Is that really true? Deflation sounds conclusively worse. Everyone starts to hoard money instead of spend it, and the economy goes into a tailspin. Any debt you pay back is with dollars that are worth less. Most anyone in debt, which is a lot of people, should prefer inflation.
also, it's easier to fight inflation because you can always increase the interest rate. With deflation once you reach zero there isn't anywhere realistically else to go. Negative interest rate have happened momentarily but it's not like the US fed can realistically set the rate to -1%
In the depths of the financial crisis in 2008/9 I remember Bernanke saying he would fly helicopters and drop bags of money if it came to that in order to fight deflation taking hold.
>Which would use that money to invest in things, like always.
No, people only invest if they see a return. If the return is too low they will simply hold onto the money since interest rates can't go negative too deeply. Your idea only works in a fantasy land with mandated equilibrium. In the real world people don't care if there is an equilibrium or not.
> I'm talking about banks. That's literally their business. You know, to lend money.
Their business is to make money. If the economy is in the toilet, it is usually because there is no demand, and if there is no demand businesses and individuals do not need loans to expand and operate, so no one is asking for credit, so banks have no one to lend to.
The banks don't want the/your money: while a savings account is an asset to you, the other side of the ledger is a liability for the bank. And if they are to provide x% to the saver, they have to earn >x% to break even (adding overhead), never mind make money.
Just a little while ago in Europe, there was all sorts of excess savings (especially in Germany) with no places to invest the piles of cash piling up, so you get negative interest rates on savings accounts:
An excellent description.
I suggest that money is fundamentally a debt. An I.O.U. if you will.
Over decades these I.O.U.'s(money) on a nation state wide basis become too numerous for the population as a whole (including government) to pay back.
In ancient times the two ways to solve this inability to pay debt were for the King to wage war and steal money from another nation (tribute) or to cancel the nation's debt using a debt jubilee.
In the post modern times we live in these options are not politically viable or conscionable. Therefore Governments only have options that involve the use of controlled deflation or inflation of the money supply using tools like interest rates, quantitative easing/tightening or fiscal spending/reduction.
These post modern 'tools' only have a certain amount of efficacy and when that manipulating ability loses its power the masses suffer austerity. As in this present era. In ancient times this suffering would lead to political unrest therefore a new leader or King would announce a war or debt jubilee as the only solution.
Ultimately issuing a new money (debt system) and cancelling the old is the only solution like a new king issuing a new currency with his image on it.
The discussions above mine in my view are about how to manage the effects of the onerous national and private debts with the hope that economies will be able to suffer the effects of austerity until such time as the economy grows out of the debt. This might never happen and often doesn't.
In conclusion then a peaceful solution is a debt jubilee where mortgage holders have their debts cancelled and those without debt enjoy a commensurate income boon.
(*many of the above original ideas are not mine but collated and interpreted from various professorial sources)
No, we probably should. Barter may work okay for when you have chickens to trade for boots, but you'll soon run into limitations. The vast majority of trades people make depend on some kind of future delivery. I don't want supper to show up when I get to work in the morning. It is much more practical to, instead, accept a token of debt (money) from my employer and then see that the debt gets repaid by my employer later when I go to the grocery store.
A debtless economy would be an absolute nightmare.
Very true. My impression of the US over the past two decades at least though, is that financial services are bleeding many Americans dry even while they believe it’s all to their preferences - that they’re using the levers correctly, while any outside observer would say they’re being taken advantage of, even if it is their choice.
Total credit card interest and fees paid by Americans are up 47% from the high of 2019 •
Overall economic output continues to increase, but it drains so quickly, and increasingly to depreciating assets.
Of the young adults I know, I ask if they do even have a rough budget. Only two couples said yes, none of the singles or other couples. I know many are paying large sums to interest on consumer debt, with student loans looming for later.
I don’t have any other statistics, and now will seek them. It raises the question at least, how might we assess the benefit achieved thanks in part to loans to the majority of households over the past 50-100 years?
It always depends on where one's wealth and/or income comes from.
The interests of a working person who rents is different from a working person who owns their own home, whose interests are different from a residential real estate investor's, whose interests are different from a business owner's, whose interests are different from a venture capitalist's, whose interests are different from a stock broker's.
Is that really true? Deflation sounds conclusively worse. Everyone starts to hoard money instead of spend it, and the economy goes into a tailspin. Any debt you pay back is with dollars that are worth less. Most anyone in debt, which is a lot of people, should prefer inflation.