Does debt lead to deflation?

The seeds of deflation are growing each day while most investors anguish over potential inflation, . The seeds are sprouting into a debt deflation cycle for the U.S. economy, a serious economic development not seen since the 1930s where debt feeds deflation and vice-versa.

What happens in deflation cycle?

Deflation is a fall in the overall level of prices in an economy and an increase in the purchasing power of the currency. It can be driven by an increase in productivity and the abundance of goods and services, by a decrease in total or aggregate demand, or by a decrease in the supply of money and credit.

During what periods does deflation usually occur?

Deflation usually happens when supply is high (when excess production occurs), when demand is low (when consumption decreases), or when the money supply decreases (sometimes in response to a contraction created from careless investment or a credit crunch) or because of a net capital outflow from the economy.

When an economy has debt deflation?

Debt deflation is a theory that recessions and depressions are due to the overall level of debt rising in real value because of deflation, causing people to default on their consumer loans and mortgages.

Where can I invest in time of deflation?

3 Best Investments For Deflationary Periods

1. Investment-Grade Bonds. Investment-grade bonds include Treasuries and those of high-quality, blue-chip companies.
2. Defensive Stocks. Defensive stocks are those of companies that sell products or services that we people can’t easily cut out of their lives.
3. Dividend-Paying Stocks.

What should I invest in during deflation?

Deflation hedges include investment-grade bonds, defensive stocks (those of consumer goods companies), dividend-paying stocks, and cash. A diversified portfolio that includes both types of investments can provide a measure of protection, regardless of what happens in the economy.

What do you do in a deflationary period?

Here are some points for consumers and investors to keep in mind if deflation occurs:

1. Reduce your debt. One of the best ways to prepare for deflation is to focus on paying off debts.
2. Buy high-quality bonds.
3. Don’t load up on stocks.
4. Keep an eye on these sectors.
5. Don’t lose sleep over the risk.