Tuesday, November 23, 2010

Deflation (Economics) News - The New York Times

Deflation (Economics) News - The New York Times

Everybody likes low prices. But deflation, the falling of prices throughout an economy, is not a good thing. It only enters the picture in bad times, as a threat to make things worse.

While inflation erodes the value of money, which progressively buys less and less per unit, deflation makes money worth more. That makes people and businesses less likely to spend it -- consumers because they expect even better deals if they wait, and businesses because it's less profitable to produce goods or services that will bring a lower real return. These factors can feed on each other to produce a downward economic spiral, as happened in the Great Depression.

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