Who will suffer the most if world wide deflation sets in.


Thanks fable, appreciate you taking the time to respond. I understand that disinflation is still expansionary, I think what I was trying to get at has been covered in your previous posts, that disinflation is only an issue insofar as it is a phase that precedes deflation, i.e. dropping inflation rates are only a problem if they turn negative.

If prices and money supply are quantifiable, then how does debate on what’s going to happen exist? Should things be relatively clear? It is because the variables continue to change? i.e. after time=zero the fed pumps in more money, or debts are written-off?


Er, when I repay debt, money doesn’t disappear though, does it? I paid it to someone, who can use it to pay other debts, ad infinitum. I’ve heard this ‘debt based currency requires continuing inflation’ thing a few times around here and don’t think it stands up to scrutiny.


It’s not ad infinitum. At some point, the “money” was lent out by a central bank. When it’s eventually returned to the central bank, the principal no longer exists. It’s only the interest paid that remains in the system… I think!


Is this not a synopsis for the situation where we find ourselves today. We have worldwide, a severely reduced demand for credit and a reduced availability of credit also. Regardless of how much money is printed or made available if that money is not drawn down and does not enter circulation then it cannot be inflationary.

The original question was who will suffer most from this and my feeling from all I have read here and elsewhere over the last few months especially is the “developing” nations especially China will suffer more than most. If there is reduced money in circulation and reduced credit then there will be a reduced demand for manufactured goods. China especially needs continued strong growth to pay for its current expansion but if its growth is cut to low figures or zero then it cannot continue with its expansion and despite its strong single party rule the loss of income will provoke political unrest further reducing its growth capacity. Another problem for China will be that many of its customer nations for its manufactured goods will reverse to some extent the offshoring of manufacturing and attempt to reverse the trends of the last 15 years. China and India will then find themselves with a whole raft of new competition which will be much leaner and more efficient than the dinosaurs which collapsed in the nineties allowing China and latterly India to develop their export industrial base. This effect will be partly based on the worldwide recession and deflation and partly on the normal cycle of industrial efficiency.


Above is a quote from a thread on this site 12 years ago.

Last night on Matt Cooper, an academic warned that we may be facing into a period of deflation and that this is what needs to guarded against most.

As far as I know, last time round deflation (defined as a decrease in the money supply) did not occur.

Is it a possibility this time round and if so, what is the likely impact for Ireland and beyond?

Its worth noting in this regard that by some estimates we currently have a real unemployment rate of 50 odd percent.