Why is deflation bad?

Kingofshorts, I don't dispute what you are saying but I was talking about the last two years, not ten.
In the worst cases, housing has halved in price in two years. Goods in general, and the best example is groceries, definitely have halved, but the US is a divide and extort economy, not capitalism, so I understand that some people have missed this.
Insurance, taxes and energy have been the outliers. No doubt. But if you are a consumer and you can't pay half for what you paid a couple of years ago then you are a fool. For example, if you are not paying half the price for furniture and electronics then perhaps you watch too many commercials and think that not having an Ipad is like leprosy. I would love to have hears what Bill Hicks would have thought about Steve Jobs and the latest Bilderburgers.
We've gone beyond the mentality of paying for what it's worth when it comes to purchases these days. If you're not fucking someone else over then they are probably taking you up the ass.
I'm not an American so I don't know where this great heritage stems from.
Deflation has been in full effect for a couple of years now. If you haven't noticed that then more fool you.

 

Can I add -fuck warren buffet for being the root of all evil. Insurance is the biggest scam in the US and am I supposed to admire an old fashioned extortionist like buffet for being a lowlife scum bag?
RIP warren. The sooner the better.

 

Here is the problem with Deflation.

Imagine a 2008 car was going for $30,000. The 2009 model is expected to be $15,000 and the 2010 Model is expected to be $7,500.

As you can see the price is dropping. As a result, what consumer in there right mind would buy a vehicle if the next model will be cheaper than today's model? As such, spending dries up on autos and the industry collapses. This same thing can happen to other industries, like Housing, computer sales, etc...

Deflation is 100x worst than Inflation. The reason is that its difficult to escape the death spiral. This happened in 1933.

 

I am not advocating government intervention just because I believe deflation is bad. I think we’d agree that asset price inflation can be nearly as destructive. I am simply trying to show that deflation can be a truly horrific environment if it takes hold.

Someone called me an “apologist” for govt spending yesterday – sometimes I wonder if people even read the site or if they just glance over it occasionally and make these sweeping allegations about my positions. I can’t think of many people who have been more critical of the govt intervention than I have.

As for hard money – I just don’t think it would work in today’s global economy. The Europeans are trying what is effectively a single currency system and its been an utter disaster. Also, history does not show that hard money monetary systems are without corruption or volatile business cycles….

 

If government can find $2T/year spending cuts from the budget, then there should be no fear from deflation or inflation..................because they will not happen with fiscal tightening.

 

I think you’ll find that most deflation defenders are either bankers, lenders, currency holders etc…who don;t give a hoot about the average borrower tied to an illiquid asset.
As for government spending, it does exist without being socialist, for Christ sake. Just look at military spending, police, roads, firemen, teachers, etc… If everyone is so worried about spending, why not a word against the endless Iraq war by the same folks who now cry austerity?

 

Technological innovation does not bring about deflation, instead, it brings about disinflation(at the most) by increasing productivity. The IPhone has created an entirely new industry which has created thousands of jobs. Think of all the new companies starting up just to create apps for it? For all those jobs lost in car manufacturing, 10s of thousands were created in the computer industry. Technological innovation DOES NOT reduce consumer spending like a post asset bubble, deleveraging scenario we are seeing now. One spurs the economy both financially and psychologically, the other destroys it.

 

“A second effect: even aside from expectations of future deflation, falling prices worsen the position of debtors, by increasing the real burden of their debts.”

Exactly. Can’t have that can we Krugs.

Without debtors his Keynesian fantasy world doesn’t get to exist to the extent he wants. The whole purpose of deflation and why its natural cyclical occurrence has to be allowed is to restrain debt in the future by making its risk fully understood. When you remove deflation you create a moral hazard such that ultimately it leads to a credit(debt) bubble. Presently with all QE that Krugs so desperately screams for he wants, again, to bail out the debtors with inflation at the cost to the creditors. A new bubble forms.

 

It doesn’t work in Europe, but not for the reasons you are stating. It doesn’t work primarily because there is no systemic commonality. All of the countries have differing tax systems, retirement plans, social “nets”, fiscal ideologies, etc. We don’t have that issue here and it is for those reasons I stated when the Euro was born that it would never make it. It has nothing to do with having a commodity backed currency…which of course they don’t. They have Germany which has learned about currency manipulation the hard way. Go to King World News and listen to the last 3 interviews of Jim Rickards. He lays it all out in gory detail and also explains why deflation is not always bad.

Hard money systems prevent the frivolous printing of money without which politicians cannot extend favor. That will reduce the power of DC and slowly put us back on the right path. Getting back to a system where spending must be accounted for is the key. Sure corruption will always be around, but hard money systems help minimize the institutionalization of that corruption which we see is replete around the world.