Junto Boys

WHAT IS DEFLATION?

There are worries that we're heading into a deflationary period, and your money will be worth more. Why is that a worry? Because most people don't have a savings account, they have credit card debt. I remember hearing a lot in the 1990s that American's weren't saving money, but it's a bad business move to save money in inflationary times. You either have to invest or spend your money to get full value.

Now, if a deflation comes on, the people in debt will own something worth less than what they paid. People are use to that with cars and DVDs, but they're not use to falling value on Real Estate. Neither are state governments that depend on property taxes to run. The biggest danger is that most people aren't prepared to react correctly to economic changes. A lot of the debt acquired by people is a product of believing that monetary policy will always be like it is today.

If we really move into a deflationary period, those without debt and property may get a chance to pick up some bargains. But since it will be unpopular and the government can print more money to relieve it, I don't see any long-term deflation ever happening.