Beginning Deflation

Deflation is not a term that is used very often, but it is a scenario that we must consider and analyze carefully if we want to understand whether current policies are the correct ones to cope with the crisis or are simply one more measure until we really know a solid result.

Economically speaking, the term deflation is associated with the reduction of the money supply. Its effect, basically, is related to the drop in prices of both goods and services. The situation seems to be in favor of the theory, when we see in practice a clear drop in demand for the purposes of the pandemic that we currently have. The increase in supply is detrimental at this time because it forces companies to lower their prices in order to stay in the market and avoid falling into a final closure.

The demand of course this is absent in this equation. However, not everything is bad if we understand that deflation causes not only a drop in prices but can also be understood as an increase in our purchasing power. But it is also a mistake to assume that a reserve currency can be held in an unlimited way, without limits and that the rest of the world will continue to trust it is something a bit out of place.

The fundamental idea that things cost less is the indication that we are entering a deflationary process, but this would be to the detriment of the credit expansion that unfortunately is based on a currency practically eroded from so much presence and that has no plans to stop its form to operate, or at least not in the near future.

Inflation, contrary to deflation, obtains part of its forces from the expansion of credit and part of the institutional and private development and expansion arises from the fact that these capital expenditures are made. The more money circulating, the greater the value of things but the greater the inequality.

If these concepts are applied to a true store of value such as gold or bitcoin, there would be a solid credit expansion based on a strong store of value that supports this financial line. The value of money would increase as well as its profitability.

What we are seeing is a structural problem that nobody knows or wants to intuit; you don't act fast enough. This deflation has not been approached in a correct way, the printing of money what it has done is to create the richest rich people by placing them those large sums of free money.

Many begin to create bases to put into practice the modern monetary theory (MMT) claiming that the debt does not matter and that it can be prolonged because of the government not knowing how to intuit, just keep looking back.

This article is free of palangrism.