1 The QE II is the sturdiest financial vessel ever built. Full speed ahead!

2 It could be that gas prices have jumped pretty fast (here at least).  It could *also* be that food prices have *also* been going up.

That is, going up more than normal.

3 ace you should link this video

4 on the upside of inflation, "making it rain" at strip clubs will cost less.

5 This video kicks ass.

6 Stability would be the best situation, not steady inflation.  Steady inflation is only to the advantage of people who borrow lots of money.

I think I could live with a little bit of deflation for the short-term.  But again, stability is important in the long term.

7

McConnell now backs earmark ban.

 

8 "ideal" inflation is usually thought of being around 1%. I think typical mandates for national banks have it topped at 2%

9 A.G. -- 1% ? Okay I'll change. (Are you sure?)

10 Am I right or wrong about that?

Both. That's approximately the consensus—but hyperinflation isn't worst, or the Fed wouldn't be trying to cause it, would they?—but it's highly ideological (in Marx's sense of the term). It's what the government and "finance" thinks, because it's what's good for them.

Inflation of any amount is bad for people and entities that use their capital—exchange it for stuff and for work. Inflation is good for people and entities that...don't.

Who do you want to see win?

11 >>>7 Stability would be the best situation, not steady inflation. Steady inflation is only to the advantage of people who borrow lots of money. Well I think that is the Ron Paul/Von Mises insitute view, which isn't consensus, but minority.

12 nd if that's what people think, they won't invest their cash. They'll buy gold. which is why it gets taxed at a higher rate for its "gains". ------ also, there is often some technical confusion about what is deflation and what is just normal market function. e.g. If, say, electronics are getting cheaper while getting better, then should that count?

13 Even God is powerless to sink the QEII.

14 Uh... take a terrible economy and trigger major inflation... what could go wrong? http://moneyterms.co.uk/quantitative-easing/

15 Again, I realize that the Ron Paul/Von Mises wing has a different take. I don't believe them. In any event, I spoke of general consensus, which I think I've stated, pretty much. I don't buy the whole Ron Paul/Von Mises goldbug theories. I don't have enough education in this area (or any) to make a determination for myself but Ron Paul strikes me as a crank on so many issues I discard his economic views as crank too.

16

Ace, the economy is so distorted right now that no one has any idea what is coming.

Our budgets are unsustainable.  Our balance of payments with a crappy currency are even less so especially while importing cosmic shit tons of oil and Chinese spatulas.

Meanwhile, all those bad mortgages?  STILL ON THE BOOKS.

And the big, nasty unforeseen foriegn policy crisis has not reared its ugly head yet (my money is currently on Sudan).

Our buddy Kratos is right.  Chaos:  It's what's for dinner.

17 Awesome vid.

18 I see Ace's point. I think. But I think the video is important because QE2? what the fuck? what the fucking fuck? If the palace guard media weren't so concened about Palin's squeakhole, maybe we could get normal people to freak out about the idiocy going on here. Libs accuse us cons of being corporatist but really, I just like the markets. This manipulation is anti-market and I could give a frak that it will help a corporation.

19 /Military Quantitative Easing in the War Against Terror:

"What happened in Afghanistan was that our NATO allies, some of them, turned out not to be willing to fight," George W. Bush said. "Therefore, our assumption that we had ample troops -- U.S. and NATO troops -- turned out to be a not-true assumption. So we adjusted."

20 16 The Paul also hates the Joos. The Paul and the Carter are blood brothers and snake handlers.

21 Anyone claiming ideal inflation of 1% is an economic idiot.  Ideal inflation is ZERO. And ZERO is not deflation ... it is economic balance, equilibrium ...

Deflation is negative inflation (dis-inflation) and is just as bad ...

Sure it is hard (near impossible) to achieve ZERO inflation/deflation due to the exponents and Darwin .... but an ideal condition is year 1 - 1% inflation, year 2 - 1% deflation ... balance.


/Econ. and Math degrees
//More common sense from reading Hayek, Von Mises, Bastiat, etc. than listening to my professors
///Older than 35 in case you're wondering if  I'm a recent grad

22

I thought they were being sarcastic.  I'll have to listen again.

23 >>also, there is often some technical confusion about what is deflation and what is just normal market function. e.g. If, say, electronics are getting cheaper while getting better, then should that count? But deflation is usually measured in aggregate demand, the demand for all goods and services that make up an economy. Individual markets can fluctuate but the overall demand is the issue.

24 Inflation is great!  The dollar has devalued 10% since the summer.

My retirement savings can buy 10% less than they could a few months ago.  Not to worry, I'm making 2% on the money and QE2 is driving interest rates to zero.

Thanks Helicopter Ben!

25 Libs accuse us cons of being corporatist but really, I just like the markets.

The Left relies on being corporatist. And the Left smears its own faults onto the Right that should know better than to accept any Leftist premise.

26 Sugar at HEB (Texas grocer) has almost doubled in 2 months. They had pallettes of sugar bags for $1 two months ago, yesterday they are $1.94. Other prices are up too, though not doubled (yet).

27 if it's common sense why do most economists reject the von mises goldbug sort of theory?

28 Yes, most people consider deflation bad. Good thing we don't have that contrary to what the lying liars in DC say.

29 There is no deflation. We have inflation. When you cast out food and energy your numbers are useless.

30

Deflation is bad because the whole business world runs on borrowed money.  It's great to borrow money in inflationary times because you're borrowing a buck now and paying it back in a devalued buck that may be worth only 95 cents or even way less.  However, if money is deflating, that means you're paying back that buck with deflated money that may be worth $1.05 or more, plus interest.

That's how a lot of farmers lost their farms back in the 1930s, when money was based on gold.  Farmers took out loans to buy their seed corn and paid it off when the harvest came in.  However, if gold spiked up, that meant they'd have to pay their seed loans off in dollars which were worth a lot more than the ones they borrowed.  Such loans ruined them.  That's why the gold standard was bad.

Every business borrows money to buy its inventory.  When deflation screws up those loans and makes it impossible to make a profit on borrowed money to do business, the economy tanks.

31 BTW, I bought gasoline Sunday and it is going up fast here. One wonders why????

32 We may need to move to the Kampuchea Scenario.

33 When you have the monetary policy hammer, every problem looks like a lack of capital problem.

The stimulus tried to inflate the economy by spurring demand. Now the fed is trying to do it by spurring supply of money.

Maybe, just maybe, the lack of economic activity is based on rationale decision making that there aren't sufficiently sound investments that outweigh the potential exposure to what happens when the US and other economies are in debt beyond their total GDPs.

Anything other than solving the massive imbalances between government spending/exposures and the reality of national wealth seems destined to fail.

But it's what they got, so off they go.

34 Also, noticed one thing that is misleading in my post ...

IDEAL condition is ...

EQUILIBRIUM between money and good/services which is 0% inflation/deflation ...

Inflation - Too much money chasing too few goods/services
Deflation - Too little money chasing too many goods/services

Pretty simple stuff that should be taught in Econ 101 for every college grad but isn't because it doesn't fit the Keynesian mantra of a little inflation (1-2%) is good ... a little inflation is not good.  It is a VIG on your productive labor that basically goes to bureaucrats and bankers for sitting on their ass and watching ...

35 Mild deflation is preferable to, and easier to fix, than light to heavy inflation. The video is wrong when it states that "lower prices" due to deflation would be a good thing (it doesn't take into account the corresponding lower wages and earnings), but deflation is at least an appreciation in the value of your cash assets and savings, and it hits the average person last, because the increase in the value of their cash will occur before the decrease in their wages, so there's a short term gain for people who work and save, but don't necessarily invest. The flip side to that is that it fucks people with outstanding credit, because their dollars are worth way more than they used to be, but they're still paying back the same amount at the same interest rates that they were before deflation, so they're using a larger fraction of their purchasing power on credit repayments. And the Fed is VERY good at inflating the dollar, but not so great at deflating it (especially now with high levels of US government debt), so it'd be easier for them to fix any deflation before it got too bad. Of course, the Great Depression shows that the Fed might not actually do its job, but not because it's incapable of it, but because the people running it are boobs.

However, inflation straight up destroys the value of accumulated capital, and it hits the common citizen the hardest. Banks and other financial institutions will be the first ones to respond to inflationary pressures, increasing the costs of capital, which turns into an increase in the cost of goods, which hits Joe Average faster than the corresponding increase in his wages. It also jacks the value of his savings, and decreases the profitability of investment for everyone. It's a benefit for people in debt, as the relative value of the dollars they have to pay back decreases.
Neither is good in the long term, but if you had to pick one, go with deflation.

