People still need things, just because their money is getting more valuable doesn’t mean they’re gonna skip this weeks groceries, the next haircut, car repairs, etc. This isn’t a problem that’s going to grind an economy to a halt, especially a command economy. The more worrying thing for China I’d imagine would be the total exports dropping which is also supposedly happening.
That grocer likely has loans which are now much more expensive in real terms. Same with the farmer who sells their goods to the grocer. The manufacturer of parts to repair cars also has them. With deflation, all of them bring in less money but have increased real costs. So they cut costs by paying workers less or more likely laying them off. It’s good for banks though. They have loans out that now get amazing returns and can simply stop loaning money out because just having the money sit their provides a pretty good return.
People still need things, just because their money is getting more valuable doesn’t mean they’re gonna skip this weeks groceries, the next haircut, car repairs, etc. This isn’t a problem that’s going to grind an economy to a halt, especially a command economy. The more worrying thing for China I’d imagine would be the total exports dropping which is also supposedly happening.
That grocer likely has loans which are now much more expensive in real terms. Same with the farmer who sells their goods to the grocer. The manufacturer of parts to repair cars also has them. With deflation, all of them bring in less money but have increased real costs. So they cut costs by paying workers less or more likely laying them off. It’s good for banks though. They have loans out that now get amazing returns and can simply stop loaning money out because just having the money sit their provides a pretty good return.