What happens during deflation?
It's important to understand that what happens during
deflation is not a result of deflation itself. Rather,
deflation itself and what happens during deflation
are results of the same cause: a change in mass social
mood.
Beyond the price effects
of deflation, what happens during deflation can
fill entire books. In his two-book set, Socionomics:
The Science of History and Social Prediction,
Robert Prechter dedicated several sections to what
happens during deflation. The topic of what happens
during deflation also inspired Prechter's best-seller
Conquer
the Crash.
The same mass psychology that initiates the change
from inflation to deflation and depression also regulates
what humans do, feel and produce during deflation.
Here's a short list of what happens during deflation:
- Investment strategy moves toward less-risky investments,
like cash.
- Fashions move from risqué toward conservative.
- People seek the safety of groups and organizations;
religion becomes more popular.
- People have less sex and therefore fewer babies.
- Formerly adored leaders and icons see their popularity
reversed.
- Bull market sports see their popularity decline
in favor of bear market sports.
- Company buyouts and mergers slow and sometimes
stop altogether.
- Social conflicts like riots and wars break out.
- Incumbent political leaders in democratic countries
are thrown out and replaced by their challengers.
- Political leaders in non-democratic countries
are targets of coup attempts; entire government
structures are overthrown.
- Legislators vote for stricter regulations.
- Shocking swindles like the Enron and Bernie Madoff
scandals are uncovered.
For a more exhaustive discussion of what happens
during deflation and tips on deflation
survival, we recommend two important books: Conquer
the Crash – You Can Survive and Prosper in a Deflationary
Depression and Socionomics: The Science
of History and Social Prediction.
For more on deflation, Download Robert Prechter's FREE 60-page eBook, The Guide to Understanding Deflation.
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