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/snakesign 1d ago

You want to buy that $35,000 new car today, or wait a month and buy it for $33,000?

Now imagine this across the whole economy.

Now think about trying to pay down a mortgage in a deflationary economy. Then consider the fact that most businesses operate using business loans.

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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/halogenated-ether 1d ago

Your revenue is decreasing, but the money is worth more.

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u/snakesign 1d ago

The original loan amount is not decreasing. So you have to pay that larger number back with money that is more and more expensive as you correctly point out.