Who does it help or hurt is an open-ended question for all of us.
Yes, in a demand-side economy, when people are laid off, there is a high likelihood of deflation occurring because the reduced workforce leads to decreased consumer spending, which further lowers overall demand, causing prices to fall across the economy; this is often referred to as a “deflationary spiral.”.
Explanation:
Lower spending power:
When people lose their jobs, they have less money to spend, which directly reduces demand for goods and services.
Businesses react to lower demand:
To cope with decreased demand, businesses may lower prices to sell their products, leading to deflation.
Further job cuts:
If price reductions don’t stimulate enough demand, companies may resort to further layoffs, exacerbating the problem.
Key points to remember:
Deflation is a decrease in the general price level: This means that goods and services become cheaper over time.
Demand-side deflation: When a decline in consumer spending drives the deflationary pressure.
Deflationary spiral: A vicious cycle where falling prices lead to further decreases in demand, causing even lower prices
Deflation especially in leveragable goods is kryptonite for the current banking system
Any goods that can be leveraged that become less expensive cause the loans that were created to purchase them to fall in value. While rising interest rates drop the present value of existing loans, holding the value of the goods that under pin the loans stable, holding the interest rates steady and lowering the value of the underpinning assets lowers the quality of the loan and its value.
While the interest rate changes are easy to calculate and be hedged against, the loss of quality puts the whole system in a non trust mode. See 2008.
So who gets hurt? Banks first, but everyone that has to repay a loan with more valuable dollars and everyone that depends on the fractional reserve banking system. So. . . everyone.
This seems just about right to me. The only people who benefit at all are those on fixed incomes and fixed retirement benefits, but even here, all of the other disadvantages you outline outweigh these benefits.
Worse yet the surplus or floats in the insurance industry will take a beating.
It is even possible rates rise. I am not sure. But at first, the money supply tightens.
adding AI google is not bad.
Yes, interest rates tend to rise during a period of deflation, as this increases the real value of debt and can lead to a situation where consumers and businesses are less likely to borrow money, further impacting economic activity; essentially, even though nominal interest rates might remain the same, the falling prices during deflation effectively raise the real interest rate.
Key points about deflation and interest rates:
Real interest rate increase:
When prices fall during deflation, the real interest rate (nominal interest rate minus inflation rate) increases, making borrowing more expensive relative to the value of money.
Reduced spending:
Higher real interest rates can discourage borrowing and spending by consumers and businesses, potentially leading to a further decline in prices and exacerbating the deflationary spiral.
Central bank response:
To combat deflation, central banks may try to lower nominal interest rates to stimulate borrowing and spending
Deflation is less scary to me than inflation. We don’t care if our home loses value. That just lowers the real estate taxes - or more realistically, slows down the rate at which our taxes are increased. Same with our cars. We plan to drive them till they die, and the cheaper the replacement car the better. Same with food, clothes and electricity. Our primary sources of income are SS and a pension. Although they are inflation adjusted, they buy more during recessions. Our dividend income will drop, but Mr Buffet hopefully will be able to deploy some of his $320 B in cash in a long term profitable manner which will increase my net worth in the thousands as compared to his billions, but still positive for him and me.
It can do the opposite. In real terms your taxes definitely go up. In nominal terms that might not be so. The value of the home generally is not the issue because the mil rate can go up or down. It will go up if the value goes down.
I get you are on fixed income in good part and see an advantage but this will only last six to twelve months. Then what? Inflation would be steady but TFG wants austerity which can knock the bond market in the worst of ways. See UK.