China's Xi Jinping asked 'What’s so bad about deflation?' amid economic slowdown, report says
"Don’t people like it when things are cheaper?" Chinese President Xi Jinping reportedly asked his advisers.
cross-posted from: https://lemm.ee/post/51182148
While consumers can benefit from falling prices, persistent deflation can also lead to a downward spiral for spending and investment.
This seems like an absolute win.
Until your company, your salary and your job start deflating too.
The obsession with companies needing to post increasing profits every single year is frankly baffling. Let's say a company makes X amount in profits in 2024, and everyone—employees, shareholders, stakeholders—are happy and well-compensated. Why should the expectation be that profits must increase in 2025, even if the company is already performing well? The only explanation that comes to mind is greed. It seems like the focus is less on long-term sustainability or fairness and more about feeding the insatiable hunger of CEOs and executives who just want more—more profits, more bonuses, more power. It’s as if they’re modern-day dragons, hoarding wealth for the sake of hoarding, rather than for the health of the business or the people within it.
Up until the 20th century it wasn't uncommon to have cycles of inflation and deflation.
https://iamkate.com/data/uk-inflation/
The reason deflation is so highly feared is because it increases the value of debt. In particular, government debt. China owns large parts of the debt of the US. Deflation makes them stronger.
Not exactly. Deflation basically slows down the economy. If you think your money will worth more tomorrow, then you are less likely to invest/spend them.
But the whole purpose of money is to be used. Money is a tool, the oil that facilitates trade and keeps the economy going. And while too much money(oil) can overheat the economy(inflation), too little money can straight up bring the economy to a halt(deflation).
Deflation, even in small amounts, is more dangerous, thats why ideally you prefer having a small amount of inflation.
If you think your money will worth more tomorrow, then you are less likely to invest/spend them.
I see this argument being thrown around a lot. How does it work when a fair share of people are not doing investment at all, and are unable to spend the bare minimum to live, to begin with?
I ask this because the argument of "people will spend less" only works with people that spend extra money on unnecessary things, which is becoming less and less of a thing.
"The economy" in this instance being a playground for the rich.
People won't stop paying for food or rent just because their money might be worth a little more tomorrow. They won't skip buying minor entertainments just because maybe their meager salaries might be worth a little more next week.
Deflation is poison for the owner class, not the working class.
Deflation, even in small amounts, is more dangerous, thats why ideally you prefer having a small amount of inflation.
This is only accurate if you measure economic success by "Corporate profits".
Deflationationary phases are very helpful for the working class, as their dollar now buys MORE things. Like food. And housing. And health care.
Yes and no. If deflation is at 1% or 2% investing your money should have significantly higher returns. What it does is make people more risk adverse.
They're not entirely wrong about it increasing the value of debt and that being undesirable to some governments, though. I agree with you as well.
I agree on the money thing. I view money like potential and kinetic energy and its only in use that it has real value and at rest it basically has potential value that will only be determined when used. It annoys me the government only does half of what keynes advized. The downturn activity and never do the good times activity.
China owns large parts of the debt of the US. Deflation makes them stronger.
I don't follow you here. How does deflation in China make the debt of the US stronger? Am I understanding you wrong?
If the renminbi appreciated over time against the US dollar, dollar-denominated debt held by the People's Republic would yield less and less, wouldn't it?
I owe you $100. Over time the value of that $100 debt goes down with price inflation. You charge me interest to make up for this fact and make some profit also.
If prices deflate the value of the $100 debt goes up, but you're still going to charge me interest. When I pay you back, not only can you buy more with the $100 than I could when I borrowed it, you've charged me for the privilege.
I'm glad this got press.
Such slowdowns tend to be good for the average person.
They're bad for speculators, investors, shareholders -- mostly rich people who are too moneyblind to see that endless growth is untenable. To those people, I say: fuck you.
Your thinking of disinflation, not deflation...
Ask the average person how great the Great Depression really was to live through.
Deflation was a symptom, not the cause, of the great depression.
I think the usual issue with deflation that people will wait for prices to keep going down and therefore keep buying less which feeds the deflation.
It's one of those vicious cycles - it's really hard to stop once it starts.
Also, bear in mind that China's recent economic growth has been mainly internal consumer driven (external infrastructure investments have slowed down noticeably as belts are tightened) so while they aren't as fucked as America would be they could see a dramatic rapid decline.
People buying less, ie being more risk averse, and not wanting to take on debt, is a net benefit for everyone. Buying less means less ecological impact. Being more debt averse means fewer wage slaves.
The only people who suffer from "buying less" are corporate owners.
There's also the fact that debts increase in relative value over time, therefore discouraging people taking out loans for various purposes (mortgages, starting businesses, etc.), which was a major reason for the protests against the gold standard in the US around the late 1800s - see the Cross of Gold speech.
I mean, it's a fair question for a political leader to ask his economic advisors, no? Pretty sure Obama would have asked his advisors the same question back in 2009.
The issue, by the way, is a lot less settled than a lot of people think. Macroeconomics still seems to do a surprisingly bad job at understanding the links between inflation, interest rates, and economic activity, beyond giving some rough guidelines.
Obama would have been president for one year in 2009 and I still would hope he understood the problem with deflation.
Xi Jinping has been in power for over 12 years now.
Fears about persistent deflation in China are relatively recent. It's come up now because of the live question of whether the government should engage in a big fiscal stimulus (the same debate the US went through in 2009).
Macroeconomics still seems to do a surprisingly bad job at understanding the links between
This is because Macroeconomics isn't a science. Its gamblers attempting to create rules on "how to win at gambling" when everyone knows the only winner in gambling is the house.
What we need is degrowth and a transition away from capitalism.
Deflation has a good chance of forcing a stop to endless consumerism - and that will at least be good for the climate. It will cause havoc to the current economic system though, and that in turn could make things worse for investments into green tech.
So ... yeah.
Jesus Christ.
I can tell you what. States like Japan and USA running budget deficit for decades managed to build 120-260% debt to GDP ratio. This will collapse the entire economies if currency starts deflating
Whinnie the pooh whinnie the pooh...
Hey China, your senile leader is loose again.
Better get him before genocides any Islamic subsets of the chinese population in order to staff sweatshop for temu and shein.
Man, this whole "one china" thing seems to be racially based bs designed to generate profit off the backs of the people. Weird.
Ok but actually think about it. What’s bad about deflation? Poor people’s money becomes more valuable? Deflationary periods are bad in the US because companies don’t take care of their employees and lay them off instead of having 1 qtr with low profits.
Because when prices are constantly going down, it's always better to wait until prices have gone down even more before you make a purchase.
The result is that as deflation sets in, consumption also starts going down, which means profits and revenues go down, which means costs have to be cut, which ultimately leads to layoffs, and as more people become unemployed and have reduced income, what they are willing/able to pay for goods and services goes down.
And now you have a deflationary spiral. These spirals tend to be hard to avoid under deflation and can lead to very high levels of unemployment.
So do you do 4k as well or just hd projection?
