::  Posts  ::  RSS  ::  ◂◂RSS  ::  Contact

Deflationary Spirals

November 15th, 2013
money, inflation

The standard economic view is that deflation is bad because it leads to more deflation. The idea is that if you own a widget factory and the price you can get for your widgets falls you will decrease the number you make. You lay off some employees, don't buy new machines, and try to stay profitable. If this happens through enough of the economy at once then everyone's incomes go down, they can't afford to spend so much for a new widget, and the price you can get falls further. Similarly, because people expect the value of money to rise they hold onto it instead of spending it, which amplifies this process and leads to even higher values of money.

There are two things I don't understand about this, however:

(Normally deflation isn't much of an issue because the government can print more money at any time and push us back to inflation. If bitcoin were to become the primary currency, however, the government wouldn't have that option. I'm trying to understand how dangerous that is.)

Comment via: google plus, facebook

More Posts:

Older Post:

Newer Post:


  ::  Posts  ::  RSS  ::  ◂◂RSS  ::  Contact