Technology is also a pretty small part of people’s disposable income, and people DO wait for prices to come down.
The goods that people put off buying in deflationary spirals are durable goods: things like mattresses and microwaves. Things you can put off for a couple of years fairly easily.
Deflation is also bad for people who owe significant amounts of money, like, say, for their house. If the value of my house and my wages are both dropping (and wages are sticky, but in a period of sustained deflation, they come down, too), and my house payment stays the same, that’s not “better for everyone”, even if my milk is cheaper. It’s not better for everyone who has student loans, or even a meaningful amount of credit card debt.
Is it? I haven’t seen any evidence that it was anything other than totally real. Certainly if the taxman suspected it wasn’t then I’m sure they would have had their collars felt…
It does not matter. We’re not comparing apples to melons. Whether you have cash, or a positive balance on your debit card, or room on your credit card, you have this much money; you might get more by taking a loan, essentially borrowing from your future earnings but at a cost - and you will have less “disposable” cash in future . (If I were an economist, I would know the precise definitions of money supply numbers like M1 and M2, etc.). If you don’t have money you can’t spend it. If you are a master programmer and your time is worth $200/hr, but the best anyone can/will offer you, (no matter how desperately they need that animated web page) is $100/hr, guess what you will be paid? (Hint, $0 or $100/hr)
Just because your money is a “promise to pay” from some trusted third party, it is no less real than paper bills. (Unless people stop trusting that bank or credit card company to cough up when needed, as pretty much happened in fall 2008 when everything was grindinng to a standstill.)
the government could “burn” money for example, by raising the margin a bank needs to keep - “instead of having a dollar in real assets for each $10 lent out, you need $2 for each $10”. Suddenly, the banks have a lot less money to lend, nobody can buy that new car, auto workers get laid off (or less overtime) ripples through the whole economy. Electric money can disappear or be created just like paper.
I don’t know what your point is but you seem to not discriminate between M0 which is currency in circulation and the topic of the OP and other components of the money supply.
When you talk about increasing bank reserves, that’s MB which happens to include not only bank reserves but also all coin and currency both in vaults and in circulation. So you have to be precise when talking about these things.
I think what might be generating some confusion is the fact that historically, deflation has been the consequence of sudden deleveraging like we saw in 2008.
The example I gave earlier of economic activity rising fast than the money supply is accurate but is not the normal scenario for creating deflation. Rather, what you normally see is a sudden contraction of the money supply due to a credit crisis.
In such crisis, the money multiplier and the fractional reserve banking system run in reverse. Normally, they work to create more money in the economy. However during a credit crisis, when loans are going bad or being called prematurely, the process works in reverse to destroy the money supply and thus create deflation.
The OP asked about destroying money (as in the opposite of printing money).
Yes, there’s a heckuva lot more MB (electronic money) than M0. There are people who barely touch M0 actual cash.
My point is, whether we are talking about physical cash or electrons, the economic principles are the same. Put too much in circulation, and it creates inflation. Reduce the amount available, and the economy slows, prices stop going up, and in extreme cases, desperate people have fire-sale asset disposition and prices go down.
you are right, there is so much more non-cash “money” than cash - so even if all the cash bills disappeared, it probably would not affect the economy a great amount. Almost nobody buys a car or house with cash; heck, I pay all my bills online, I wrote my second cheque in a year for a relative, and cash is mainly for trivial purchases like fast food that could easily be done with debit card. the medium is not the message, the real question is how much money - real or electronic - you have to spend.
But the point is, whether you are printing money or burning it, it is a lot easier to do electronically today. For shrinking the available money, there are plenty of tools available - raise interest rates (since a lot of spending is done with loans), or fiddle with the bank reserve requirements.
So you can get the same effects the OP asks about (and more effective!) without actually burning real banknotes, just by grounding electrons, so to speak.
OK, I don’t have a problem with expanding the discussion past actual currency, but when you do that, other mechanisms become important. Consider for example the fact that excess reserves are between $1.5 and 2T USD which you see from this chart of MB if you exclude the roughly $1.2T in currency in circulation. That amount of excess reserves SHOULD result in rampant inflation, but it hasn’t for a whole host of reasons relating to the recent credit crisis.