36 Deflation is fine. Can't think of a single nation crippled by deflation. No one complained because instead of a wheelbarrow full of cash they suddenly could by a loaf of bread with a dollar bill.

37 I don't care what you haters say.  I think Napolitano ice cream is very good.  If I get tired of eating the chocolate I just move to the strawberry or vanilla.

38 >>>Deflation is fine. Can't think of a single nation crippled by deflation. Hi! Have we met? Check my link!

39 Thanks, Sherlock, I forgot the first rule of LibClub...always project your sins onto others. The video is helpful because it explains the lunacy of what is happening. The fed is overstepping its bounds. Currency doesn't care if it's inflated or deflated. It's what the market does with it that matters. Gov't intervention will only delay the inevitable. The end of the day, the US govt just printed another $600billion to play with.

40 The video is wrong about deflation but it's a pretty minor aspect of the whole thing. People will walk away from it thinking, "We're printing money." Which is true.

41 That's how a lot of farmers lost their farms back in the 1930s, when money was based on gold.

Most farmers who lost their farms did so because crop prices fell out the bottom and it cost more to grow the crops than they could sell them for.

They lost farms even when they owed NOTHING because they couldn't afford to pay the damn taxes but you never hear about that. You only hear about the evil bankers.

Read this book. It is fascinating and heartbreaking even if it is written by a libtard NYT reporter.

http://tinyurl.com/29asejr

42 I eat the chocolate first and am left with crappy vanilla and strawberry. Napolitano  is the dyke who authorized the sexual assault of all Americans who fly.

43 Somewhat on-topic, actually.  Just got this from the Kos Kiddies:

There is a consensus among American “elites” on Social Security. Most CEOs, pundits, and elected officials favor cutting and / or privatizing it, claiming that doing so will reduce the deficit. That claim is a lie, since Social Security is fully funded through 2037, pays for itself 100%, and doesn’t add one dime to the deficit.

(Emphasis theirs, believe it or not)

My head asplode.

44 No. Its more accurate to say that there are two kinds of deflations - a secular deflationary trend produced by better technology and innovation in service and product delivery etc, and a rapid deflation produced by increased demand by the public to hold cash. Economists would agree that the first kind of deflation is not bad though they might not prefer to accommodate it as public policy due to some other extant circumstance (political reasons). But all except Austrian economists would say that the second type is a bad type of deflation, and can be fought by accommodating the public's increased demand to hold cash - by producing more cash. Thats standard monetary macro 101.

45 Actually, commodities are deflating. And house prices are deflating

46 Precious metals and not so precious metals are shooting straight up.

47 Here is your inflation chart.

48 But all except Austrian economists would say that the second type is a bad type of deflation, and can be fought by accommodating the public's increased demand to hold cash - by producing more cash.

I don't speak Austrian.

49 I am just so glad we have The Ben Bernank at the helm to guide us with his steady hand and cool, cool beard. Nothing could possibly go wrong? Right?

50 Deflation is beneficial to small businesses, individuals, people with cash, and people with no debt. It is bad for large businesses, anyone or anything with high debt, and government.

Ergo, deflation is good.

Inflation is dreadful for savings and investment, which means inflation is anti-capitalism. ("Capital" means "actual stuff," not "cheap debt and fiat currnecy." Debt-driven commerce is not, in fact, capitalism.)

51 @45: Actually, commodities are deflating.

Oil, corn, soybeans, sugar, et al ... being up about 20% is deflation?

Did you happen to go to Princeton?

52 so did you think Clinton's "strong dollar" policy was "kinda crank" too? probably not. Clinton good, Ron Paul bad, huh?

53 0% inflation is impossible. Absent central planning of the money supply, the economy would probably experience a mild secular deflation. It's a result of the productivity norm:  the idea that productivity would grow faster than the supply of money, everything else being equal. The result being a gradual fall in the overall price level.   The deflation you are thinking about is a monetary deflation, which is bad.

54 Food is up 48% and energy is up 23% in a year. The reich casts aside these 2 on inflation figures though.

55 I also think that deflation will be caused by the collapse of credit availability or people's willingness to borrow. When credit collapses - everything will deflate.

56 Good point. We aren't suffering deflation, the bubble is being deflated. Things were overvalued and now there is a correction.

57

Ace,

 

How do you increase demand  without lowering prices?   If deflation is bad  you might want to tell all retailers who have sales  to increase demand  or  maybe you should inform Walmart  that their entire business model is wrong.   Walmart become the world's largest retailer by using deflation  to drive their sales.   Further,  if your goal is to increase employment   (which needs demand to increase so companies can hire)  how do you do that  by increasing prices?  

  

58

As a debtor nation, we should welcome inflation.  Inflation is the tool of the bvorrower against the creditor. 

Look at the cross of gold speech.  Bryant was demanding free silver, that is, an open silver monetary policy that allowed prices to rise on an annual level, or with the injection of bullion into the market (as I understand it).  The "Cross of Gold" was the gold standard--the tool of the banks and financiers who made those loans, and wanted the dollar fixed to a set amount of the yellow ore. 

Inflation nullifies the value of loaning money on interest (or, alternatively, interest must be set higher than inflation).  We are all cheering inflation because the entire global economy is now a giant debtor.  Credit is (was) extended everywhere, heating up markets and providing returns in excess of the inflation caused by loaning out the majority of bank reserves while pretending they were backed by something. 

Now that credit has all but disappeared, and banks are hoarding capital to hedge off runs, deflation has to result.  Artificially priming the pump with fake currency (a la QE2) is suicide by inflation.  Once the banks think the risk of runs is past, they will dump that money in the market as credit and burn the whole thing down.

It's a certain way to destroy all but the largest of stockpiled savings (read: the international banks will be safe, everyone else will be hurting).  Misery and impoverishment on a heretofore unseen scale.  Either social chaos or brutal totalitarian regimes will result, little of both.

But our debt to China will finally become manageable. 

59 Actually, commodities are deflating. And house prices are deflating

Posted by: Radioactive Satellite Of LOVE at November 15, 2010 04:16 PM (LdYLm)

Not in the universe I occupy.

60 @53:  0% inflation is impossible.

Measured as a one-time phenomena, you're right ... but using monetary policy to create equilibrium in inflation/deflation isn't impossible ...

It just isn't what Bernanke/this administration/the last administration/etc. wants to achieve ... otherwise they can't take the vig ...

61 "Deflation is bad. Inflation is good."

That's been the line since the Federal Reserve was created. It was the line of FDR who did EVERYTHING to inflate prices "for the farmers" who are no longer poor dirt farmers; family farms are no longer. Farming is literally monopolized by globalist agribusiness that still enjoys all of the "for the poor dirt farmers" subsidies.

The Fed is Wrong. But then, they're not all that concerned about convincing anyone that they're "right" on printing mass dollars. They'll do what is easiest, most convenient and least uncomfortable for their own interests that do not include the well being of the US Economy. They obviously couldn't care less what anyone thinks. When all is said and done, ask them why they did it, and they'll say, "Because we could."

Don't say now that Ron Paul hasn't an extremely legitimate pertinence in the Senate.

62 Ron Paul!

63 The commodities are actually at record highs. Cotton corn wheat sugar.  The housing market is being propped up.

64 51 @45: Actually, commodities are deflating.

Oil, corn, soybeans, sugar, et al ... being up about 20% is deflation?

Did you happen to go to Princeton?

Posted by: IrishSamurai at November 15, 2010 04:19 PM (TLqEw)

You are seeing inflating of prices due to the dollar being de-valued. The dollar is a fiat currency not tied to any real asset. Try to find a chart that values the stock market in gold - and then ask the deflation question.

65 All currency is not tied to any assets.

66 If you look at the long term price of gold you get the measure of what real inflation is.

A lot of the price now is due to speculation, but most of it is real inflation.

67

The vid doesn't suggest that deflation's good. It SCREAMS that the Fed is criminally inept.

Deflation is  a monetary phenomenon; inflation and [soon-to-be] hyperinflation are commodity phenomena.

RSoL ?  #45 ?     COMMODITIES  ARE  UP

T-notes will not be worth spit to buy bread, milk, gas or .308, meanwhile the price of a TV will drop - that'll be the diff. The BS about the CPI is due to the specific ELIMINATION of food, fuel, transportation from the index. But the lameass Talking Hairdos wouldn't be able to figger that, cuz dere so smart

This holiday seasons's gonna be a blood bath, so any crap - nonessential items should be forestalled while retailers panic and panicBig

 

68

"5. Deflation"

I think it depends on your definition of deflation.

