Originally posted by: Fern
Originally posted by: SleepWalkerX
1) Gold has actual value because its worth something whether you like it or not.
2) Being deflationary is not a bad thing at all. Prices should go down in a healthy economy! It also encourages saving and wise investments. A lot of people automatically think of the Great Depression when they think of deflation and thats not a good way to look at it at all.
Deflation and falling prices are "good"?
Really?
Make that case to someone, or a company, with debt.
If businesses like to be in debt then I really can't help them. If you like to encourage businesses being in debt then something is wrong with you.
Originally posted by: Fern
A company takes on debt to expand, then can't make it's payments because the price of it's products fall. The debt is pegged at a pre-deflation dollar amount. The business will get hammered
That's just wrong. Businesses should only exist if they can provide a product/service to the market that people will pay for and can remain profitable. Prices of the business's goods will fall, but does that mean that the business can't raise their price to make profit? Capitalism already skews towards producers because they have higher concentrations of wealth or obtain higher concentrations of wealth.
Originally posted by: Fern
We're seeing "deflation" in certain sectors of the housing market. The price of the home has fallen, yet the mortgage debt is set at pre-deflation dollar amounts. I.e., the house is worth less than the mortgage amount.
Sudden deflation that exists in an inflationary environment is a bad thing. Just like sudden inflation in a deflationary environment is a bad thing. Then again, its relative isn't it? Its bad for the people who made bad decisions, but its good for those who held off and are buying houses now. The people who decided to get subprime loans in hopes of those loans going higher made a bad decision. The market punishes bad decisions.
What's unfortunate is that we are rewarding bad decisions for some reason. :\
Originally posted by: Fern
If the price of products continue to fall (a good thing in your opinion), you will get a pay-cut as an employee. How you gonna make the mortgage payment? Food and products purchased without uincurring debt, no problem. They get cheaper as your wages drop. But anything acquired with debt will kill you.
Wait a second. Prices only go down in relation to the money supply. If the money the business receives suddenly becomes worth more only THEN can the business choose to lower prices down. Else, why would it lower the price? And if the business is receiving money that is worth more then why would it deck your pay?
Originally posted by: Fern
Defaltion would squeeze debt out of the equation, that'll kill an economy.
It'd work as an incentive to avoid debt as much as possible. However, people still choose to make businesses because its profitable later on. Businesses did just fine on the gold standard and people invested nonetheless. Of course the economy might not explode with production like it does right now, but at least it doesn't crash either.
Originally posted by: Fern
What are wise investments in periods of deflation? I can't think of anything other than cash. Every other type asset you invest in will see it's value drop relative to the dollar because of deflation. Who the h3ll would buy any investment? Oops, just killed off that sector of the economy.
Just sitting on gold was a good investment. Businesses that could manufacture products at an affordable price and make profit were good investments too. Anything that could produce higher returns than the initial investment are wise investments.
Btw, you are also negating that inflation does exist with regards to gold because gold is still being mined and even asteroids bring new gold. I believe the rate of new gold introduced is like 3% or so.
However, it doesn't matter if money is renewable in a money supply. It actually can be definite! The only thing that matters are the characteristics of money (it can be divisible, you can carry it, weigh it, etc).
Originally posted by: Fern
Corporations can't utilize debt for growth for the above-mentioned reasons. Now they don't have access to equity markets (selling stock). Your stock price/value is a function of many things: hard assets (oops, those values are going down), income projections (oops, that's going down as sales revenue drops), dividend stream (oops that's getting smaller as prices etc drop). Stock price has no where to go but down.
Its about supply/demand. Companies would invest in stocks that return more than they initially invest. There are plenty of other metals worth twice more than gold like platinum, rhodium, etc. Its not about worth, however, its about potential worth.
And hard assets like metals are great investments as they are normally harder to find which means they go up in price. Income projections? Why is the company not making profit? They need to raise the price if they are not making profits. Things like toys, groceries, dvds, etc are not bought because they are good stores of value. They are bought because they are consumed. Dividend streams? You mentioned that sales revenue are dropping. This has nothing to do gold and all to do with the product not selling.
You're kinda confused when prices are lowered. Prices are lowered after the company make more money. In fact, I think you're really confused with supply and demand and economics in general.
Originally posted by: Fern
Crazy stuff. Deflation sucks big-time.
Fern
Gold is deflationary but its not as dramatic as you're thinking. If gold was as bad as you were talking about then how come we did just fine on it? You neglect our history and even the consumer side of the equation entirely