But like… if the guy making cars can’t sell cars because prices keep dropping now he can’t afford to buy the basics. It’s not a big deal for necessities to drop, but if we experience deflation then things get really bad.
There’s a difference between can’t sell it and can’t sell it for the same price. They would have to reduce prices. At 1% less profit margins it’s probably still manageable and profitable to continue to operate especially with your costs for the new car parts also decreasing by 1%.
But you specifically called out for 1% deflation indefinitely. That’s not “1% less profit margins.” That’s a consistent devaluing of an asset. If my house was bought for 100k and next year it’s worth 99k and the year after it’s worth 98k then why would I buy it? Subsequently it creates a feedback loop where people stop having faith in a currency, which devalues it faster, which then means that house is now sitting on the market because it’s a risk to buy it. Which means they don’t build new homes because people know it’ll be cheaper next year. Which causes construction workers to be laid off and it cascades. Plus part of what makes the Dollar increase is that it’s a world currency. We rely on it increasing. Tons of countries tie their economy to our dollar. Currently, the country with the worst inflation, Argentina, is talking about ditching their currency and switching to a dollar backed currency. People buy and trade with dollars which increases our value. If deflation hit they would stop using it and our economy would literally collapse. Hundreds of millions of people would instantly be impoverished.
But like… if the guy making cars can’t sell cars because prices keep dropping now he can’t afford to buy the basics. It’s not a big deal for necessities to drop, but if we experience deflation then things get really bad.
There’s a difference between can’t sell it and can’t sell it for the same price. They would have to reduce prices. At 1% less profit margins it’s probably still manageable and profitable to continue to operate especially with your costs for the new car parts also decreasing by 1%.
But you specifically called out for 1% deflation indefinitely. That’s not “1% less profit margins.” That’s a consistent devaluing of an asset. If my house was bought for 100k and next year it’s worth 99k and the year after it’s worth 98k then why would I buy it? Subsequently it creates a feedback loop where people stop having faith in a currency, which devalues it faster, which then means that house is now sitting on the market because it’s a risk to buy it. Which means they don’t build new homes because people know it’ll be cheaper next year. Which causes construction workers to be laid off and it cascades. Plus part of what makes the Dollar increase is that it’s a world currency. We rely on it increasing. Tons of countries tie their economy to our dollar. Currently, the country with the worst inflation, Argentina, is talking about ditching their currency and switching to a dollar backed currency. People buy and trade with dollars which increases our value. If deflation hit they would stop using it and our economy would literally collapse. Hundreds of millions of people would instantly be impoverished.