 When business is bad, businesses lower prices to attract more customers. This happens all the time, even in good economic times. I think most competent economists agree that this is not a bad thing, it is a perfectly normal and desireable thing. And it doesn't seem to be happening on a large scale.

On the other hand, if money is somehow withdrawn from circulation, say by the sale of bonds by the fed, that would mean less money to buy things which would also cause a drop in prices in order to attract customers. I do not see any evidence of this happening.

 

 

 

69 Though not a Ron Paul fan, I do look forward to him berating the hell out of the Bernank in the coming months... http://tinyurl.com/2c278gu

70 It's great to borrow money in inflationary times because you're borrowing a buck now and paying it back in a devalued buck that may be worth only 95 cents or even way less. However, if money is deflating, that means you're paying back that buck with deflated money that may be worth $1.05 or more, plus interest.

Bastiat would laugh.

And would point out that deflation means your requirement to pay back your debts is made less difficult because the costs of all your inputs are going down.

71

Try to find a chart that values the stock market in gold - and then ask the deflation question.


Things cost less in real money, but our currency is dropping in value even faster.

To us, it looks like inflation.  Much like to a fish, being hauled up to the surface by a hook looks like a descent into hell.

72 Why don't they just raise interest rates instead of loaning money at near zero %?

73 @64:

So you went to Princeton ...

Gold value has ZERO to do with inflation/deflation in commodities purchased with a fiat currency (since 1971) ...

You're not arguing with the typical AoS moron here ... you need to read more than the NYT to get your economic education ...

74

As a debtor nation, we should welcome inflation.  Inflation is the tool of the bvorrower against the creditor. 

  s'moron at November 15, 2010 04:21 PM (UaxA0)

 

Not really.  It will not increase growth and thus make us borrow more debt.   Inflation at this stage in the economic cycle will decrease demand, increase unemployment  and case the gov to borrow more money to pay the increased need for benefits.  

 

Deflation is the only thing that would increase demand, increase employment  which would increase tax rev  and thus enable us to pay down the present debt faster.  

 If your bills go up faster than your wage you fall  behind  even if your wage is higher than it was.

 

75 <i>But all except Austrian economists would say that the second type is a bad type of deflation</i>

Not true.  Austrians freely admit that the second type is bad.  They try to point out however, that the bad monetary deflation is a result of the preceding inflation, and that it is a necessary adjustment.

76 We use dollars and not gold as the means of exchange. Trying to peg prices to unicorn skittles is pointless.

77 65 All currency is not tied to any assets.

Posted by: FlaviusJulius at November 15, 2010 04:24 PM (9cflz)

All currency are mediums of exchange, it has no value except what it users entrust to it.

78

You are seeing inflating of prices due to the dollar being de-valued. The dollar is a fiat currency not tied to any real asset. Try to find a chart that values the stock market in gold - and then ask the deflation question.

Posted by: Radioactive Satellite Of LOVE at November 15, 2010 04:23 PM (LdYLm)

 

 

No  the prices are inflating in regards to our paychecks.   thus to us  it is inflation.

79

Prices are up... REAL inflation is happening, however, as raises in Soc Sec and such are tied to the CPI, the government is fudging the numbers so as to decrease THEIR debt.

They are hoping to thus, inflate, their way out of debt.

Kinda like borrowing their way out of debt...

Kind of like all the Stock Wealth of American citizens they destroyed when they took over GM... and will not make whole with the IPO...

They are kids playing on a calculator... not understanding what they are doing.

80 They are hoping to thus, inflate, their way out of debt.

Ding! Ding! Ding!

This road leads to WW III with China ...

81 73 @64:

So you went to Princeton ...

Gold value has ZERO to do with inflation/deflation in commodities purchased with a fiat currency (since 1971) ...

You're not arguing with the typical AoS moron here ... you need to read more than the NYT to get your economic education ...

Posted by: IrishSamurai at November 15, 2010 04:27 PM (TLqEw)

You're begging the question.  Currency is a medium of exchange. IF one party will not exchange - it loses values.

82 Deflation at this point is just a reversion to the norm. 

Government likes 3-5% inflation so people have to keep using their money, and working.  Plus they get to keep printing and spending more.

a stable currency is best, and supposedly that is the role of the fed ... but all fiat currencies go to zero over time, and the fed is now a Goldman Sachs subsidiary.  

83 Ace, do you "not buy" Austrian economics out of any reason other than your reflexive hatred of libertarianism and Ron Paul?

84

Ace, you are mostly correct in your analysis and observations. However, it is worth pointing out that the subject of deflationary economics is one that is most feared as it is the only virulent economic mess our very young republic has ever experienced.

As such, our current economic crisis is being treated with the analysis of all things deflationary; the deflationary lens and historical templates are what Bernanke best understands.

However, the economic crisis we are currently in is fully without historical context from an American perspective, given the fact we have NEVER been in a situation where the USD is the world's reserve currency while simultaneoulsy the United States has a 13T debt, off balance sheet obligations over 75T, fiscal deficits of 1.4T, decimated manufacturing base, insolvent commercial banks, fiat currency, a global system leveraged in trillions of derivatives with millions of foreclosures and 25% of homes underwater and growing.  Not to mention effective unemployment of 22%.  

The salient point in my diatribe here is that we are in wholly unchartered waters and in an economic paradigm for which we do not have a play book.

For none of the economists would ever have predicted we could simultaneously have a deflationary and inflationary environment.

But that is what we precisely have.  We have an economic frankenstein for which we realize we will ultimately be unable to control despite short-term meddling.

History is about to unfold where the dollar and our way of life will be on the losing side of a zero sum enterprise where new economies and monetary units are currently being discussed, that's the inside baseball. 

Pay attention folks.  

 

  

85 Posted by: Japan at November 15, 2010 04:14 PM (nj1bB) Japan was crippled because it's a nation of welfare socialists who didn't bother to bread or allow immigration. It's a zombie nation. It 's still shambling around unaware that it is already dead. Deflation is necessary. Frankly, it's the only way our nation will survive.

86

 If your bills go up faster than your wage you fall  behind  even if your wage is higher than it was.

 

Posted by: unseen at November 15, 2010 04:27 PM


I was being a bit unspecific and a touch sarcastic with the opening sentence there, unseen. 

On the grand scale, inflation is the only way we get out of our Chinese debt trap.  Of course, it will cause massive problems on the individual level, and my collapse the entire global economic model.  None of us know, but at some point, 15 years down the road, after a re-valuation of the dollar to lop off 3 zeros, my 15 year old student loan debt will be much easier to repay.

The only entities that stand to profit off this are the global financial houses, should they be able to remain solvent.  None of us know how, or how badly, this is going to turn out.

87 My feeling is, if Bernanke is such a genius, and inflation is the way to go, and deflation is eeeevil, let's go all in... Say QE3 of $10 Trillion. Why a few hundred billion, let's play with some real cash.

88 80 They are hoping to thus, inflate, their way out of debt.

Ding! Ding! Ding!

This road leads to WW III with China ...

Posted by: IrishSamurai at November 15, 2010 04:31 PM (TLqEw)

I agree they are trying to inflate out of debt, it will not lead to a major war until 2020. India versus China.

89 a stable currency is best, and supposedly that is the role of the fed ... but all fiat currencies go to zero over time, and the fed is now a Goldman Sachs subsidiary.  

Posted by: bill at November 15, 2010 04:32 PM (KvhM/)

Carefully reads the Constitution... hmmm... don't see the FED mentioned in there anywhere....

Now Congress on the other hand...

90 @81:

You're begging the question

No, you're creating a strawman on the definition of inflation/deflation and economic equilibrium ... using gold ...

You're obviously not an idiot in that you realize that currencies ($/gold) are only means of an exchange of goods/services ... but to suggest that we chart commodities in gold is an intellectually dishonest premise for debating inflation/deflation in commodities ...

91 We constantly experience inflation/deflation on various items, through the process of supply/demand. If the price rises too high, people collectively cut back and prices eventually fall. The part of the equation that is skewed is government interference. Subsidies and regulations can alter the normal course of corrections, in some cases permanently.

92 It's interesting to note that developed countries that have had their historical economic collapses result from inflation as opposed to deflation/unemployment tend to react much differently than we do to modern economic downturns. The German central bank really wouldn't be able to get away with anything overly inflationary, because there's a common consciousness among the German people that inflation leads to really really awful shit. We view everything through the lens of the Depression, so inflation is our first response to any economic downturn.
Both inflation and deflation are completely unnecessary. Milton Friedman pointed out 30 years ago that even then, we had the technical capacity to respond to changes in the supply and demand for money in an economy on a fairly regular basis in order to keep the relative value of money stable. It's only a question of whether we empower our Central Banks with a mission of maintaining monetary stability, or with targeting growth and unemployment. If it's the former, the job of the Fed becomes formulaic. If it's the latter, we see the same kind of bullshit tinkering with the economy that we've gotten out of every Fed chairman since the Depression, where monetary policy gets used to try to prompt a specific outcome in the economy, and we introduce all sorts of errors into the process.

