Quote from: Maegfaer on January 25, 2015, 10:51:13 PM

Quote from: twiifm on January 25, 2015, 07:19:33 PM

LOL no. Only if you don't understand macro principles. Deflation is falling prices in aggregate not because of one sector. You have to use CPI

Also I just made an example he he percieved the price is falling, yet in actuality they are not.

It's also easy to refute that notion. If you are looking to buy an iPhone 5s and you know the price gets marked down in 6 months when iPhone 6 is released you might defer your purchase. However this isn't the point

You haven't given any argument why it's different in macro. Your iPhone example would mean that iPhones wouldn't sell well because people defer their purchase because new models constantly come out. Yet iPhones sell extremely well.

The argument is that if something can be gotten cheaper a year later than right now, people tend to defer their purchase. This ignores the fact that having something right now is more useful than having something at a later date. Having a roof over your head tonight is more valuable than having a roof over your head next week. Having a new phone right now is apparently more valuable than having to deal with an older phone for another year to get the new phone at a lower price, or an even better one at the same price.

It may be true that some people might defer because of lowering prices, but this doesn't make it a spiral, because things that have practical utility are more valuable in the now than in the future. The cost of postponing must be lower than the profits of postponing.

What makes deflation dangerous in our current monetary fiat system has to do with the reason behind the deflation. That reason is usually an excess of debts causing liquidity problems, effectively a reduction of the money supply. Those in monetary debt are more likely to default in times of deflation, because their debts increase in value. If they default, their creditor (like a bank) has to write off that debt. If the collateral didn't cover the value of the debt, and if the creditor (bank) also has debts to others it might default itself, which may bring it's creditors in trouble as well. It can become a chain-reaction.

So deflation in a debt-based monetary system like we have right now is lethal to governments and banks due to all the debt, and thus lethal to the fiat currency. A reduction of prices in a fixed money supply system due to economic growth is a completely different thing, and is actually benign. The "deflation is bad because of hoarding" argument is bullshit. It only distracts from the real problem, the ever-increasing debt due to higher interest rates on debit than on credit.

Great wording.