Deflation is a leak in that circular flow – a leak meant to pay off banks and real estate owners, the FIRE sector. Those payment transfers leave less and less wages available to spend on goods and services, so markets contract. Some prices for some of these products drop when people can no longer afford to buy them. There are more sales offers, there is contraction, but it is mainly the income that falls. Real income has been falling in the US in the last 30 years because the demand in the markets has been falling more and more. Here you can find out about payday loans montana.

So deflation has more to do with disposable income than with prices …

Sure, although it is rarely said. People tend to believe that paying off debt is like going out and buying a car, buying more food, or buying more clothing. But it really is not so. When you pay a debt to the bank, the banks use that money to lend it to someone else or to yourself. The interest charges that come with owning that debt go up and up as the debt rises. Since you have to pay more interest and more amortization for what you owe, you have less money left to buy goods and services (unless you take out more loans and continue to borrow even more).

So, in substance, unless you are willing to forgive debt and save the economy, what you will have is deflation and a constant drain on purchasing power, that is, a contraction of the markets.

So the relationship between debt and deflation is that debt creates more deflation. Is this so?

Yes. In the 1930s, Irving Fisher wrote an article (“The Great Depression Theory as Debt Deflation”) that established the obvious mathematical fact that paying debt service to banks leaves less income to purchase goods. and services.

People often wonder what is wrong with deflation? Because we always hear terrible things about inflation, but what are the dangers of deflation, as you define it?

Markets contract and unemployment skyrockets. Wages fall and the standard of living declines.

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