93 yeah, shit, nancy pelosi says there's a 1.6 multiplier on keynesian waste and bernake says that QE is good. Let's go all in! This discussion illustrates why gov't interference in the market is doomed. People have no idea what they're talking about, the system is too complex. There are examples of inflation where the currency loses value...spain importing too much gold back in 1700s or Zimbabwe today. Deflation? how would currency lose value outside of currency disappearing. Don't conflate a market correction with currency devaluation.

94 The wrong part of it is the suggestion that it's somehow a good thing if the dollar's buying power increases -- that is, if we have deflation. --Ace

Given that inflation has ruled the day for decades, it's long past due for some healthy deflation. That said, the rule applied prior to the US Government BANKRUPTCY with gold no longer in our reserves.

Inflation helps investment funds, the Fed's excuse, the segment they prop. But deflation helps purchasing power. Healthier to have deflation than incredible inflation. At least your money affords the cost of food.

A point rarely discussed is the outrageous earning  ratio contrast between the CEO and the NON-UNION highly skilled laborer now compared to the last hard inflation of the late '70s during Carter's administration. Inflation hurts the "producing class" of Americans.

95

here's what the inflation hawks are missing - inflation devalues the currency, which can not go on forever without serious consequences, eventually the price of everything gets so high people stop buying anything but nesscessities, then you are going to have deflation whether you like it or not. the fiscal austrians don't like deflation, they only accept it's inevitablity and nesscessity.

 

96 90 @81:

You're begging the question

No, you're creating a strawman on the definition of inflation/deflation and economic equilibrium ... using gold ...

You're obviously not an idiot in that you realize that currencies ($/gold) are only means of an exchange of goods/services ... but to suggest that we chart commodities in gold is an intellectually dishonest premise for debating inflation/deflation in commodities ...

Posted by: IrishSamurai at November 15, 2010 04:35 PM (TLqEw)

I suggested using gold not as a means to and end but as an illustrative point. And since the dollar was only de-coupled in 1971,  I don't think it is beyond the pale to extend the price of gold as a comparative.  100 years from now, maybe.

97

What people don't understand about deflation is WHY it needs to occur.   It wipes out bad loans,  it wipes out bad allocations of resources,  it wipes out spenders  and it rewards  savers.   If you embrace the free market and the business cycle you must allow deflation to occur.  You must have bad consequences to punish the excess  of the inflationary cycle.  Deflation is the only way to avoid booms like the housing crisis.   Without a richies to rags pathway there can be no rags to richies pathway.  

 

 

98 @91. You're sounding like some kind of capitalist, and you know how our dear leader feels about that... just fired off an email to flag@whitehouse.gov . Remember, a reporting citizen is a good citizen!

99 ugh, I embrace the free market and am horrified that gov't intervention that created housing bubble is now going to bubble the currency in some way.

100 Finally I've found a smart milmacroeconomic-blog I can settle down with.

101 now that my battery cable is plugged in... re: jackstraw (et al.) I hear what you are saying, and I agree, but that isnt really what i was getting at. The point is, is should such fluctuations even count when talking specifically about inflation/deflation? Or say a foreign currency gets stronger vs. the dollar and thus its exports are more expensive for us to buy. does that count as inflation? ultimately, it depends on whether you are classical school or not. monetarists tend to view things more like keynesians when it comes to the money supply. as milton friedman said, "inflation is always and everywhere a monetary phenomenon" while I tend to think the powers that be have far too much confidence in the monetary levers, I think that things can be broken into those different sectors. I dont think those above examples count as inflation/deflation.

102 Like global warming, deflation  is a mythological crisis for the reich to react to.

103 farmers not being able to sell their goods isn't deflation, it's the value of teh good to the market that took a hit. not the currency. Too many farmers? Too much food? People still needed to eat back then, ya know?

104 @97:

What people don't understand about deflation is WHY it needs to occur.   It wipes out bad loans,  it wipes out bad allocations of resources,  it wipes out spenders  and it rewards  savers.   If you embrace the free market and the business cycle you must allow deflation to occur.

Bingo!

This is why market crashes in the late 1800's and early 1900's were so swiftly dispatched ... economic darwinism prevailed and equilibrium took over.

What we have today is the greatest command economy bullshit than has ever been perpetuated on any nation, Communist/Socialist/otherwise ...

[sarc on] Long live the oligarchy!  [sarc off]

105 <i>Measured as a one-time phenomena, you're right ... but using monetary policy to create equilibrium in inflation/deflation isn't impossible ... </i>

Central planning doesn't work, monetary or otherwise. 

106 #55 I also think that deflation will be caused by the collapse of credit availability or people's willingness to borrow. When credit collapses - everything will deflate. -- Posted by: Radioactive Satellite Of LOVE

#56 Good point. We aren't suffering deflation, the bubble is being deflated. Things were overvalued and now there is a correction. -- Posted by: joeindc44

I'd agree. It isn't as if credit is easier to get now, but more difficult. YET, prices have not fallen. And sellers (like Tim Geithner) aren't about to lower inflated prices. Not yet. Given tight credit, the prices had better fall sooner than later. And the Fed is preventing the fall of prices. So we have inflation and tighter credit availability while WAGES FALL or jobs lost.

107 The bottom line is goods you consume (ex: food) are inflating, thing that require debt are deflating (houses, autos).  Who gets hurt? the poor and middle class, savers, elderly.

108 [sarc on] Long live the oligarchy!  [sarc off]

Posted by: IrishSamurai at November 15, 2010 04:44 PM (TLqEw)

Hmmm.... are we now a Bankocracy?

109

Posted by: s'moron at November 15, 2010 04:33 PM (UaxA0)

 

I don't think inflation is the only way to get out of debt.  that's like saying the only way to get out of credit card debt is to stop paying or askign for a 50% reduction in the balance. 

 

the correct way to get out of debt is to increase the income and decrease the outflow and take the difference and pay off the debt.  Or for the USA  it would be to grow the economy  (by deflation with increasing demand) (increasing tax rev)  cut spending   and pay off the debt. 

the gov  take sin 3.5 trillion a year  with a 5-6% growing economy  that Tax rev would increase.  If we hold the line on spending and use all the increase in Tax rev  to pay off the debt and take the savings in hte interest payments and use that to pay off more debt we can get out of the debt pretty quick.  

 

We owe China about $1trillion   which would take a couple years to pay off  using that approach. 

 

Inflating the money is the worse way to pay off the debt.  It just makes things worse. 

110 @105:

Central planning doesn't work, monetary or otherwise. 

Some entity has to manage the currency (exchange of value) ...

Or should we return to a "barter" system?

111

#106

it's almost like they are trying to impoverish the average middle-class citizen... i'm just sayin'

 

112 <i>What we have today is the greatest command economy bullshit than has ever been perpetuated on any nation, Communist/Socialist/otherwise ...</i>

On that we can agree.

113 111

#106

it's almost like they are trying to impoverish the average middle-class citizen... i'm just sayin'

 

Posted by: Shoey at November 15, 2010 04:47 PM (ehKDD)

The non-union middle-class citizen

114

#84 journolist:

For none of the economists would ever have predicted we could simultaneously have a deflationary and inflationary environment.

But that is what we precisely have.  ... unable to control despite short-term meddling.

History is about to unfold where the dollar and our way of life will be on the losing side of a zero sum enterprise ...

 

115 that video may be wrong on a point or two, but The Ben BerNank is comedy gold.

116

Both inflation and deflation are obviously bad in excess. 

My problem is that I don't believe there is an economist, or even an army of economists, alive today who known how to induce it with the hope of controlling it to achieve a defined outcome.

117

"The non-union middle-class citizen"

i stand corrected

118 Managing and manipulating are two different things. To believe all these intervention strategies work is to believe that: Printing money alone creates value somewhere Some higher up knows better that the individual Deflation is somehow unending and not a natural correction There are so many articles of faith that someone has to believe, against all evidence in the present and past to the contrary, to believe all of this monetary policy is a good idea. And even if it were, it's not moral. It's a joke. Silver and gold is fine though, enjoy your dollars.

