I'm not so sure about deflation, since we've replaced private credit with public credit. But it's nice to see data indicating hyper-inflation is not on the horizon.
And it's interesting to think what the world will look like when Americans are savers and someone else, Asians?, are spenders.
So is this good or bad overall? Because people are giving money to banks, rather than spending it, it should be raising bank's capital. Right? So the Fed won't need to give as much money to the banks, because people are giving it to them to pay down their debt?
OTOH, if people aren't spending, then unemployment goes up, which is bad.
Unless people aren't paying down their debts, but rather going bankrupt and the banks are writing them off. Then we're in trouble.
People should be paying off debt, better yet, they shouldn't be living off credit to begin with, it's unsustainable. Getting Americans back to living within their means is not trouble, it's the long term solution.
While previous credit levels were too high, a reduction in credit means a reduction and consumption and hence demand. Overall, this further shrinks the economy, reducing income and thus savings.
Ah, but in the current climate, where everybody is worried about banks failing, another big bank failure could freak everyone out and cause another catastrophe. So perhaps propping up the banks increases sentiment more than increasing consumption in 2009?
Good. The demand was being supported by artificial means and wasn't sustainable. It's bringing the economy down to a sustainable level. Better a smaller sustainable economy than an artificial one that bubbles and crashes routinely because of debt based consumption.
This can be good news for startups. In a deflationary world theoretically VCs won't need as big an ROI, meaning more funding for startups. Well, assuming the startups are doing things in line with the economy. In this case that would be things like bargain shopping, DIY repairs, productivity enhancement, etc. Been done a thousand times before? Then help folks figure out who does it best.
And it's interesting to think what the world will look like when Americans are savers and someone else, Asians?, are spenders.