Deflation also when people pay their mortgages and other loans. If new loans aren't being created, because people with no jobs won't get a loan, then the money supply shrinks.
Money gets loaned into existence. Making a loan payment destroys money.
Actually, what you've just described are the symptoms of deflation. The terms inflation and deflation are very simple. Inflation - increase in the money supply, deflation - reduction in the money supply. Everything else is the result of those two things. For example, people often call the increase in prices inflation, but they are merely a symptom of it; usually occurring as an adjustment to the increased money supply. What you described, no new loans being created, is a symptom of a lack of money, i.e. deflation.
Not really, money gets created in a loan. The bank doesn't go grab a bunch of dollars from the vault and hand them to you. They take $0 and split it into +loan$ to you, and -liability$ to them. When you pay the loan off, it goes back to zero, and the bank keeps the interest.
Therefore, loans = inflation, and paying off loans = deflation. Banks lose money on bad loans, so they can't loan to just anyone. So if people are paying off loans faster than banks are lending, then it's deflation.
But the other major driver in a recession for deflation, is the "Sell High, Buy Low" mantra. You can't "buy low" if you don't sell high. Selling means holding dollars until the bottom of the stock crash. If everyone is holding dollars, they aren't being used in the active economy and you get effect of deflation.
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Buff_Awesome ago
I hope you all divested from the dollar, because there's going to be a lot of inflation in the future.
Veridic ago
In a depression there is usually deflation. Meaning you aren't getting a raise for 8 years.
Buff_Awesome ago
Deflation is the act of reducing the money supply. Here the Fed is talking about increasing the money supply. That's inflation.
Veridic ago
Deflation also when people pay their mortgages and other loans. If new loans aren't being created, because people with no jobs won't get a loan, then the money supply shrinks.
Money gets loaned into existence. Making a loan payment destroys money.
Buff_Awesome ago
Actually, what you've just described are the symptoms of deflation. The terms inflation and deflation are very simple. Inflation - increase in the money supply, deflation - reduction in the money supply. Everything else is the result of those two things. For example, people often call the increase in prices inflation, but they are merely a symptom of it; usually occurring as an adjustment to the increased money supply. What you described, no new loans being created, is a symptom of a lack of money, i.e. deflation.
Veridic ago
Not really, money gets created in a loan. The bank doesn't go grab a bunch of dollars from the vault and hand them to you. They take $0 and split it into +loan$ to you, and -liability$ to them. When you pay the loan off, it goes back to zero, and the bank keeps the interest.
Therefore, loans = inflation, and paying off loans = deflation. Banks lose money on bad loans, so they can't loan to just anyone. So if people are paying off loans faster than banks are lending, then it's deflation.
But the other major driver in a recession for deflation, is the "Sell High, Buy Low" mantra. You can't "buy low" if you don't sell high. Selling means holding dollars until the bottom of the stock crash. If everyone is holding dollars, they aren't being used in the active economy and you get effect of deflation.
Buff_Awesome ago
I've never heard anyone describe loans in this way before. Where did you hear this?
Veridic ago
https://m.youtube.com/watch?v=eidQTDjQ5gw
Buff_Awesome ago
Thank you very much. I'll have to investigate this.