119

The non-union middle-class citizen

Posted by: Radioactive Satellite Of LOVE at November 15, 2010 04:48 PM (LdYLm)

There is the middle Class... and then two protected groups... the Unionistas and Government Employees, who are protected classes...

Although they all share an economic level, the forces working on their Wage increases or decreases are totatlly different, as only the Non Union / Non Government Middle class is effected by the Economy.

120

#106

it's almost like they are trying to impoverish the average middle-class citizen... i'm just sayin' --Posted by: Shoey 

The non-union middle-class citizen --Posted by: Radioactive Satellite Of LOVE

Yeah, you'd get that idea if you didn't know better. /Good thing the czars are in charge./

121 This is EXACTLY why the Constitution say to "coin money", not print it.

122

My Re-election Plan:

1. Very low inflation, around 1-2% per year

2. Low inflation, like 2-4% a year

3. High inflation, like 4-8% a year

4. Very high inflation, like 8-12% a year

5. Deflation

6. Hyperinflation, 12+% per year and likely higher than that

7. ????

8. Re-Election!

123 There is the middle Class... and then two protected groups... the Unionistas and Government Employees, who are protected classes...

Government Employees are Unionista members.

124

It looks right to me. The deflation is bullshit.

We're now in inflation and if oil hits $100 the shit will hit the fan.

125 it's almost like they are trying to impoverish the average middle-class citizen... i'm just sayin'

We have always hated the bourgeois.  Duh.

126 One option Ace left out was stagflation. But since I didn't go to Princeton, I won't explain it.

127 I could tell when I first saw the video it was coming from an adherent to the Austrian school.  Some mild deflation is necessary.  Can anyone doubt that housing prices were at unsustainable levels?  It sucks that deflation occurs when you own a house but a correction was needed.  An attempt by the fed to prop up prices is not a good thing so I agree with the video in principal.  At least it attempts to tackle a complex subject in an amusing and somewhat informative way.

128 Jesus de Christo 121, indeed? All initial federal treasury money was coin, no paper? No. We borrowed from the Dutch, and printed bills to be used for commerce trade. Yes?

129 ### @110 Some entity has to manage the currency (exchange of value) ... Or should we return to a "barter" system? ###
Multiple, private issuers of money, with a electronic clearing houses to manage exchanges between parties. Money that is considered sound will rise in value, money that is considered weak will fall, and all without the intervention of a third party.

130

stagflation?

I like the sound of it...

131 Who cares what the Hobbitses think about economics?

132 AG >>I hear what you are saying, and I agree, but that isnt really what i was getting at. Rodger, I misunderstood where you were going.

133 Ace:

Not advocating the Paul/Von Mises philosophy by the way ...

If you read Karl Denninger, he nails why we're here (and specifically what causes economic depressions) ... it's MARGIN COMPRESSION ...

And here is Jeremy Grantham in a must watch video on Ben Shalom ...

http://market-ticker.org/akcs-www?post=171947

134 131 Who cares what the Hobbitses think about economics?

Posted by: FlaviusJulius at November 15, 2010 04:56 PM (9cflz)

Dirty, filthy, Hobbitses

135


It's not like we haven't seen an eventual debasing of the monetary supply in every country for the last 2500 years.

It's what sclerotic and decaying societies do.

Rome wasn't sacked in a day (Alaric treated the City fairly well at first), only looting without much wanton destruction, but eventually it was completely

136 <i>Some entity has to manage the currency (exchange of value) ...</i>

Says who?  I see no reason why individuals, acting in their own self-interest, couldn't "manage" money any differently than they "manage" IPads.  The market can deliver good money if you allow it; you don't need any central authority to micro-mange/control it.  Because again, any central authority is going to: (a) suffer from the knowledge problem; and (b) most likely be an entity of government, or related to government, and not deliver good money because it isn't in their interest to do so.

137

#129

kill the blasphemer!

 

 

138

We're now in inflation and if oil hits $100 the shit will hit the fan.

Posted by: TexasJew

Not arguing because shit is to be expected. However, people generally swallow the taboo number once it's in circulation.

139 More to the point, the Japanese decided in the early 1990s, after their 1980s "bubble economy" burst, that deflation was a deadly foe which had to be combated at every turn.

And they concluded that all available national resources would be assigned to that goal.

So how did that work out for them?

They ended up with twenty years of economic stagnation.

And they ended up with the highest per capita public debt anywhere in the developed world.

Hey, what a great idea! Let's emulate it!

Of course, the Japanese started from a position of strength, which they turned into weakness with bad macroeconomic strategy. They had massive foreign exchange reserves when they embarked on their antideflationary crusade, an advantage they have largely squandered.

We, by contrast, are starting from a position of weakness. We will come to grief much more quickly than they did if we follow the same course.

140 They're not trying to do anything. Except prove that they're important. They can't let the markets work because that would prove that Reagan was right (how did his policies work? oh right, amazingly) and Reagan can't be right, don't ya know? Aside from stroking their own intelligence, Reagan being right would mean that the current ruling class is irrelevant. And we can't have that. Oh, on second thought, there is the added benefit of the union thugs and Goldman Sachs getting paid off too. So, there's that.

141 two other things I recall about this subject. 1. long-term, gold is mildly deflationary 2. IIRC, friedman said he liked the idea of gold-backed currency, but found it impractical. he instead suggested that ideally, a computer would do it on its own with a 1-2% annual increase, so that the money supply could grow along with the growing economy.

142

#136

troglodyte! neanderthal!

next thing you'll be talking about bring back "usery" laws

 

burn the witch!

143

I'd agree. It isn't as if credit is easier to get now, but more difficult. YET, prices have not fallen. And sellers (like Tim Geithner) aren't about to lower inflated prices. Not yet. Given tight credit, the prices had better fall sooner than later. And the Fed is preventing the fall of prices. So we have inflation and tighter credit availability while WAGES FALL or jobs lost.

 

And that's another thing we may have to contend with down the road (hopefully not with a repub house) and that's wage and price controls.  Considering everything else that's happening, that may be the last, weighty straw.

144 Some one give me some good news, please.
Is there any likely scenario where we aren't all screwed?

145 Anthropogenic Global Warming

Islam is a Religion of Peace

Deflation Is BAD

Yeah, those are mine.

146 130

stagflation?

I like the sound of it...

Posted by: Shoey at November 15, 2010 04:56 PM (ehKDD)

One could point to what happened in September 2007 as a supply shock (money). The reaction from the Fed is to inflate - I don't think that will work in the long term. They've tried it twice (QE I & QE II).

147

If we hold the line on spending and use all the increase in Tax rev  to pay off the debt and take the savings in hte interest payments and use that to pay off more debt we can get out of the debt pretty quick.  

 

We owe China about $1trillion   which would take a couple years to pay off  using that approach. 

 

Inflating the money is the worse way to pay off the debt.  It just makes things worse.

If "ifs and buts" were fruits and nuts, no one would go hungry.  There's no way that a democratically elected political class will take the hard road of austerity when the politically opaque vehicle of debasement is available.

148

Hmmm... thinking on it a bit...

Our economic woes WERE the direct result of the Fed Reserve Bank... as even though they were mandated to ensure Banks held enough equity... they did not.. and they made Real estate loans both too easy, and too cheap, which artificaily inflated Real estate prices...

Now, this same Fed, is destroying the Worth of Savings in America, with QEII... and artificially created inflation through monetary policy...

Thus... the BANKs are running the economy of the Country, with no oversite from the Government... thus... are we being Ruled by bankers... are we now in a Bankocracy?

149 @143 Party is no guarantee of avoiding wage and price controls. Nixon was the last president to try those.

150 144 Some one give me some good news, please.
Is there any likely scenario where we aren't all screwed?

Posted by: mrshad at November 15, 2010 05:01 PM (Xqfwb)

Let it fail. Re-boot the system. Make sure everyone is prepared for it.

151

OT:  Sarah PalinÂ’s documentary / travelogue / reality / biopic shattered TLC ratings records Sunday night.

The debut of Sarah PalinÂ’s Alaska delivered a whopping 5 million viewers.

152 QEII is NOT about monetary deflation....or deliberate inflation.  It's not about Keynseians gone wild.  It's not about the gold standard or anything elses.

It's about feeding the monster.... the federal government.  One TRILLION in deficit spending.... annually. 

Lets put that in perspective. 

Our economy is roughly 14 Trillion annually.  The Chinese economy.... #2 in the world is 5 trillion.  There is no way on Gods green earth the Chinese are spending 20% of their GDP to buy T-bills.  5%???? maybe..... 20%... no.way.in.hell.

When our deficit USED to be 3%ish of GDP... we could fund the debt by selling T-bills and grow the economy without to many ill effects.  Im not advocating that as sound fiscal policy, but that was the thinking.

