Benefits of deflation?

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We have all heard of inflation and just the mention of the word reminds us of double-digit interest rates and long lines at the gas pump. Yes, I am referring to the Jimmy Carter era where both inflation and interest rates approached 18%. Can you image going to the mortgage company today and being offered 18% and the broker keeping a straight face? Well those days are nothing for us to worry about…for now, instead the talk is about deflation.

From Wikipedia:

Deflation in economics is a persistent decrease in the general price level of goods and services – a negative inflation rate.

Deflation occurs when prices fall to unexpectedly low values. That sounds good, but it comes with some very unpleasant consequences. Such as, as prices fall, so does the amount of profit for employers. As profits fall, so does the ability to pay employees, which leads to people being laid off. As people are laid off, the demand for (almost) everything drops, which leads to lower prices, which lowers the amount of profit for employers. You see where this is going?

Before you start screaming the sky is falling there are some things you can do that make the short-term deflationary period very attractive. U.S. New and World Report has an article that lists 5 Reasons Why Deflation Is Good For Retirees. You can read the whole article, but just to give you a sneak-preview here is the list.

Decreased Debt
Restructure your debt
Refinance your home
Buy TIPS – Treasury Inflation-Protected Securities
Buy inflation-protected annuities

Am I hoping for deflation? Absolutely not, but as we read in Philippians 4:11

Not that I speak in regard to need, for I have learned in whatever state I am, to be content:

The economy is not doing well right now, so what should we do? Do everything you can to benefit your family now, with the low prices. The most important thing you can do is eliminate debt. Why? Do you want to be trying to make ends meet, when the spiral condition we spoke of above visits your place of employment?