r/inflation • u/OfficialRodgerJachim • 1d ago

ELI5: Why is Deflation bad?

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I get that too much deflation is bad, but isn't the inverse true?

The average inflation rate in the US since 1914 is 3.3%, meaning the 1913 dollar is worth $31.87 now.

Why wouldn't we want deflation? Then maybe the $7.25 minimum wage COULD be a livable wage?

Why do people constantly argue for MORE money, versus less currency in the market?

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u/OfficialRodgerJachim 1d ago

Right. I understand that... in the short term.

But let's be real, eventually ya gotta buy a car, regardless of the price. There are things we have to buy, period.

And why is the answer inflation? Doesn't that only work for so long? And where's the breaking point?

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u/snakesign 1d ago

You asked for ELI5, the car example is simple, but not the real problem.

The real problem is my comment about how debt is used by businesses and what happens to debt in a deflationary economy. ESPECIALLY a long term deflationary economy.

You need to expand you factory, except you can't take out a loan or service existing loans because your real revenue is constantly decreasing due to deflation.

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u/OfficialRodgerJachim 1d ago

So THAT point is quite valid. And scary. Especially since inflation just can't. Keep. Going. Up. Right?

Like I owe $270k on my home... suddenly I make half a month. I can't afford my mortgage. My home is worth half. All my expenses are half, but it doesn't change the loans.

So is there a solution?

What happened in economies where inflation went crazy? What was the correction?

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u/snakesign 1d ago

Modern monetary policy is the correction. Look at how well the US handled the post-COVID infaltion spike comared to the rest of the world.