Berberis Posted May 19, 2015 Share Posted May 19, 2015 The bigger picture is that a lot of people in this country are already in serious debt, sometimes to the limit, deflation means their incomes are not rising a lot to move them away from that limit whilst in real terms the debt is bigger (so zero is alright, but what happens when it goes below?). In Japan it also had a crippling effect on economic growth for nearly two decades. Standing still in the global economy is basically falling behind even quicker when competing against 5-8% growth economies. Japan (Tokyo) that well known 3rd world country. http://img1.mxstatic.com/wallpapers/27f1e7500d986adc5945916e19023623_large.jpeg Link to comment Share on other sites More sharing options...
El Cid Posted May 19, 2015 Author Share Posted May 19, 2015 But if my asset (house) goes up in value so does every other house. If you a house valued at £100,000, and then we get deflation, the value will go down. Inflation encourages saving, because you get a bigger return on your savings, just for the future or your pension, everyone should have a pension. Some even buy property as a pension, so they too, do not want level or falling prices. Link to comment Share on other sites More sharing options...
Mister M Posted May 19, 2015 Share Posted May 19, 2015 What a shame there isn't zero inflation on utility bills, food and rent I was earning more 15 years ago, doing the same job I'm doing now.... Link to comment Share on other sites More sharing options...
truman Posted May 19, 2015 Share Posted May 19, 2015 What a shame there isn't zero inflation on utility bills, food and rent I was earning more 15 years ago, doing the same job I'm doing now.... Food inflation? http://www.tradingeconomics.com/united-kingdom/food-inflation Link to comment Share on other sites More sharing options...
Cyclone Posted May 19, 2015 Share Posted May 19, 2015 If you a house valued at £100,000, and then we get deflation, the value will go down. Inflation encourages saving, because you get a bigger return on your savings, just for the future or your pension, everyone should have a pension. Some even buy property as a pension, so they too, do not want level or falling prices. And the value of all housing going down means that the next house up costs less when you come to buy it, the gap has got smaller. Inflation erodes the value of your savings. Interest is what encourages saving, not inflation. Deflation on the other hand causes people to minimise spending. Why buy a car today if it will be cheaper tomorrow. So it's harmful for the economy in that it actually creates excess saving. Link to comment Share on other sites More sharing options...
Berberis Posted May 19, 2015 Share Posted May 19, 2015 (edited) And the value of all housing going down means that the next house up costs less when you come to buy it, the gap has got smaller. Inflation erodes the value of your savings. Interest is what encourages saving, not inflation. But your house just dropped too. This is why those who think just because their house price went up, they are some how richer, are deluded. The only benefit is, if house prices fall, first time buyers find it easier to enter the market, but as soon as this happens, demand increases and prices jump, negating any effect of deflation. Edited May 19, 2015 by Berberis typo Link to comment Share on other sites More sharing options...
Cyclone Posted May 19, 2015 Share Posted May 19, 2015 Food inflation? http://www.tradingeconomics.com/united-kingdom/food-inflation Running at a positive value for most of the previous 15 years. Excellent website there, I might bookmark that. Food Inflation in the United Kingdom averaged 2.87 percent from 1989 until 2015 ---------- Post added 19-05-2015 at 13:13 ---------- But your house just dropped too. This is why those who think just because their house price went up, they are some how richer, are deluded. Yes, like this. My house 100k Next house I want 200k Gap 100k Deflation takes place (20%) My house 80k Next house I want 160k Gap 80k The amount I need to pay got smaller, how is this not a benefit to me? Link to comment Share on other sites More sharing options...
truman Posted May 19, 2015 Share Posted May 19, 2015 Running at a positive value for most of the previous 15 years. But less than zero (ie cheaper) for the last year and half.... Link to comment Share on other sites More sharing options...
El Cid Posted May 19, 2015 Author Share Posted May 19, 2015 My house 100k Next house I want 200k Gap 100k Deflation takes place (20%) My house 80k Next house I want 160k Gap 80k The amount I need to pay got smaller, how is this not a benefit to me? Because most people would have taken out a £90k mortgage Link to comment Share on other sites More sharing options...
Cyclone Posted May 19, 2015 Share Posted May 19, 2015 Because most people would have taken out a £90k mortgage And paid some of it off. So adding another 80k to the mortgage for the upgrade is preferable to adding another 100k for the upgrade. Apart from the risk of negative equity (a temporary condition) there is no real downside to house price deflation. Of course zero inflation for a number of years is less disruptive than deflation, if we're talking about one type of asset (housing) staying at zero whilst everything else inflates, thus correcting the current over pricing of housing (based on the long term average of house prices to income). Link to comment Share on other sites More sharing options...
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