bad thing?
Hello economics experts!
My question is about deflation. One definition of deflation is: a sustained “decrease in the general price level of goods and services… resulting in an increase in the real value of money – allowing one to buy more goods with the same amount of money.”
Now, this sounds like a good idea to me. (I would really like my 5 cents to be able to purchase a Coca Cola as it did in the old days!) So, why is it a bad thing? Intuitively, I understand that it is because during the Great Depression in the US, deflation was rampant. However, can someone explain to me the other side of the coin? (and plainly, please… I’m no econ expert!)
Thanks!
Rich
Your analysis is pretty good. Deflation can result in greater value for your dollar. However, if you have debt like most people do and in particular a mortgage, you have to pay off inflated values with a deflated dollar. This is why so many people are walking away from there homes because the value of the home is inflated while the market has now gone down. Why stay in a house that cost you $500,000 and now is worth $200,000? This is why deflation can and has caused our economy so many problems right now. Our government by the way is at fault for this tragic event but I don’t have the time or space to explain that here and now. Research Freddie Mac and Fannie May along with Barney Frank (Dem. Congressman from Ma.). You can also blame Alan Greenspan and his easy money policy when he ran the FRB.
WARNING ! ! Fake Silver Coins running Rampant due to High Silver Prices.