Darn Deflation
01/15/2014 | | econ70, Economic forecasting, economist on radio, economist on TV, eisenberg adnd economics, Eisenberg and housing economics, eisenberg and housing economist, Elliot eisenberg, funniest economist, funny housing economist, Graphs and Laughs, graphsandlaughs and eisenberg, housing sales, MLS, mortgage banking, Multiple listing service, politics and economics, Public speaking economist
Deflation is bad for three reasons. First, by reducing GDP it raises debt to GDP ratios making it harder to service existing debt. Second, once consumers and businesses expect prices to be cheaper in the future, delaying purchases makes sense. Third, it reduces the tools available to central banks to fight recessions, the most powerful of which is reducing interest rates, because in deflationary countries rates are already super low.