Quote: (01-31-2013 03:43 AM)T and A Man Wrote:
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The same amount of money is chasing around more goods, leading to an increase in the buying power of the dollar.
OK.... but the point about deflation is its impact on producers, particuarly with long time frames.
The point is if petroleum for your car is $1.80/gal today...and $1.30/gal next year.. winner!!!.
Except for the organisationh that outlays $10 billion and spends 8 years building a oil producing facility from scratch.
After 8 years, your scenario sees $0.55 /gal, and they'll never recoup their money.
So they don't build extra production facilties.
Deflation inhibits production, the argument has nothing to do with consumer setiment towards lower prices.
Note to disregard all the great posts in here, but I was just thinking on this point:
Yes, the organization would realize less return due to being able to sell their goods for less relative to what their inputs and production cost, but at the same time, don’t the shareholders and employees of the company--those that ultimately absorb the company’s profits-- experience increased purchasing power from those profits? So shouldn’t those shareholders and and employees be nearly indifferent (with their indifference dependent on the price change of their company’s goods relative to other goods)?
And actually, now that prices are down, couldn’t a new company justify entering the petroleum market (either buying the losing company’s facilities or producing their own), and provide the product that the market demands? I mean, obviously prices can’t deflate to 0, there’s some kind of equilibrium.