I get the fear part of deflation, but would it not help out in the long run if prices were to ease ? If wages are not rising then inflation is akin to shooting yourself in the foot.
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This is a good thing long term. The shift needs to occur away from luxury and towards necessities at various points. Imagine if no one in the world bought anything but essentials, but perhaps there were a few luxuries to provide incentive for the businessmen. The world would not be very good for most, but the businessmen would recognize opportunity in providing more food. Everyone in the world would be focused on creating more food and getting more out of everything we have. Once everyone who was starving in this world had sources of regular food, then they too, could be more productive and technology would have more of a demand. This is what is happening. It can happen in 3 ways.
1) 1 way is inflationary where the inflation of necessity hits
2) The other way is deflationary where the credit to buy such food collapses.
3)Stagflation is the other which is a combination of both.
Sorry, but when necessary natural resources start to become more scarce, a recession is a good thing until people can consolidate their resources and then rebuild.
The two caveats in this logic is that
1)obviously there needs to be enough natural resources to produce such food and businesses that mine such natural resources, and when that happens, you will get those who tend to people’s demands.
2)More food results typically in population growth, which further adds pressure to the demand for food. There is a point where this can become destructive in some ways, but it also can be constructive if further innovation is possible “necessity is the mother of invention”.
And when we inflate asset classes to prevent a technical recession while destroying the purchasing power of the poor and middle classes?
Inflation is a false price signal, in the short run it causes overproduction of goods, as the market is pricing in a much higher demand. This leads to malinvestment which makes everyone worse off because the resources used to stockpile goods for which there is no real demand cannot, generally, be reused and depreciate over time (think housing glut, or the fields of GM cars no one can sell). It is a self-reinforcing cycle as well, the more we inflate, the lower the purchasing power of most people, the worse the economy, the more we inflate, until of course it collapses due to an unwillingness/inability for more fiat creation, or food riots.
The article speaks of necessities going up. I am not talking about the policies of monetary inflation. I am talking about the shift of the allocation of the world’s resources from luxury to necessity that this causes. The shift always goes back and forth throughout history, it will never go indefinitely in one direction forever. Certainly there are pros and cons to every action as well as lack of action that may or may not manifest every time.
“It is a self-reinforcing cycle as well, the more we inflate, the lower the purchasing power of most people, the worse the economy, the more we inflate”
What happens when prices of that food goes up? Do you really think people are going to sell corn at $1 billion per corn shuck? For what? To Who? Do to what with?
People eat food, if the capacity of production is 2 trillion pounds of food per month, the farmers are going to sell their food to somebody at a rate of 2 trillion pounds of food per month. The price going up enough eventually means buying some land to convert to farmland becomes an equitable decision.
Unfortunately perfect information does not exist in the market. How do you tell if the price of food is increasing because of inflation or an increase in demand? There is always incentive to increase capacity as price increases.