[rhelz]

Well, no matter how the 2% figure was arrived at as a matter of historical happenstance, 2% is actually a very good number to shoot for.

First of all, a rate of zero would be ideal, but, lets face it, like any measurement, this is going to have some error. So, if you are going to err, on which side do you want to err? In favor of a little bit of inflation, or a little bit of deflation?

Well, inflation is painful, sure, but it's not nearly as bad as deflation. Let's exaggerate the numbers to make this point: if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value.

So all of a sudden, you'd be financing twice as much debt, in real terms. A Calamity. You'd lose your car, your house, your credit. Cf with 50% inflation. You'd be paying back your debts with inflated dollars, which is hard for banks--but remember, they are also paying back their creditors with inflated dollars too...

So, given that inflation is bad but deflation is worse, and given that the Fed probably can't measure and-or even control the inflation rate to a sub 1% precision, shooting to keep inflation at 2% is a good strategy.

[ncivkcndixbdbx]

> if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value.

Society doesn’t need to operate with so much debt. Usury is a financial tool that benefits the rich.

[rhelz]

We do have way too much debt---and when we have too much debt, the inevitable result is inflation. Thank you, President Trump, for adding $8.4 trillion to the national debt and for financing the deficit by printing money.

But that doesn't mean that debt is intrinsically bad, or must always benefit the rich at the expense of the poor. Like any other tool, it depends on how you use it.

[diego_sandoval]

> your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value.

Not necessarily. If the transition to a deflationary economy is slow and planned, then expected deflation would start to be considered in the interest rates of your car payment, mortgage, etc. i.e. interest rates would become negative not long after inflation becomes negative.

If employers are capable of negotiating deflation adjusted salaries, then market pressure is capable of forcing companies to adjust their prices and interest rates to deflation.

[rhelz]

> If the transition to a deflationary economy is slow and planned,

If your money is guaranteed to grow in value--and without the risk of actually investing it--that would starve the economy of investment, which would reduce economic growth. People would hold back on their consumption (why buy it today, when tomorrow it will be cheaper??), further reducing demand, which would further depress prices, etc in a doom cycle.

That conclusion wasn't reached by extensive investigation of economists belly-buttons. Its observed fact and lived experience in every deflational economy ever observed.

And if you think Banks are just going to forgive your debt if your salary decreases, you are nuts.

[ponow]

We should use debt only as much as necessary. Normalization, promotion, even subsidy of debt leads people to make poorer choices and to think in the short term. It destabilizes the world, and sets up traps for the many naive people, traps that benefit lenders.

[rhelz]

Well, an influx of money can be a bad thing too: 1/3rd of lottery winners go bankrupt within 5 years of winning...I knew somebody who gave their kid a sports car on his 16th birthday...a week later he and his car were pulled out from under a semi truck...

Whether something is good or bad depends on how well or how poorly you use it. Its not intrinsically good or bad.

[living_room_pc]

On a individual level, your examples may not representative of younger generations who have less liabilities. This demographic of course are more likely to rent and buy a cheaper car (or no car at all), consequently they would likely have a higher liquid/non-liquid asset ratio and therefor would probably benefit in the short term to deflation. In the long term they would fair better than older generation for the reasons you mention, plus the fact they can change their living situation faster (new location, rental, job etc) at the detriment of their landlord or other leasing companies.

Regarding inflation, I would argue that younger people are more susceptible. Their free cash flow will drop, and at higher rates could lead to negative flow which over an extended period would be financially deadly especially for NEETs or other people at risk.

[rhelz]

> your examples may not representative of younger generations

Well, first of all, let me heartily agree with you that the young adults are being and have been being screwed for about 20 years now.

But remember in 2008, when middle aged and old farts like myself were being thrown out of their houses by the millions? That had absolutely no ill effect on young adults?

> plus the fact they can change their living situation faster

Yeah....but isn't that pretty much saying "lets screw the younger generation--they can take it better than we can!!" I mean, the younger generation shouldn't be always scrambling to find a new job at a lower salary, moving out of apartments they can no longer afford, etc etc. They should have the security to enable them to build a wonderful future for themselves.

> Regarding inflation, I would argue that younger people are more susceptible.

True. Inflation is bad. But it's important to realize that the inflation we are currently suffering didn't come about by the Federal reserve mucking around with interest rates. It was caused by Trump adding $8.5 trillion to the deficit, and financing that largely by printing money.

The young, of course, are screwed both ways: they have to endure the present inflation, and then they have to pay back that debt, while they are trying to keep their parents in a decent nursing home at the same time they are trying to pay for their kids college education.

The only reason they aren't rioting in the streets demanding better from us is that most of them are too young to even remember an economy which works the way it should.

[ThePowerOfFuet]

>if we had 50% deflation, your paycheck--the dollar amount you brought home--would be cut in half. However, your car payment, your mortgage, and your credit card bills would stay at the same nominal value

If your contract says you make $5000/month in salary, then why would the number of dollars decrease? They wouldn't increase due to inflation unless the employer chose to "give you a raise" (just adjusting for inflation perhaps), but they can't unilaterally decrease your salary (in countries that don't suck, anyway).

[rhelz]

> If your contract says you make $5000/month in salary, then why would the number of dollars decrease?

Well, deflation means everything costs less. And "everything" includes wages and salaries, even yours. If we had 50% deflation, that means the boss could hire somebody who was as productive as you for 50% less. This is elementary, right? That's what deflation means.

So either you are going to renegotiate that contract, or the boss will just fire you and hire somebody else.

"But I have a contract--how can he fire me??" Do you have a contract with your employer? If so, take another look at it--it will say you can be fired at any time for any reason.

There was a time in America when unions were strong enough that they could demand contracts for you which limited the conditions under which you could be fired. But (thank you, Ronald Reagan) those days were half a century ago. Some call it bullshit, some call it "efficient capitalism".

But the more efficient capitalism is, the faster your salary would decrease in lockstep with deflation. You would very rapidly not be able to pay your car payment, mortgage and credit cards. And if you think the banks are going care about your sob story, remember in 2008, the last time that large numbers of people couldn't pay their mortgages, they were kicked out into the street by the millions.

> (in countries that don't suck, anyway).

Well, two points, 1) America is a country that sucks, in that sense, and 2) Countries that don't suck do not let themselves fall into a deflationary trap.

[ponow]

Secular deflation existed in the late 19th century during growth periods.

Deflation associated with debt deleveraging can be bad. But the problem is that we got into debt. Debt was not nearly as high in the 19th century. Debt addiction is relative modern.

Our inflationary 2%++ regime tends to encourage debt, and the Trumps of the world can leverage their lives to the hilt. Poor people have much more difficulty juggling debt and fail spectacularly. Debt growth increases economic instability.