I am sure most of us, at some point or another, have been confused about the effects of deflation versus inflation. This article is meant to be a quick overview of deflation, its effects on the dispersion of wealth and how we can better understand what is happening within our economy.
Before diving in, it should be noted that this article isn’t meant as an in-depth overview. There are countless articles that go in-depth into the causes, by-products and outcomes of inflation and deflation. Instead, this article is meant to aid in getting the creative juices flowing when thinking about our economy and what taking advantage of deflation’s favorable properties may look like. With all that being said, let’s jump in.
To start, let’s go over a quick, simplified tool for breaking down inflation and deflation:
Inflation -> Consolidation of Wealth -> Centralization of Power
Deflation -> Dispersion of Wealth -> Decentralization of Power
Inflation (Progressive Increase In Prices)
Generally speaking, inflation is caused by an increase in the money supply due to monetary intervention. This increase in the money supply diminishes the purchasing power causing goods, services and assets to increase in price. This creates a disincentive to save as one day to the next your currency purchases less. People recognize this loss of purchasing power which leads to:
a) Smart money flowing into assets in order to protect against the destruction of purchasing power.
b) The average Joe spending their money on consumables and services, as their money purchases more today than it will tomorrow.
With the upper class holding in-demand assets that are appreciating in value (in dollar terms) and the lower class having exposure to cash that is quickly losing purchasing power, you start to see a
