Understanding Deflation

National or international Deflation is caused by masses of people stopping buying things they ordinarily buy. This directly causes suppliers of those goods and services to reduce prices drastically in order to stay in business and not go bankrupt. This then causes chain reactions on down the line until it affects everyone directly or indirectly. This then causes mass layoffs of every kind. This also causes housing deflation so then 1 million dollar houses now can't even be sold for 500,000 dollars in many places right now. And many speak of those houses not being sold even for 300,000 dollars soon.

This also affects wages. Wages can deflate too. Even though it is hard to reduce the salary or hourly wages of a worker, this is de facto accomplished through furloughs by reducing actual hours worked and then employers expecting workers to work even harder during those less hours on the job.

Since all this is happening internationally we have in many cases, international deflation. To understand what this could look like 10 years down the road we need look no further than Japan. Japan has been in Stagflation(a combination of deflation and a stagnant economy for over 10 years) This worldwide deflation is only making conditions in Japan worse. By studying what Japan did and learning from their mistakes of moving too slowly in response other nations may pull out of deflationary spirals sooner.

It is also thought that the United States has so far acted very quickly and could be one of the first nations to pull out of this present deflationary spiral as soon as it wins the confidence of its people enough for them to reinvest in businesses and to start buying goods and services again. However, until that happens we can only expect more of the same until fortunate winds start blowing again across our nation and world.