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Bubbles
  • Vitaliy_KiselevVitaliy_Kiselev

    As you may know, education credits and pension funds have issues.

    But, both of them are just tools. Like house bubble.

    Let just make mind experiment. Suppose both of them collapse.

    This will mean that most students and their parents will be required to make savings to pay for education.

    It'll also mean that most working people will start increasing savings rate from current very low level to one that allows them to survive later.

    Both this things instantly will cause next deflation spiral cycle.

    So, it was stupid to blame funds for buying junk bonds (they had been ordered to, to keep credits going in main economy).

    And it is also stupid to blame FED from buying this junk and converting it into money. As they just keep another tool that keep savings low afloat.

  • 3 Replies sorted by
  • sam_sticklandsam_stickland

    What's wrong with deflation if you happen to have no debts?

  • Vitaliy_KiselevVitaliy_Kiselev

    What's wrong with deflation if you happen to have no debts?

    Deflation always has real consequences, check Greece or Spain. Plus this downward trend will be accelerating, as more and more failing tools will lead to more issues. Add to this that deflation will be accompanied with even more segregation (rich will be richer and huge number of people will be very poor). So, if you change the system, in the long term is can lead to some good results. But it is better to change the system first, not to have deflation leading to revolutionary situation.

  • stoneystoney

    Some say deflation is a precondition for hyper inflation. But I don't like generalization of deflation and inflation. Some sectors will be in deflation while some other sectors in inflation. e.g. Food cost will rise no matter what. For guys like me, it just means more financial squeeze. But it's not end of the world. We'll adapt.

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