Commodity Trade Mantra

Posts Tagged ‘Falling Prices’

Do We Want High Prices or Low Prices?

Prices have a fundamental role to play in the market. Prices are an indicator of the relative scarcity of a good with respect to its uses. What happens if prices are tampered with through price controls or other coercive government controls? The biggest problem is that disrupting the price system jams the price signal system.

Hurts So Good: When Exactly Are Falling Prices Bad?

Though a cause for celebration to the layman, economists argue that falling prices will harm business and lead to unemployment. Falling consumer prices are good for the consumer & the economy, but they are bad for central banks looking to maintain asset bubbles and for governments looking for a graceful way to renege on their debts.

Deflation comes Knocking at the Door

The economic establishment associates deflation, or falling prices, with lack of demand. If it is allowed to continue, deflation will lead to business failures & ultimately bank insolvencies due to contraction of bank credit. Therefore, the reasoning goes, demand and consumer confidence must be stimulated to ensure this doesn’t happen.

Blaming Deflation - Untangle Myth from Reality

Businesses that should fail are supported & uneconomic activities promoted. And when this support operation shows signs of collapsing, we are told it is deflation. Markets are merely trying to untangle myth, embrace reality & cleanse themselves of the accumulated distortions. The marker of course is the accumulation of debt.

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