In the US and Europe, for the most part, we havent seen mass deflation since the Great Depression. With so few people alive when it last hit, it is easy to ignore the impact.
For this reason, we have to look at some of the general tendencies of both. Why is deflation so horrible?
In this video I discuss the self reinforcing, instead of self correcting, nature of deflation. This means that, once it starts, it is impossible to stop. The result can last decades as evidenced by Japan.
▶️ 3Speak
For many Americans, “The Great Depression” means 1929. But the economy didn’t bottom out until four years later in 1933. And then crabwalked sideways for almost another decade. Not until WW2 did it start to really recover.
I didn't know Japan was in deflation. This explanation helped me understand why it is horrible. I just did a google search and it seems that Japan might declare an end to their deflation soon, although it took a long time.
Some how I never knew that inflation is better than deflation.
Summary:
In this video, the speaker delves into a discussion about inflation and deflation. He explains the self-corrective nature of inflation, where high prices spur increased supply and reduced demand, ultimately leading to a price decrease. In contrast, he emphasizes the self-reinforcing nature of deflation, where falling prices cause individuals to delay purchases, leading to a downward spiral of economic activity, layoffs, defaults, and overall economic decline. Different countries and regions face varying challenges, with factors like technological deflation, demographics, recessions, and high levels of debt contributing to potential deflationary conditions. The speaker underscores the critical differences in how societies experience inflation versus deflation, highlighting the impact on standards of living.
Detailed Article:
The speaker begins by addressing the pervasive issue of ignorance surrounding inflation and deflation in society. He explains how inflation tends to self-correct due to an imbalance in supply and demand, with rising prices prompting increased production and reduced demand. However, he emphasizes that deflation is not self-corrective but rather self-reinforcing. As prices decline, individuals tend to delay purchases, which can lead to a cycle of reduced economic activity, company revenue decline, layoffs, and increased defaults.
The speaker then provides a stark example by focusing on Japan's prolonged experience with deflation over the last three decades. Despite numerous stimulus efforts, Japan's economy has stagnated, showcasing the long-term implications of deflation. He contrasts this with the United States, which, due to its internal consumption capabilities, may fare better in the face of deflationary pressures.
Factors contributing to potential deflationary conditions, such as technological deflation, demographic trends, recessions, and high debt levels, are explored. The speaker highlights how these factors, when combined, can result in significant deflation, impacting different regions unevenly. Countries like China, reliant on exports, may face severe challenges if export markets are disrupted.
The discussion expands to include the effects of deflation on standards of living. Unlike the continuous improvement in living standards observed in inflationary environments, deflation can lead to diminishing incomes, reduced bonuses, and increased job losses. The speaker warns that in a deflationary spiral, individuals are unlikely to see salary increases or company bonuses, with many facing potential job losses.
In conclusion, the speaker underscores the importance of understanding the differences between inflation and deflation and the significance of how these economic phenomena can shape living standards and societal well-being. he encourages viewers to consider the broader implications of deflation, drawing attention to the potential long-lasting effects on economies and individuals' financial stability.
Notice: This is an AI-generated summary based on a transcript of the video. The summarization of the videos in this channel was requested/approved by the channel owner.