We've all seen the effects of hyper inflation, it's insane when things get out of hand. But I notice most countries (US included) are in a constant fight with deflation. I know deflation causes less spending due to asset prices dropping, but why is it a common thing in first world countries? Japan had a bubble in the 90's and not only did they get a recession, they couldn't keep their currency from deflating. Now US is fighting a deflation war too. I'm starting to think a little inflation might be a "Good" thing with deflation being as common as the cold. I've always thought deflation was a good thing, who doesn't want more purchasing power? Quality over quantity right?
Deflation may become more common. Population changes are a contributing factor. Issues: No growth. No investment opportunities. Stagnation.
That is confusing because 0 GDP means no growth or does it mean it grew but it's priced in a currency that deflated?
Zero GDP means no production at all. Zero GDP growth means no growth in production. Think about the concern of producers wanting pricing power. And, investors who want higher yields on investment. A little inflation is a good thing though it may sometimes make seem gains illusory.
But you're missing my point - Is it really GDP growth if it's priced in a currency that is deflated? GDP can grow 2%, what if the currency deflates 2%? Wouldn't that set it back to zero % growth but there really is growth?
SWAG: 1. Overconsumption is bad 2. Two generations in particular (Gen X and millennials) are saddled with insurmountable debt, high costs of living, and very little money to spend elsewhere 3. Wages have stagnated - there's less free capital than there was before 4. As a result of (2) and (3) causing the recognition of (1) people will hoard any cash they get in order to create a safety barrier. In times of crisis people don't spend. In serious crises people stop spending. I'm sure if we looked at a chart survivors of the great depression saved more money than any other cohort in history as a result of their experiences. Saving is bad for the economy - that's why so much money is spent on colorful ads to make you part ways with your money. It's hard to convince someone with literal PTSD from surviving abject poverty to spend money freely.
A deflated (we say depreciated) currency implies inflation, not deflation. For example: Currency depreciates 2%. Everything is MORE expensive by 2%. Ergo by our simple definition, inflation is 2%. If we have GDP growth of 0%, we adjust for inflation effects GDP 0% - 2% inflation = Real GDP of -2%. With Deflation, you actually have a currency getting stronger. You are able to buy more goods. Many economies are not built to handle that well. Now do the calcs for the negative inflation rate (deflation).
Doesn't 1 and 2 contradict? I know a large part of US economy is fueled by domestic consumption. You're saying it's not enough? US are the biggest consumers in the world, so this is a nebulous concept. So you're saying we're deflating because we're not spending some arbitrary amount that's higher. If this is known historically why don't they just produce less?