Monday, November 15, 2010

The Real Danger of Deflation

The only genuine danger from deflation is that faced by over-indebted, would-be deadbeats. When money gains value over time (as under deflation), the over-indebted face a larger repayment burden. They must repay their debt with ever more valuable money, compared with the (lesser) value of money initially borrowed. In a deflation, the prices (and incomes) one receives necessarily decline, but the face amount of the debt owed does not decline. This is the “pinch” that deflation ultimately exposes and makes transparent.

And guess who is the most over-indebted? None other than the US Government who is rapidly making money out of thin air which will devalue your savings and allow politicians to pay off the national debt with cheaper dollars.

You lose. They win.

Read more: "The Deflation Myth" by Richard Salsman



nile said...

Consumers with bad credit records find it very difficult to get credit

HaynesBE said...

As well they should.