In April, I wrote about my concerns about the inflationary pressures that can apply to economies when governments start printing money. This video also argues for the possibility of the opposite happening: deflation, and it occurs when the demand for cash exceeds the government's ability to increase the money supply. Over the past three years, the US dollar increased by 10% each year because of this deflation. On the surface, deflation sounds good because it increases the purchasing power of your money. The problem is, deflation increases the real value of debt. Now, with Covid-19, this is not good for those who are borrowing money: governments, businesses or individuals will have a higher debt burden. Countries who have high levels of debts and go through major deflation are at risk of going through a crisis called a Deflationary Spiral.
In the Great Depression, this is what happened:
- Deflation → prices ↓
- → businesses made less money
- → mass lay-offs, wages ↓, spending ↓
- → mass lay-offs, wages ↓, spending ↓ and so on...
This is what Jack Chapple is suggesting might happen.