Deflation Examples in History
                     Deflation Examples in 
History
What is Deflation?
Inflation is a common phenomenon in the economy, it causes the prices of goods 
and services to increase. On the contrary, deflation is a situation of negative 
inflation or when all sectors of an economy experience a drop in the prices of their 
products and services, it is considered deflation. This drop in prices is often linked 
with a contraction in the money and credit supply; however, factors like increased 
productivity and technological advancements can also cause a reduction in prices. 
Although it may appear deflation is good because people can afford more with the 
same amount of income, true negatives of deflation are only experienced in the 
long run. Unemployment and a significant cut in wages are the common drawbacks 
of deflation because the profits of firms are dropped significantly. Interestingly, one 
of the worst downsides of deflation is debt, because the interest rate is increased 
significantly, therefore, individuals or companies with a loan, end up paying more.

1. Hong Kong Deflation
During the 1980s and 1990s, Southeast Asia countries were seeing significant growth in 
the economy. This was largely due to the foreign exports. Since countries like Hong 
Kong, Thailand, Indonesia, and South Korea were doing exceptionally well economically, 
they attracted investors. Before this, the United States was the go-to country for 
investors; however, the recession of 1991, forced the Federal Bank to lower interest 
rates. Interestingly, the interest rates were lowered well below the rates offered in Asian 
countries, therefore, banks and companies were investing in these countries. With so 
much money coming in, the governments of each country decided to invest in projects 
that were not even used after their completion. The turning point in this growth came 
once the United States recovered from the economic crisis. The interest rates were 
increased again by the Federal Bank, and this increased the value of the American dollar.
2. Ireland Deflation
In the 20th century, the financial scene of Ireland was drastically different from the 
modern times. The government decided to not participate in international trade, 
which is one of the main ways to strengthen a country’s economy. Finally, after 
years of struggling, Ireland opened its doors for international trade and soon it 
became one of the richest countries in the world. Although Ireland’s economy was 
booming, inflation was speeding up as well. To combat this, the finance minister of 
Ireland, Brian Lenihan, decided to implement an emergency budget in 2009. This 
meant trimming €3.25 billion from its budget to combat its economic deficit. 
Interestingly, it was an intentional deflation, and the government even announced 
that they were expecting a deflation rate of 4 percent. Moreover, this was the first 
deflation faced by Ireland in 5 decades. 
3. The Great Depression
Following the First World War, the United States was experiencing unmatched 
prosperity. More people were joining the workforce, wages were increasing, and new 
products such as vacuum cleaners were being purchased at a rapid pace. The 
economy of the United States was booming, and this era is also known as ‘The 
Roaring 20s’. As an economy is experiencing expansion, the organizations become 
lenient with money, and the same happened in the United States. The banks decided 
to give loans to everyone, it didn’t matter how bad their credit score was or if the 
person was earning enough to pay it back. This caused people to take out loans and 
invest them in the stock market. As the economy was climbing, people were making 
easy money, and investors were gaining immense profits. Too much of a good thing 
can be bad as well, and that was what happened in the United States.
4. The Great Recession
While the great depression is considered one of the worst economic crises in the history of 
the United States, the great recession was something that is still affecting the citizens of 
America today. Experts even claim that the true impact of the great recession will only be 
known after another decade. During the early 2000s, the housing market in the United States 
was booming, and investors were extremely interested in this market because the price of 
housing was increasing each year. Once again, similar to the great depression, banks 
decided to give subprime mortgages to people with bad credit scores and no means of paying 
back the loan. A subprime mortgage is a type of banking loan that is designed specifically for 
people with bad credit scores, and they are charged an expensive interest rate. This delicate 
balance of lending money for housing became abruptly off-balance in 2007 when the demand 
for housing suddenly dropped. 
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