Deflation is a financial crisis. Just as inflation leads to rising prices and currency depreciation affects people's daily lives, deflation is also an economic problem closely related to everyone. Deflation refers to the overall price level of society, that is, the price level of goods and services continues to decline and the value of money continues to appreciate. In some major developed countries, such as Japan, deflation has become one of the most important factors affecting their economic recovery.

Features:

The performance of deflation

Contrary to inflation, deflation means an increase in consumers' purchasing power, but if it continues, it will lead to an increase in debt burden, a decline in investment income of enterprises, passive consumption by consumers, and the national economy may fall into a grim situation in which falling prices and economic recession interact and lead to a vicious circle. The hazards of deflation are as follows: prices have fallen, but the liabilities of individuals and enterprises have increased in secret, because the real value of assets held has shrunk, but the mortgage loans of banks have not decreased. For example, when people buy a house through mortgage, deflation may make the value of the property owned by the buyers far lower than the debt they bear.

The comparison of the effects of inflation and deflation can be reflected in the following aspects:

Inflation effect

-Currency devaluation; Rising prices; The expected income is optimistic; Economic overheating; Lower unemployment rate; However, excessive expansion must be followed by contraction.

Deflation effect-the reduction of company profits; Personal expected income decreases; Macroeconomic pessimism and recession; Price drop; Currency appreciation; Financial chaos, etc.

There has been deflation in history, and the most typical one is the Great Depression from 1929 to 1933.

■ Why is there deflation?

Compared with inflation, deflation is a more headache for economic decision makers in various countries, because it is more difficult to control.

The causes of deflation mainly include the following aspects:

One is overproduction. The supply of products exceeds demand, and a large number of products cannot be sold, resulting in deflation. The economies of some countries have not fundamentally shaken off the constraints of overproduction, so that once problems arise, they will face the risk of deflation.

Second, the effective demand is insufficient. Affected by negative factors such as the stock market downturn and the reduction of investment, the consumer price index has fallen back compared with the past, which is also an important factor of deflation. Insufficient effective demand and overproduction are mutually causal. Just like a patient with stomach trouble, it is one thing to say that he is "indigestion" (insufficient demand) or "overeating" (oversupply). Third, as the locomotive of the global economy, the economic recovery of the United States has been weak, which is undoubtedly worse for many countries and regions in the world that rely on the American economy. At the same time, it also prompted the currencies of these countries to fall.

Deflation has done more harm to the global economy than inflation. Once the former is combined with huge debts, it will inevitably lead to serious financial problems, and the huge financial problems will aggravate deflation, thus casting a shadow over the already weak world economic recovery.

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inflation

inflation

Currency devaluation and price rise caused by the circulation of paper money exceeding the amount of money needed for commodity circulation. Inflation is a unique social and economic phenomenon under the condition of paper money circulation.

The reason is that paper money is a pure currency symbol, which has no value, and only replaces metal money to perform the function of circulation means; The circulation of paper money should be limited to the amount of metal money needed in circulation. If the circulation of paper money exceeds the amount of metal money needed in circulation, paper money will depreciate and the price will rise. Therefore, currency depreciation and price increase caused by excessive circulation of paper money are the direct causes of inflation.

Features ① Paper money has depreciated sharply due to excessive issuance. When the amount of metal money needed in circulation is constant, the more paper money is issued, the less metal money can be represented by unit paper money, and the greater the depreciation of paper money. The formula for calculating the depreciation degree of paper money is: the depreciation rate of paper money = (1-) × 100%. For example, the amount of metal money needed in a country's circulation in a certain period is 1000 billion yuan, and the actual issued paper money is 20 billion yuan, which has a depreciation rate of paper money.

(2) Due to the devaluation of paper money, prices rose in an all-round way. The higher the depreciation rate of paper money, the higher the price increase rate. The calculation formula of price increase rate is: price increase rate = (- 1) × 100%. For example, the amount of metal money needed in a country's circulation in a certain period is 1000 billion yuan, and the actual issued paper money is 20 billion yuan, and the price increase rate is = (-65430).

① Demand-driven inflation. The excessive growth of total demand exceeds the total supply of goods at the current price level, resulting in a general increase in prices. The excessive growth of total demand is characterized by the continuous increase of money supply caused by investment expansion and consumption expansion, which exceeds the available amount of social goods, so it is also called excessive demand expansion. ② Cost-driven inflation. Due to rising costs, prices generally rose. One of the factors leading to the increase in cost is the increase in material consumption, and the other is that the increase in wages exceeds the increase in labor productivity. ③ Structural inflation. Due to the structural imbalance of social and economic sectors, prices generally rose. This type of inflation is usually more prominent in developing countries. There are three main situations: first, the excessive demand and insufficient supply of some domestic departments and even some large-scale key products lead to a sharp rise in prices, which are transmitted to the prices of products in other departments, thus making the overall price level continue to rise; Second, the uneven development of labor productivity in various departments in China has led to the increase of monetary wages in the departments where labor productivity has increased rapidly, and the monetary wages in other departments will also increase accordingly, causing prices to rise, thus making the general price level generally rise; Third, when the price of products in open economic sectors tends to rise due to the influence of the international market price level, it will spread to non-open economic sectors, which will lead to the rise of the general price level. ④ Imported inflation. A general increase in domestic prices caused by the increase in the prices of imported goods. This type generally appears in the case of global inflation and spreads internationally through international trade, multinational corporations and open economic sectors. ⑤ Curb inflation. In the market, when the total supply is less than the total demand, or there is a structural imbalance between supply and demand, the state suppresses the stability of the overall price level by controlling prices and commodity rationing, which is an inflation phenomenon that actually exists but does not occur.

Consequences From different angles, the impact of inflation on a country's national economic development is as follows: ① the impact on economic development. The rising price of inflation distorts the price signal, which easily leads producers to go astray in production, leads to the blind development of production, causes the abnormal development of the national economy, makes the industrial structure and economic structure abnormal, and leads to the imbalance of the whole national economy. When the abnormal economic structure caused by inflation needs to be corrected, the state will inevitably take various measures to curb inflation, leading to a sharp decline in production and construction and economic contraction. Therefore, inflation is not conducive to the stable and coordinated development of the economy. ② Impact on income distribution. Inflation and currency devaluation have led to a continuous decline in the living standards of some low-income residents, and it is difficult for the majority of residents to improve their living standards. When inflation persists, it may cause social unrest and unrest. ③ Influence on foreign economic relations. Inflation will reduce the export competitiveness of domestic products, resulting in the outflow of gold foreign exchange reserves, thus devaluing the exchange rate.

Measures to curb inflation

The main measures to curb inflation in western countries are generally deflation and income policy. Deflation is to recover a part of excessive paper money from circulation. The common methods are: ① increasing taxes. ② Increase the discount rate and reduce the total amount of credit. Through these measures, the total demand will be suppressed to make it close to the total supply, thus curbing inflation. The income policy mainly suppresses inflation by limiting the rise of wages and prices, and the methods adopted mainly include:

(1) Promulgate price guidelines.

② Stimulate enterprises to implement low prices through tax reduction and other means.

③ Mandatory control or management of wages and prices. In the process of economic development in western countries, the adoption of these measures has suppressed inflation to a certain extent; However, the purpose of taking measures in capitalist countries is not to fundamentally suppress or eliminate inflation, but only to use it as a means for state monopoly capitalists to regulate inflation; Therefore, the result can not really restrain or eliminate inflation, but further aggravate it.