Wouldn’t it be good for the currency if we slowly steadily moved into deflation and at the same time lower the wages. Then the consumers wouldn’t have too much power, right? Or would it be a global perspective problem?
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No. Deflation is terrible for an economy. So much so that we tolerate a touch of inflation if for no other reason than to ensure deflation doesn’t happen.
In deflationary periods, money gets more valuable just sitting in a coffee can doing nothing. This may _seem_ good initially, but this means:
– Any debts you have get _more_ expensive over time, since the amount of the debt stays the same, but your income (likey) decreases to account for deflation. Servicing debt takes a higher percentage of your income.
– There is less incentive to invest, making it more expensive to take out loans or start businesses. This means fewer people are able to afford college, afford a home, buy a car, take a risk, etc.
– Consumption and purchase are delayed as long as possible. If something is $100 today and $90 next month, you are best served by waiting until next month to buy it.
That last one is **really, really bad**. If you delay purchases, that drives down demand. With low demand, companies will sell fewer goods/services. Lower sales means staff reductions. Staff reductions means less money to spend, leading to more delayed purchases. It is a death spiral for any economy.
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