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Question on Deflation

DevinKing
Posts: 206
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7/12/2010 10:47:30 AM
Posted: 6 years ago
What would the effect be on the world's economy if a single, influential currency (i.e. the US dollar) experienced a sustained rate of deflation for a long period of time? For the purposes of this question, ignore the secondary effects of deflation (decreased spending etc.) on the currency in question.
After demonstrating his existence with complete certainty with the proposition "I think, therefore I am", Descartes walks into a bar, sitting next to a gorgeous priest. The priest asks Descartes, "Would you like a drink?" Descartes responds, "I think not," and then proceeds to vanish in a puff of illogic.
Xer
Posts: 7,776
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7/12/2010 10:55:52 AM
Posted: 6 years ago
Deflation is, basically and simply, a fall in demand.

As a consequence, spending and investment and credit will drop.

The government needs to let these consequences happen so the market can correct itself.

That's as basic as I can get. :)
Xer
Posts: 7,776
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7/12/2010 11:00:40 AM
Posted: 6 years ago
I suppose I forgot your first question.

At 7/12/2010 10:47:30 AM, DevinKing wrote:
What would the effect be on the world's economy if a single, influential currency (i.e. the US dollar) experienced a sustained rate of deflation

I'm not sure what the immediate effect would be -- it could be a worldwide recession, but it is assured the economies of every nations would most likely falter. It's hard to say because we're not in a free market. If this were a free market, deflation would be a painless and sometimes necessary process, just like recessions.

for a long period of time?
After a long period, I think there would definitely be a worldwide recession.
DevinKing
Posts: 206
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7/12/2010 12:07:32 PM
Posted: 6 years ago
At 7/12/2010 10:55:52 AM, Nags wrote:
Deflation is, basically and simply, a fall in demand.

As a consequence, spending and investment and credit will drop.

The government needs to let these consequences happen so the market can correct itself.

That's as basic as I can get. :)

-- I apoligize for not being more specific. I meant for the results of deflation caused by a lack of currency as opposed to a low demand.
After demonstrating his existence with complete certainty with the proposition "I think, therefore I am", Descartes walks into a bar, sitting next to a gorgeous priest. The priest asks Descartes, "Would you like a drink?" Descartes responds, "I think not," and then proceeds to vanish in a puff of illogic.
innomen
Posts: 10,052
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7/12/2010 12:19:04 PM
Posted: 6 years ago
At 7/12/2010 12:07:32 PM, DevinKing wrote:
At 7/12/2010 10:55:52 AM, Nags wrote:
Deflation is, basically and simply, a fall in demand.

As a consequence, spending and investment and credit will drop.

The government needs to let these consequences happen so the market can correct itself.

That's as basic as I can get. :)

-- I apoligize for not being more specific. I meant for the results of deflation caused by a lack of currency as opposed to a low demand.

Do you mean that the dollar has lost its value or that there is less dollars in circulation, i.e. people are spending less, and banks are lending less (a certain amount of hoarding)?
I-am-a-panda
Posts: 15,380
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7/12/2010 12:42:22 PM
Posted: 6 years ago
Deflation usually has positive effects. However, to successfully mitigate a recession, inflation is needed.
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DevinKing
Posts: 206
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7/12/2010 12:45:21 PM
Posted: 6 years ago
At 7/12/2010 12:19:04 PM, innomen wrote:
Do you mean that the dollar has lost its value or that there is less dollars in circulation, i.e. people are spending less, and banks are lending less (a certain amount of hoarding)?

--If there was deflation then the dollar would be gaining value. I want to know what a sustained steady rate of gain in value for the dollar would have for the economies of other countries.
After demonstrating his existence with complete certainty with the proposition "I think, therefore I am", Descartes walks into a bar, sitting next to a gorgeous priest. The priest asks Descartes, "Would you like a drink?" Descartes responds, "I think not," and then proceeds to vanish in a puff of illogic.
innomen
Posts: 10,052
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7/12/2010 12:58:04 PM
Posted: 6 years ago
At 7/12/2010 12:45:21 PM, DevinKing wrote:
At 7/12/2010 12:19:04 PM, innomen wrote:
Do you mean that the dollar has lost its value or that there is less dollars in circulation, i.e. people are spending less, and banks are lending less (a certain amount of hoarding)?

--If there was deflation then the dollar would be gaining value. I want to know what a sustained steady rate of gain in value for the dollar would have for the economies of other countries.


They would follow, some quicker than others.