But now we've grown the deficit to such gigantic proportions we have placed our deficit spending way way beyond our ability sell the debt to cover it.  The solution???? 

Just fucking print the shortfall and buy the bills ourselves. This will NOT end well.

As to the original question "Which is better... deflation or inflation???".... of  course the answer is "it depends".  That's like asking if ice water or boiling water is best.  Depends.  Big swings or expetended periods of time in either direction are bad.  And like there are different types of inflation (cost push vs demand pull) there are different types or causes of deflation.

153

Zimbabwe and postwar Hungary had great printing presses, too.

154 149

Hmmm... thinking on it a bit...

Our economic woes WERE the direct result of the Fed Reserve Bank... as even though they were mandated to ensure Banks held enough equity... they did not.. and they made Real estate loans both too easy, and too cheap, which artificaily inflated Real estate prices...

Now, this same Fed, is destroying the Worth of Savings in America, with QEII... and artificially created inflation through monetary policy...

Thus... the BANKs are running the economy of the Country, with no oversite from the Government... thus... are we being Ruled by bankers... are we now in a Bankrupt-ocracy?

Posted by: Romeo13 at November 15, 2010 05:03 PM (AdK6a)

FIFY

155 Invest in pike futures.

156
Oh, on second thought, there is the added benefit of the union thugs and Goldman Sachs getting paid off too. So, there's that. Posted by: joeindc44

That is where Congressional Bail Outs have been directed, GoldmanSachs having orchestrated the means for Bush's Paulson to scam global investment of economic viability. And the gullible American taxpayer thought that TARP was for our own economy's well being. The globalist bankers were at Paulson's door, and he paid them with our blood, sweat and tears while he walked away with the world's fortunes to divvy up.

157 Let it fail. Re-boot the system. Make sure everyone is prepared for it.

Ummm.... IMHO..... that's what the Cloward-Pivens and Soros's of the wolrd are trying to accomplish.  Depends on who's writing the reboot script.

158 Where is the palace guard media now that we are going beyond Bush's weak dollar strategy to super-weak dollar strategy. Yes, I am looking at you SNL.

159 157 Let it fail. Re-boot the system. Make sure everyone is prepared for it.

Ummm.... IMHO..... that's what the Cloward-Pivens and Soros's of the wolrd are trying to accomplish.  Depends on who's writing the reboot script.

Posted by: fixerupper at November 15, 2010 05:06 PM (J5Hcw)

Ah... but... Gold cannot always get me soldiers, but Soldiers can always get me guns...

160 Not arguing because shit is to be expected. However, people generally swallow the taboo number once it's in circulation.

Posted by: Sherlock Holmes at November 15, 2010 04:59 PM (H+LJc)

$100-plus oil in mid-2008 was the straw that broke the entire camel's back.

161 re: ace I've heard that figure several times, though I can't recall where. I can give this anecdotal evidence though... Usually you hear about concerns of deflation when the inflation rate starts dropping down around .5%. At the other end, usually you dont hear concerns about inflation unless it looks like it might be closing in on 3%+. The Fed seems to, generally speaking, want to keep it in between those two.

162 157 Let it fail. Re-boot the system. Make sure everyone is prepared for it.

Ummm.... IMHO..... that's what the Cloward-Pivens and Soros's of the wolrd are trying to accomplish.  Depends on who's writing the reboot script.

Posted by: fixerupper at November 15, 2010 05:06 PM (J5Hcw)

That's the struggle. IMHO, there is true evil afoot in the world. Those people who wish to crush  free people. To take the what people have built, saved and created and render for their own use. To make everyone "equal". To make the dog in a manger, the ruler of the world.

163

Ah... but... Gold cannot always get me soldiers, but Soldiers can always get me guns. GOLD..

 

(Fixed it for ... me?)

164


The globalist bankers were at Paulson's door, and he paid them with our blood, sweat and tears while he walked away with the world's fortunes to divvy up

Actually, I think what TARP did was avert a war that would have run from cold to hot in a variety of locations across the globe.  Sovereign investment arms were not going to go tits up because Moody's and S&P refused to call lower-tranche mortgage bonds the EEE junk they were.

165 And farmers were also ruined because the Great Depression coincided with the dust bowl years.

166

Saying "I don't like Ron Paul" when he's right on this particular issue, is ridiculous. And he is spot on here. There has been political manipulation via a politically-connected Fed.

When you fuck around with your currency, you destroy purchasing power and keep phony bubbles inflated until they collapse.

 

167

why do they even bother making up cutsey sounding names for it like Q.E.

we are buying our own debt and that has always ended in disaster everytime it's tried.

or can someone site an instance where it worked?

168 wow, all this effort by the smartest people in the world to force feed Keynesian down our throats. But tax cuts and deregulating is bad. We can manipulate the currency all they want, but it won't matter if we aren't making anything. All we are making now is student loan debt with kids who's only contribution to society is low morals and alcoholism. and a degree is marxist basket burning.

169 Party is no guarantee of avoiding wage and price controls. Nixon was the last president to try those.
Posted by: DMXRoid

That's right, the damned Nixon-Kissinger progressive who gave our national treasury gold to France upon DeGaul's demand to "buy" back US Dollars from France, taking the US off the Gold Standard. That worked out as well as his unprecedented opening trade FROM China, exporting American jobs. Anything to profit the elitist establishment.

However, the Libertarian Party would be as good a guarantee as imaginable avoiding wage/price controls. A good measure of Libertarians in Congress would help congressional determination to spend less and to balance, and allow laissez faire free trade. Give credit where due; they did initiate the Tea Party movement.

I'll vote constitutional conservative, more likely found Libertarian/Republican than otherwise, since everyone's commandeering the "Tea Party" candidate bandwagon.

170 72 Why don't they just raise interest rates instead of loaning money at near zero %?

Posted by: marinetbryant at November 15, 2010 04:27 PM (MttPd)

That's what Volcker did in Reagan's first term and it caused a very painful and necessary recession and commodity repricing, but then kicked off the economic boom that we had for another 25 years.

171 : A.G.

Yes. But FDR legislation did not strengthen the American farming families. Rather, FDR paved the way for agribusiness to overwhelm American family farming, with the financial benefits of his subsidies going to globalist corporations. No surprise.

172 can anyone wade through krugman and see what he thinks is the model for successful obamanomics (ie., we need to spend MOOOARRRRR!!)? Cause I don't think there is one. But I can cite JFK, Reagan, and W for tax cuts working.

173 One simple rule that everyone should know right about now: INFLATION punishes LENDERS DEFLATION punishes BORROWERS Choose wisely, my friend.

174 re: irishsamurai well yeah, ideal inflation rate would be zero. but as you noted, that is pretty much impossible... so the idea is to err on the side of inflation, but only mildly. hence the idea that ~1% is "ideal".

175 Deflation means lower prices, which lead to more purchases. (Hint: When a store has a sale, does it A. Raise prices or B. Lower prices?)

So if you want to increase demand, deflation is the way to go.

Deflation is great for those that plan ahead.

Inflation makes loans look more attractive which is good for banks, but bad for people trying to live with increased food costs.

Low interest rates and high inflation encourage bad loans, and loans investing in iffy projects.

Deflation and high interest limit investment to projects with real growth.

Deflation and high interest rates ruin spendthrifts who max out their lines of credit. That is to say, governments.

Look to Japan's 20 years and counting of economic failure to see where the Deflation Doomsayers lead.

176

$100-plus oil in mid-2008 was the straw that broke the entire camel's back.

Posted by: TexasJew

Yes, the straw topping Fanny/Freddy bankruptcy topping Paulson's international investment mortgage fraud.

We're still stuck with all the '08 economic wreck, topped by Obama's insane spending spree. So you're right. $100+ oil is just what we need. And the US won't even be profiting from sales as our oil industry should be able to, given strangulation from drilling mandated by this administration.

177 I'm really starting to think that the US economy will have to collapse before anything is really done to stop this obvious travesty.  And, I might add, that if the US economy collapses, the rest of the world, including China, will collapse also.  If that happens, then we cue in the Mayan calender for awhile.  It's not going to be pretty no matter what happens. 

178 173 One simple rule that everyone should know right about now:

INFLATION punishes LENDERS

DEFLATION punishes BORROWERS
Posted by: Guvnah at November 15, 2010 05:21 PM (Rg8DN)   More important: Inflation punishes savers and destroys savings and retirement funds. 

179 When they did TARP, there was talk (CNBC, jack welch I think) of how if you play that game, you need to have plenty of ammo ... like the trillion of whatever they were playing with.

