The Deflation Rocket Is In Flight Right Now

By: Paul Dubsky

Deflation is the opposite of inflation. When there is a retreat in the level of prices things point to deflation. The actual extent of the damage to the economy may well be potentially much higher in case of deflation than inflation.

When collateral collapses, the Banks begin to wobble under the strain and of course the falling home values play a major role, and inevitably credit tightness looms. Naturally, any chance for growth is quickly dampened. It also follows, that with property prices sliding down further, the credit crunch becomes worse. Further down the road, this will discourage a rise in prices and encourage a drop in prices, thus creating a perfect climate for opening the door to deflation.

Banks will start piling money. In order to lure in more cash deposits, some might offer more attractive interest. On the horizon, a picture will emerge of endless heaps of products needing buyers. This will force the prices to go lower and lower.

It is unlikely that anybody will wish to invest in those circumstances, and the prospect of getting jobs will deteriorate.

Financial systems are sensitive to general tendencies or directions. Thus, any slight hint of changing conditions from good times to bad times can trigger confidence to change from good outlook to gloomy outlook. The lending appetite as well as the borrowing appetite shrinks, which means that ultimately the prices of goods fall.

The cocktail of debtors, creditors, consumers and producers laced with a negative trend, will set off a warning siren. Once the creditors begin to worry it is hard to contain their fears. The supply of money begins to dry up and cash is king.

When the supply of goods goes up quicker than the supply of cash, favourable conditions for deflation begin to gather. The ability to lend or borrow is a problem which seldom has happy endings unless a great deal of effort is given to solve it. There is no inoculation to make one immune to the disease of deflation because the component part of the disease is not necessarily always completely the same, albeit very close. Whatever happens, it will take quite a while to get rid of it.

The thing to be aware of is not to get into a situation which makes people wait and not buy because they think prices will go down. This makes for an acute spiral of lowering prices with no end in sight. As a result, the factories cannot make money and get into more and more trouble, and consequently redundancies start gathering pace.

Article Source: http://www.myhotarticles.com

Paul Dubsky is director of Foreign Currency Exchange & Transfers Ltd. The company is focused on being able to offer really friendly currency exchange rates and international money transfers. We believe we are the only Foreign Currency Exchange company which offers special rates to Senior Citizens.

Please Rate this Article

Not yet Rated

Additional Articles From - Home | Finance

First Visit?
For a FREE Account
Please Join Here
Learn More Here.

Featured Website:
Baby Names
Article Directory
Wooden Sheds
Make Money Online
Free Wallpapers
Article Directories:
ArticleWide.com
BizHelp.info

Members Area:
Submit Articles
Members Login
Article Promotion Benefits

USEFUL RESOURCES

Webmaster/Ezine Tools:
Top Authors
Most Popular Articles
Submission Guidelines
Ezine Notifications
Article RSS Feeds
Blog
About Us
Link to Us
Contact Us
Privacy Policy
Terms of Service
Article Directory List