Darn Deflation
01/15/2014 | | Economic forecasting, Eisenberg and housing economics, Elliot eisenberg, Graphs and Laughs, MLS, Multiple listing service, Public speaking economist, econ70, economist on TV, economist on radio, eisenberg adnd economics, eisenberg and housing economist, funniest economist, funny housing economist, graphsandlaughs and eisenberg, housing sales, mortgage banking, politics and economics
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.