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by SR2Z
69 days ago
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The main advantage to keeping inflation as low as possible but positive is also that it makes interest rates cheaper. Individuals are incentivized to spend when there's inflation, but banks have a harder time writing loans because the interest rate on the loan is the product of inflation and the bank's desired ROI. Low interest rates are a good thing because they allow people to explore new ideas and new businesses - the entire modern tech industry would not exist without ZIRP because the scale of investments has only gone up as technology has advanced. |
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That's not what's happening currently. Inflation has driven up prices to the point where people can't afford to spend. They're forced to cut back on spending just to keep a roof over their head and food on the table. Inflation promises that things are cheaper now than they ever will be, but that just means that anything you can't afford you either have to go without or take an even bigger hit to your wallet after trying to save money at a rate faster than prices are increasing. That sort of thing leads to less spending.
Credit cards were the solution for many Americans for a very long time, but that was never sustainable and now the US has record amounts of household debt and homelessness.
Deflation makes things more affordable and so people buy more. Yes, they could horde all their wealth, but you can't eat money and it isn't much fun. When times are good why would anyone bother going without when they can easily get what they want today. Consumerism is strong enough to keep people buying things. Decreasing prices gives consumers confidence that they can make risky purchases and investments.