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November 20, 2008
Posted: 03:15 PM ET
Lower prices at the grocery store; cheaper clothes…what’s wrong with that? A lot as it turns out, especially if it lasts for a few years say economists. Here’s the lowdown on why deflation, a period where prices decline, is not good for the economy.  1) Consumers don’t buy stuff Who’s going to buy a flat screen TV today when the price is probably be lower in a week or few months? People put off purchasing and investing, so its hard to get the economy moving. And that makes it very hard to get out of a period of deflation. 2) Businesses cut back If consumers aren’t buying and products are getting cheaper, businesses aren’t making as much profit. So they start cutting jobs. And if you don’t have a job, you’re not spending your cash as freely. The cycle continues. 3) Borrowers are hurt If you have a loan in a deflationary environment, you’re getting the short end of the stick. That’s because while it may be cheap to borrow, you have to pay the loan back with more expensive dollars. Economists we spoke to say we’re a long way away from deflation. But the risks do exist. The best way to be prepared in a deflationary environment: bonds and cash. For more of Gerri’s Top Tips, watch CNN weekdays at 11:15 am Eastern Time. Posted by: Gerri Willis, Personal Finance Editor |
 
About this blog
CNN's team of experts share their top tips to help you become a wise consumer. We know you're busy, and that's why our tips are quick and effective. From health to personal finance, we'll arm you with the information you need to make smart choices.  Contributors
Gerri Willis is CNN's Personal Finance Editor, hosting Open House and appearing regularly on American Morning.
 Ali Velshi is CNN's Chief Business Correspondent, hosting Your $$$$$ and appearing regularly on American Morning.
 Dr. Sanjay Gupta is CNN's Chief Medical Correspondent and host of House Call.
 Elizabeth Cohen offers up medical advice in her weekly Empowered Patient report.
 Judy Fortin's Health Minute segment runs daily weekdays on Headline News.
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