Wednesday, 6 October 2010

Deflation and High Currency Value is a sign of Prosperity

If your economy can maintain deflation and high currency economic
regimes, it should mean that your economy is resilent, because the
opposite is always caused by inefficient economy.

The most important objective of a sound economy is the maximum
utilisation of resources and resources are best preserved by
maintaining a deflationary and high currency value economic regimes.

High currency value means that your resources will cost even more and
yet many people still want to buy it, so nations are selling their
resources at a premium. These resources could be raw materials but
also the land and raw materials including water and air of the nation,
as well as the value of the work put by citizens of the nation.

Deflationary means that once the citizens are paid, the money that
they are paid with have a much higher value as time passes. It shows
that the economy keeps on adding value even to liquid assets. It shows
that there is no demand for hard assets because there is no need for
housing or luxury materials. It shows that the consumers, i.e. the
citizens have what they have wanted all the time. No need for them to
spend cash to satisfy them of any materials that can be considered as
hard assets such as cars and houses.

The problem with Japan is that it had been most successful in handling
its economy. It simply followed the best ways of managing an economy
based on established objectives such as "maximising resources".

How about maximising the satisfaction of its citizens? Are the
citizens happy and well taken care of?? Do they have jobs?

Unemployment can cause deflation. This is one of the effects of
recession. The total GDP shrinks. This GDP is usually valued in local
currency so inflation will increase GDP but does not increase the
satisfaction of their citizens, as shown by Zimbabwe with their large
number of billionaires that cannot purchase anything valuable with
their billions worth of local currency.

This recession does not happen to Japan. If we take into account the
increasing value of its local currency, it's economy should grow much
faster than what is shown by statistics that are based on local
currency values. GDP grown should be based on world currency, instead
of just local currency in order to be useful.

Sustained deflation is therefore a good sign for the economy as long
as the economy keeps on growing faster that the growth in population.
In fact the aim should be deflation, instead of inflation or even zero
price change. Just look at the price of PCs. It shows real deflation
but it means that there is progress, instead of retardation.

Compare my comments with the article below. The article below should
convey conventional wisdom based on other articles and books, but we
should review this analysis and go back to fundamentals of economics.

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