I never quite grasped who they were playing against ... was soros trying to crash the dollar then?   or what game was being played?  Is the fed still playing chicken with China .. Soros, et. al.? 

This crap makes me drink ... then I feel better but can't think ...

180

one of the biggest problems we face as a country is that everyone in a position of real power in this country is a product of the same marxist meatgrinder - The Ivy League.

there is no real diversity of opinion at the highest levels, it is not allowed, the only way to get to the top is thur the marxist meatgrinder. anyone who hasn't gone thur it or least submitted themselves to it are publically ripped to shreds.

some of the things that one MUST accept to even try to grab the top rung:

1. fiat currency is good (as long as we control it)

2. fiscal policy must be centrally planned and must be out of the sphere of   influence of ordinary citizens. 

3. free trade must never be allowed to be "free", trade must be used to balance the economic inequitities in the world.

 

even so-called conservatives must accept these tenets or they will be barred from the top spots.

181 still, what is the argument that we need to inflate because there's deflation? That's the point the video makes. It's an excuse to print more money and apparently buy things from Goldman.

182

I would tend to side with "Contemplationist's" view on the matter.  From what little I know of economic theory (liberal arts major!) the first sort of deflation is a rather natural, cyclical occurance, and thus isn't in and of itself a necessarily bad thing -- just something that has to be provided for (as it will happen) and if possible, be taken advantage of.  The goal should be (from my limited knowledge of the matter) to adjust for this cyclical deflation in order for it to not spiral out of control (the same can be said for inflation) -- as perfect equilibrium is only attainable for fleeting moments, but if the periodic swings between deflation and inflation are leveled out (lower the fluctuation curve and extend the duration, would I suppose be the goal) then a society can manage to cope with minimal pain and shock to its systems.

I believe the second type occurs when the cyclical deviations from equilibrium are allowed a higher projected curve and quicker duration between the deflation/inflation events) -- this seems to come about when governments try to "fix" the outcomes and try to force an unsustainable perfect equilibrium, rather than letting market/economic forces run their natural course.  What the solution is, I do not know, but we are in such an event right now -- it would probably be best to find a way to work with the deflationary curve, and let the natural forces of the market/economy have some freedom to right themselves (if they can at this point -- we've tinkered with shit so much for so long, it's very hard to see how this can be fixed nor how bad it will have to get and if the country can weather it if it does; 18 months ago there was a better chance of that taking place, now, I'm not so sure).

183

No No No.  As Selgin, White, and others have explained, deflation is only bad when it is caused by the demand side.  When it is caused by the supply side it is good.  Look at computers for a good example.  Computers got cheaper and better every year.  This is price deflation, but it was caused by the supply of computers getting better every year, not by demand side.

 

 

184 The answer is to declare US bankruptcy, make US citizen savers whole with a new dollar ... tell China and foreign lenders we'll do what we can to pay them back.

(oh, and hang GS and half of congress for treason)

beer makes it clear

185

The answer is to declare US bankruptcy, make US citizen savers whole with a new dollar ... tell China and foreign lenders we'll do what we can to pay them back.

(oh, and hang GS and half of congress for treason)

Sounds good to me and I ain't drinkin'.

186 We've never actually seen a Keynesian deflationary spiral.  Ever.  Seriously, look at the great depression... where keynesians claim it was caused by deflation, and you don't see it there either.  However, we HAVE seen inflationary spirals many, many times througout the last 2000 years off monetary history.

187 It may have already been linked here, but Ivory Johnson's video is also sweet, and probably more accurate.

188 I would think the two types of inflation/deflation are: the govt orchestrated kind and the psychological kind. IOW, what is actually done to the currency, and our expectations. The good kind mentioned is more of a "deflation", and is really a consequence of market forces and productivity.

189

The deflation rates in the recession of 1920 were actually far far worse than during the great depression (think like -40%)  yet it was much less severe and shorter.  This is als far far worse than any deflation we have had recently.

190 There is nothing wrong with deflation. Deflation occurs for many reasons. The cost of creating something goes down, so the price can go down. Look at LCD and Plasma TVs over the last 15 years. That's deflation, and I do not see any companies trying to get out of creating LCDs, although they are getting out of Plasma. And the fact they are getting out of plasma is a good thing, because plasma is not likely to create as much value for the amount of investment as LCDs do. If there was no deflation in TV prices, we would be wasting lots of resources that need not be wasted.

Can anyone here explain to me why deflation in the cost of education, medicine would be bad? Lasik surgery cost over $3000 an eye when I first looked at it. When it got down to $1200 an eye I made my purchase. The only companies that are getting out of Lasik, even though it is now only $500 or less an eye are the ones that did not innovate properly and likely have more side effects than those still in business. Again, deflation is a good thing.

So, lets look at your idea about money being put into holes in the ground compared to savings accounts and other investments argument. If my money could go up 1% per year in value just sitting in the ground, am I better off than say I put it in a bank and get 2% interest on top of the 1% increase in value? Of course not, is the risk high enough to make that a bad choice? Nope. Why is the bank going to pay me that 2% interest if they are not going to invest that money? They will not, so they will invest it where it will create more wealth, perhaps 4% or 10% or more with some risk of loss. Same thing as happens today. What about really rich people with too much money to put into a bank with no risk at all? You guessed it, they will invest in other things. Just like they do today.

Sorry, but the whole idea that deflation is bad is based on some really bad examples, such as the great depression. But when something goes up in value too fast, and a bubble happens, is it better to keep the bubble inflated and continually leaking out value, or is it better to let that bubble deflate to where it would have been without the market altering dynamics that forced the price inflation to begin with? People hate to lose money, and losing money on your house suck., Just because you you were retarded enough to pay $500,000 for a house that cost $125,000 to build does not in fact mean that the house is worth $500,000 and therefor when no one in the future will buy it for that $500,000 it is not in fact the idea that you are getting robbed  so much as the fact that you made a poor choice in investments.

When entire cities succumb to the stupid idea that house prices can continue going up into infinity and houses are built at a rate far exceeding the population's need for the rooms to live in, when that bubble finally does break, the only thing that will get the housing market back onto terra firma is that prices drop enough that the idiots who threw their money into the bubble lose a large fraction of their money and make housing so affordable that the glut in houses are purchased by those who did put there money away for a rainy day. The only other option is to have the Fed print such a huge amount of money that the value of the dollar falls so far as to make the bubble priced houses fit in line with historic trends. Of course, in order to do that, the price of bread, education, medical care and every thing else will necessarily sky rocket, leaving behind the most vulnerable of society to scrape by with money worth much less and little hope of their incomes keeping up with inflation.

So, if the purchasing power of the dollar between 1814 and 1914 was identical, and this occurred along with some of the greatest increases in wealth the world has ever known, what pray tell makes you think that deflation of some small part of the economy would suddenly cause the entire capitalist society to come to a screeching halt? Thats right, the socialist loving elites have convinced you that the sun comes up in the west. MORON

191 doc @186 I think the deflationary spiral is that the money supply contracted by some 35% during the first several years. It didnt stop contracting until FDR did his infamous 'private gold ownership is illegal', because the fledgling fed had gotten itself it quite a pickle with easy lending beforehand, and still being on the gold standard. and dont you mean monetarist? I think it was Friedman who first hypothesized that being a major cause. keynesians argue it was demand.

192

Deflation is bad since there is an intrinsic rate of return to holding cash.  If your money is getting more valuable sitting somewhere instead of being loaned out, that has an adverse effect on economic activity. 

 

FWIW:  Trotsky was fond of saying "Inflation is the machine  gun of the proletariat."

193 Look at LCD and Plasma TVs over the last 15 years. That's deflation, and I do not see any companies trying to get out of creating LCDs, although they are getting out of Plasma.

They are "getting out of plasma" because stupid CA has made it illegal to sell them in their "green" State. Plasma screen TVs are actually superior to LCD TVs as far as sharpness and "looks" go.

194 Inflation is theft.  I'm with Hayek and Mises.

195 Ace:   "if it's common sense why do most economists reject the von mises goldbug sort of theory?"

Let me put it this way:  Keynesian economics is dogshit, but it gives politicians the intellectual cover to assrape the people.  That's why it is in vogue.

196
One simple rule that everyone should know right about now:
INFLATION punishes LENDERS
DEFLATION punishes BORROWERS
Choose wisely, my friend.

And of course an unsophisticated borrower will always opt for inflation.

Mencken had this sorted out in the 1920s.

To wit: "For every complex problem, there is a solution that is simple, elegant, and wrong."

