Is deflation good?

If you have debt you WANT inflation. Deflation makes debts unpayable. A sustained period of 3-4% inflation would be great for the US right now.

The link below has inflation data. Note that inflation in the US is at historically LOW levels right now.

http://www.inflationdata.com/inflation/inflation_rate/historicalinflation.aspx

A bank, using fractional reserve banking, is a debtor?

Most would say "no".

But when deflation begins, their balance sheets are savaged.

So if we want to live in a world w/ banks, you better pray there is no deflation.

dadads wrote:

WaiterOuter wrote:

Before making any rash decisions, wait for Flagpole Willy to provie his insight. He knows a lot about this stuff.

flagpole knows a lot about personal finance. he offers simple, sound advice.

he knows enough about economic policy to be dangerous. i wouldnt listen to it.

Whenever someone says "so and so knows enough about x to be dangerous", really what that means is that the person saying that doesn't know anything about said subject and is trying to seem more knowledgeable than the target of this comment without providing any evidence to the contrary.

So, consider yourself pegged brother.

16 year old idiot wrote:

If inflation is bad, then deflation has to be good, right?

Could someone please further explain to me deflation and how it would not be good?

there was an article on foxnews.com about obama and deflation, and it had a negative tone to it....so i was confused.

thanks.

Mostly your question has been answered. Here's my take on deflation.

1) For individuals who aren't in debt and have some cash, deflation is a good thing. I mean, why the hell not? Let's say that I'm 10 years away from retirement and have a million dollars in investments. With deflation, that million dollars, even if it doesn't grow, will be worth more than it is today when I'm ready to retire. At the very least, I wouldn't have to worry about it being worth considerably less.

2) Doom and gloomers will straddle the deflation-inflation fence. They spew the dangers of inflation and the dangers of inflation and will likely have a very small range of inflation or deflation (likely inflation) that they deem acceptable, and even then they will be quick to warn of certain things.

3) Deflation is bad for people and companies that use borrowing money to be a big part of how they operate. Don't do that, then deflation is your friend.

4) Finally, what everyone should do to protect against all of this is to get debt free as soon as you can and stay debt free...this helps with the deflation thing. Now, you invest 15% or more (a LOT more if you can) of your income for retirement. I'd cap about 20% going toward retirement accounts (ones that you can't get at reasonably until 59.5 years old) and then put extra monies in non-retirement mutual funds (which you might use in retirement but could use earlier).

Worrying about finances is a wasted effort. You take steps so that you don't have to worry. Get out of debt and stay there. Set up an emergency fund of 3-6 months of expenses that you then replenish if you need to tap into it. Put 15% of your income in retirement accounts. Pay off your house early (after doing the other things), and put extra money into non-retirement mutual funds. For married people who decide not to have children, they should invest 40% or even more of their income and either retire very early or retire with several million dollars. I often hear two-income married (without kids) couples talking about trying to save up for a vacation or trying to make ends meet, and it just falls on deaf ears for this guy with two kids and just one income at home.