Can somebody explain economic deflation to me?

[AlienGirl]

I understand inflation pretty well, and know how a person can survive an inflationary depression, but how does deflation happen and what can a person do to stay afloat if it does?

Tucker

[AGENDA21]

1. Someone will know..

I find this quote interesting..

"From now on, depressions will be scientifically created." -- Congressman Charles A.
Lindbergh Sr. , 1913

[sendero]

2. I don't understand it completely..

... but of course it is when dollars become scarce and hence prices go down rather than up.

Deflation scares the bejeebus out of the folks who run the economy and money supply, because the results are so disastrous. Imagine a situationw where millions and millions of people are suddenly "upside down" on their house and car loans. A true calamity.

Of course the buttress against this eventuality is having cash. Cash is king to put it mildly in a deflationary environment.

All that said let me add this. I just don't see how you can ever have deflation when your Federal Reserve is busy printing dollars as fast as they can, which they've been doing for 5 years now. I don't think many people think a deflationary spiral is very likely. Inflationaty spiral? Not only possible but very possible.

[mmonk]

4. It's possible to have a deflationary period

after an inflationary period. The danger occurs when no matter how low prices go, people decide still not to buy. Then people get laid off and continue to spend less.

[sendero]

7. As the old saying goes...

... "anything is possible but only a few things actually happen".

IMHO, the Fed would gnaw it's own arm off before letting deflation happen. Prices cannot go "low" when the currency is being deliberately and flagrantly debased.

Sure, in real inflation adjusted dollars, you can have deflation. But when a dollar is devalued to $.75, it is hard to see how.

That said, I would quickly add that you cannot rule out anything when it comes to economics. The Fed has come a long way, for example, if the great depression happened again exactly as before, it would not take us 10 years and a world war to get out of it IMHO. On the other hand, in a way when it comes to economics, we are always essentially in uncharted territory.

And lastly to the OP - racking up debt is never a good plan. Sure you get to enjoy the prospect of repaying with inflated dollars but there ARE downsides as well. Back in the 70s when we had a bout of inflation way too many people used it as an excuse to buy twice the house they needed, and then got the house foreclosed in the slump of the 80s.

Hedging against a predicted economic situation is a good plan, depending on it is not IMHO. Too many unpredictable eventualities.

[AlienGirl]

6. I've been so focused on preparing for hyperinflation that I have to wonder

I've been expecting a hyperinflationary spiral for a long time, and have done stuff to prepare for it (like racking up student loans). But it would be just my luck if I'd prepared for an inflationary depression, and instead a deflationary one hit.

Tucker

[merbex]

3. Deflation is like a black hole in space that scientists speak of

once it starts it spirals downward and you have ahelluva time getting out of it

Outright own your house,have a job that is necessary to the population because people cut back to the bare necessities

Someone here on DU will give I'm sure a great technical definition but read The Grapes of Wrath to see deflation in action

[ender]

5. how to stay afloat in deflation:

simple,

* have no debt
* have cash on hand.

[SoCalDem]

8. Fear drives it..

People fear losing their jobs (or actually lose them)..they quit buying stuff.. Most people in the US have TOO MUCH stuff anyway..

Liz Claiborne is closing a bunch of stores and layiung off people (500, I think)..Not huge in the overall scheme of things, but it's trickling down to the retail end.. Our mall is DESERTED...all the time. there are stores that have NEVER been occupied, and yet, this town is still building and opening new stores.. Some stay open months or a few years, and then they close down..

Too many stores to provide adequate sales for all of them to stay open..

When people think they might lose their jobs, they think about basics.. keeping the old car running, recycliong kids' clothes...not taking vacations, not eating out..

Those things work their way through economies, and pretty soon you can almost hear the crickets chirping..