

Consumer Prices in U.S. Decline 1%, Most on Record - time_management
http://www.bloomberg.com/apps/news?pid=20601068&sid=aEUKE5CH6LeU&refer=home

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Prrometheus
Oh no! Not something that's good for the consumer! Hurry up, someone print
more money.

For the record, in the post-Civil War error we experienced mild deflation and
strong economic growth. As long as prices don't make sudden, double-digit
jumps, the economy can cope with it. And it's NICE to see consumer prices
going down for a change.

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crabapple
_Not something that's good for the consumer!_

no doubt some reversion to the mean is beneficial...but a healthy economy
shows some nonzero manageable _inflation_ level...like around 2-3%. a
deflating economy is deadly in the longer run, because demand goes away and so
does employment.

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biohacker42
Exactly. I have no debt and a bit of cash savings that are now worth 1% more,
woo hoo!

Sustained high deflation is only good for you if you have a magical source of
guaranteed income, completely and totally independent of the economy, like a
magic money printing machine.

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Prrometheus
Wages tend to be sticky. That is, they adjust slower than many other prices.
This works against workers in an inflationary environment and for them in a
deflationary environment. Keynesian monetary stimulus is premised on the
"sticky wage" theory, basically the idea that by printing money you can reduce
workers' real wages in the short run and increase the output of firms.

Of course the flip side is that if workers' real wages increase too much in a
deflationary environment, this could lead to high unemployment in the short
term.

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biohacker42
Wages are sticky but jobs aren't.

Hyperinflation kills banks, because the loans devalue so fast they are worth
nothing when they are repaid.

Deflation in small amounts can be good for savers, but high and sustained
deflation kills all borrowers.

That includes short term financing businesses need to pay salaries while sales
are still being made and profits are still coming in.

Overall it leads to everyone hoarding cash and not spending and that just
murders the economy.

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Prrometheus
Sharp deflation, like during the Great Depression, is bad as you say. Slow
deflation, like the period after resumption, is not bad.

In reality, the economy is quite capable of coping with any mild change in
prices, and quite bad at dealing with sharp changes in price. It doesn't
particularly matter whether those changes are up or down.

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thomasmallen
Just goes to show how much we were getting shafted by OPEC.

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tocomment
Reddit isn't going to like this ... no sir

