Tell me how common deflation is Vs inflation though.
Pretty much never.
The Cantillion effect comes into play here:
"Early Beneficiaries: The entities closest to the money source (investors, asset owners, large firms) receive the fresh funds first and spend them before general prices have risen. They can buy assets, stocks, or real estate at relatively low, pre-inflation prices."
Governments benefit, consumers do not.
Products deflate rarely with things like the industrial revolution making goods cheaper but for the main part inflation is around 3-6% a year and usually more.
Basically, currency always inflates. A medieval Dutch Gulden was worth around 420 Euros. When the Euro was introduced, the exchange rate from Gulden to Euro was 2:1. What centuries of inflation does to a mofo.
Because it becomes a massive problem if currency is suddenly worth more. People can suddenly buy more with less, causing them to not spend as much money as before. Also, when one vital sector deflates, consumer demand collapses as the prices of all the other sectors are now way higher than the new normal. Soo, suddenly every producer and seller has their profits collapsing. And seeing as wages infamously don't flex with monetary value much, employee costs are now also going through the roof, causing massive lay-offs and tanking whole industries.
And the second big reason is that loans and debts don't adjust for monetary value changes either. The value of the money you borrow typically goes down with inflation, meaning that you pay back less than you once borrowed, the longer you wait. That's the whole point of mortgages.
Now imagine that the value of every debt in your economy skyrockets due to the production deflation cycle into collapse. Everyone who ever borrowed money for any reason is now fucked. Every mortgage, every last bit of investment debt, every last bank loan is now too expensive to pay. Soo, every attempt from anyone to buy themselves a stable future or income collapses and defaults, fucking over everyone who was dependant on it.
Inflation sucks. But deflation is catastrophic, and fast.
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u/clonxy 2h ago
Let's learn to think. The same applies when there's deflation. In that case, the advantage is on the tax payer...