[ilammy]

The idea is to disincentivize hoarding cash and promote active usage of money in the economy, because governments believe that having useful markets is better than not having them. Regardless of the current living standards and your wages. Rising prices and wages are not the goal per se.

So all your dollars are put on fire and lose 2% of their value annually. You can watch your cash burn to spite the Fed, or you can give it to someone else and make it their problem what to do with dollars while you enjoy whatever you bought.

[Detrytus]

"Hoarding cash" caused by deflation is actually good thing, because it encourages frugal living. Current inflationary policies result in companies trying to sell people all kinds of useless crap, thus wasting natural resources and human effort.

Sure, in deflationary environment overall GDP growth would be much slower, but it will also be more sustainable in the long run, without big boom-bust cycles.

[tdb7893]

Nothing is stopping people from saving (I mean, except for low real wages), even with inflation, it's incredibly easy nowadays to put money into investments. Also I don't understand how deflation would eliminate the boom/busy cycles

[bluGill]

Sure, but cash is lower risk. While overall investments tend to do well, I've seen many do awful. Some are legitimate investments that just go bad, while others are scams. People are not as good at telling scams from legitimate investments as they like to think they are. If there was no inflation at all just keeping your money for a rainy day in your mattress (any place a thief is unlikely to look) would be good advice, but cash loses 2% every year so it isn't.

[jewayne]

I'm pretty sure "deflationary environment" is synonymous with "depression".

It's a wonderful situation for people who have jobs. It's just that in a deflationary trap, the number of people who have jobs tends to dwindle until prices start to level out/rise.