Deflation and inflation and why worry

The question is who is chasing whom, the money or the product, and the implications of the answer.

If there is more money than things to buy, the price of what is out there to buy goes up and the result is inflation.

If products and services and investments cannot find money to buy them, then their price goes down and the result is deflation.

A bias towards inflation is generally considered better for society as it means that there is pressure for innovation and growth. There is enough money to build things and create new ideas and technology. You just don’t want this bias and pressure to get out of hand by making sure the money supply from the government is matched to the production of goods and services.

Deflation is nice for some as it means you can buy more with what you have. Like now when gasoline is cheaper and houses are cheaper and even stocks are cheaper. But, for society as a whole, this means that there is less money to build things, to invent things, and to find new ways to spend money. That means new products and new efficiencies are set aside and the standard of living does not improve or may even degrade. That is why deflation is generally considered to be not a good thing.

That is why the governments of the world are pumping money. They see deflationary pressures in sympathy with the housing and oil bubble bursting and are trying to keep enough money in the system to limit the contagion. The question is whether these efforts will ameliorate the tenure and relieve the pressure.

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