Black Holes

In economics!  The possibility of economic black holes is taught in intermediate macro, but why haven’t we ever seen any?  The idea is that as deflationary expectations set in, people see that their money will be more valuable in the future and save it.  This further increases deflation, further increasing deflation.  As this cycle continues, the value of money held goes to infinity and velocity of money spend and output both go to zero.  I think one possibility is that the velocity of money can only fall so far.  Most people are going to continue buying food, paying bills, etc., but who knows?  It’s an interesting topic to think about.


1 comment so far

  1. dailycrockett on

    Psychohistorians have captured the first ever image of an economic black hole in action:

    You can imagine their collective gasp when they realized it wasn’t actually black.

    -M. B.

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