“La sabiduría de la vida consiste en la eliminación de lo no esencial. En reducir los problemas de la filosofía a unos pocos solamente: el goce del hogar, de la vida, de la naturaleza, de la cultura”.
Lin Yutang
Cervantes
Hoy es el día más hermoso de nuestra vida, querido Sancho; los obstáculos más grandes, nuestras propias indecisiones; nuestro enemigo más fuerte, el miedo al poderoso y a nosotros mismos; la cosa más fácil, equivocarnos; la más destructiva, la mentira y el egoísmo; la peor derrota, el desaliento; los defectos más peligrosos, la soberbia y el rencor; las sensaciones más gratas, la buena conciencia, el esfuerzo para ser mejores sin ser perfectos, y sobretodo, la disposición para hacer el bien y combatir la injusticia dondequiera que esté.
MIGUEL DE CERVANTES Don Quijote de la Mancha.
21 de enero de 2015
Why Falling Prices Are Actually a Really Bad Thing
Employees prepare to hang a 'sale' sign in the window display of a Debenhams store on... Read More
On the surface, everything getting cheaper sounds like a dream come
true. It’s not. The prospect is so terrifying that it’s prompted central
bankers around the industrialized world to pour trillions of dollars
into their economies to prevent a sustained drop in prices. The European Central Bank is projected to follow suit with an announcement as soon as Thursday.
Here’s why.
1.
When shoppers see persistent price declines, they hold out on buying
things. They ask, will I get a better deal next week, next month, next
year? As a result, consumer spending flails. For most nations, that’s a
big chunk of their economy, and any slowdown in consumption threatens
growth.
2. Businesses behave pretty much the same way. They
postpone buying raw materials, hoping to get a break on costs, and delay
investing in that splashy new facility or hiring an extra hand.
3. Additionally, their pricing power -- the ability to charge more -- vanishes. That makes it harder for them to grow profits.
In such an environment, if companies want to grab a bigger market share, they have to slash prices. That makes things worse.
4.
Lower profits = less money to go around to workers. Employees don’t get
the raises they were expecting, they cut back on spending even more,
and the ugly cycle repeats. That’s why they call it a deflationary
spiral.
Photographer: Manuel Gutjahr/Getty Images
5. The sad thing is, even when prices are falling, the
amount you owe doesn’t. Borrowers get crushed under the weight of that
debt. In a mild scenario, companies and consumers hold back on other
purchases to continue meeting their obligations. When things get really
bad, they go bust altogether.
6. Policy makers usually have an antidote to economic slowdowns, but it’s trickier when interest rates
are already near zero. That’s exactly the situation with the ECB and
much of the industrialized world. That forces officials to turn to
unconventional tools.
Policy makers have been raising and
lowering interest rates for a long time but quantitative easing -- a
Japanese invention from the 2000s -- is a relatively untested tool. Its
effectiveness is still controversial among many economic circles.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net
To contact the editors responsible for this story: Carlos Torres at ctorres2@bloomberg.net Aki Ito