If I'm a borrower, either at an individual level or at a national level, my immediate instinct is to try to stop being one as soon as it can be arranged. Steadily work down my debt to zero.

But circumstances aren't always so kind. It is sometimes crucially necessary to continue to borrow. And more importantly than that, if one must be a borrower, it is incumbent upon one to stay on good terms with one's lenders.

This malarkey about how it's great for us as debtors to inflate our currency completely neglects the other side of the coin, which is that our lenders will simply charge us much more money for the privilege of borrowing. If in fact they allow us to continue to borrow at all!

Neatly negating any indirect advantage which would otherwise accrue from causing deliberate inflation, while continuing to saddle us with all of the direct disadvantages of inflation.

If deliberate inflation worked as a policy, surely somewhere in all of the extensive annals of human economic history, there would be a single example of that policy having succeeded. It has certainly been repeatedly attempted.

No such example of success obtains.

It's the economic equivalent of the perpetual motion machine.

197 no, the lowering of prices of plasma tvs has nothing to do with deflation, if that's what the guy was trying to say. The value of an item is determined by what people will pay for it, accounting for supply and demand. Currency valuation is transparent to the purchaser and seller. They don't care if it's gold ingots, dollars, or chickens. The Fed is manipulating our debt.

198

(I apologise ahead of time for this rather long post)
You can't just state inflation/deflation numbers without a context. That's the whole problem with your premise.

Generally you have cost-pull and wage-push inflation under non-interferrence patterns. If an input resource costs more to produce then the cost of the entire product goes up - 'cost-pull inflation'. If the union gets way more in wages for the same per hour output then you have wage-push inflation . Both of these are ordinary every day inflation creators. You can add "full employment" to the list because it is a positive feedback state of the economy where all the good news causes people to loosen their wallets which drives up prices as more dollars hit the market faster than new or more goods can.

A deflator can be either an increase in efficiency that lowers per unit costs or a drop in employment due to a drop in demand. The first causes less immediate employment but can be okay with good demand for goods and services opening new jobs of a different sort. The second is more difficult if the drop in demand was externally motivated like in the case of the internet bubble and the housing bubble. In the bubble cases the deflation is not such a bad thing as lower prices will coax buyers to come back to the market place if no one interfears with the process (I'd rather keep my people working with a 1% net profit on a healthy sales flow than dump 80% of my staff to have a 5% profit margin on very few sales). With TARP and all the bailouts the market has been greatly distorted and the recovery knocked on its butt. 

Washington is full of bafflegarb dressed up as economic strategy. Giving Goldman, Sachs 600 billion dollars just winds up raising all prices as it will not create jobs, it just throws 600 billion into the wind. People are very sensitive to the employment numbers. Except for the very young and total idiots, folks hold onto their money in employment downturns. This "extra" money will just chase the same goods it currently is. Folks are not going to go out and buy a Rolls Royce with this money (excepting the folks at Goldman Sachs of course).

The truth of this is what was in the little Kabuki play. Real inflation is here now. The CPI was jiggered about very badly the last time we had run away inflation to hide the amount. Gas, food, health insurance, and all the other daily staples have been going up for some time now. The folks on the street know this. The government is lying about what the $2 Trillion dollars in magic money did. $600 Billion will only make it worse.

Welcome to deja vu all over again - STAGFLATION, if you missed it the first time you'll hate it just as much as we did the last time.

199

According to this post's unbelievably deep analysis which goes something like, "I heard somewhere that deflation is bad", all price decreases are bad when they result from a decrease in demand.  The video just makes the point that Supply and Demand curves exist and that unlike on the printed page, in reality, the curves move around in response to events like less money available to buy things.  Inflation as a remedy to a recession is a questionable approach (see also "Carter, Jimmy" and/or "stagflation").  If people are spending significantly more on milk, heating oil, and gasoline for no other reason than that the dollars being used to purchase them are worth less (as opposed to the products having increased real value), then how exactly does that spur the market for spending on non-essentials?  What exactly about forcing someone to spend 10% more on groceries out of a fixed income, makes them want to run out and buy a new tv and a new car?

 

200 If they really wanted to "reform" SS the first thing they should do is totally eliminate "disability" payments since over half of the budget going out is for that.

And yes, drug addiction is a "disability".

201 meh. deflation doesn't sound so bad.

202 ace - I think this is what you were asking for, about the 1%: http://en.wikipedia.org/wiki/Inflation_targeting#Debate

203

Posted by: journolist at November 15, 2010 04:32 PM (O/NP5)

Ding!Ding!Ding!  This rings most true to me.

204 The problem I saw with "taking care of" the mortgage mess by in essence keeping it off the government books and yet still a government obligation is the alteration of a private debt into a public one. The bubble never truly popped, it just merged with the pubic debt bubble that is steadily inflating in Europe and the US. Greece, and now Ireland are the weakest links, the watery legs that accompanied Greece's fall seemed to be less that Greece might not make payments on it's bonds and more that people might choose this opportunity to look behind the curtain and see that every Western economy is fundamentally broke. On a macro scale almost every G-20 nation is handling it's finances like a deeply-indebted household opening every credit card offer that comes in the mail and flopping it's existing unpayable debt onto a new card, hoping that another card will show up when the teaser rate runs out. The difference is that most households don't have the ability to print their own currency and governments do. Running the presses will work for a while but not without creating other problems that may be worse than debt. Maybe the world has figured out that POTUS is an empty suit, or maybe they're just pissed at him for allowing the debasing of the prime reserve currency and in essence clearing the tables and chairs for a knock-down drag-out trade war that nobody wants. Either way, there's an immediate example of what running the presses gets you. I seriously worry about the Fed's decision on QE2 because there is no backstop for a government debt bubble, there is just collapse and failure. I'm not a Keynesian in terms of believing that "animal spirits" rule the economy, but I think most people recognize that monetary policy is one of those primal forces that should be messed with as little as possible. The easily-adjustable interest rate lever has been pulled as far as it will go, to no effect. Instead of realizing that something else might be wrong (uncertainty, stealth taxes like Obamacare, aggressive regulation and arrogation of government power), the Fed now wants to fix the problem by itself in the form of releasing the Kraken of fiat currency run amok. I don't believe the Fed is capable of controlling the forces, both monetarily and of expectation, that it is playing with. In essence they are summoning the demon Inflation in hopes that help from power normally shunned will change the course of the economy. In the VDH classification of worldviews I am of the 'tragic' disposition: people are flawed and human nature does not change. This is why Greek tragedies and archetypes still resonate nearly 3000 years after they were written. We learn about human nature in part from literature, without getting into S-D curves or any mathematics, how many stories of people accessing power they are not suited for end well? Pretty much none. Most of the time, the summoner loses control of the forces they sought to control, and are consumed by them. QE2 will not jumpstart the economy, necessitating QE3 and maybe QE4, until a tipping point is reached and we vault well beyond a tipping point from inflation into hyperinflation. A T-bill sale will be undersubscribed at some point, and the sharks will sweep in for the kill. The only hope is that our need for foreign capital will be curtailed by near-suicidal political courage on the part of our political leaders who will act on what we already know: we spend far much more than we can afford and promises made on optimistic assumptions and expanded over the years will have to be broken. Maybe France will Lend-Lease us Sarkozy when our time comes. I am pretty sure that BHO is not the guy to stand in the door to the Medicare/SSA office.

205 Sorry about all the 'it's' in the above post. I know the difference between it's and its but my iPhone autocorrect is apparently fuzzy on the concept.

206 I am one of the bloggers that sent this to ACE. The reason, it's funny. It is totally accurate. No, only about Goldman Sachs. Just kidding on that last part sort of. On a serious note, deflation is bad. Is the US at risk of deflation? No. The way the Fed measures inflation, they actually might be understating it.

207 Earnings are sticky. So lower prices does not immediately create "lower wages". Hence, deflation is a good thing in the short run. In the long run, business can't produce at the lower prices, and since wages are sticky, they can't easily lower them. What they do is lay people off, starting with the highest paid non-executive people. The alternative is to inflate the money supply to bring prices up so you don't have to lower wages and/or lay people off.

208

What people don't understand about deflation is WHY it needs to occur.   It wipes out bad loans,  it wipes out bad allocations of resources,  it wipes out spenders  and it rewards  savers.   If you embrace the free market and the business cycle you must allow deflation to occur.

This. Inflation prolongs the pain ... and the damage.

Because you can't escape the math. Wealth is not created from thin air. It is a function of productivity.

When a bubble bursts, as in real estate, prices must be allowed to find their equilibrium. Propping up assets distorts the markets, delays the solution, and further enables government to pick the winners and losers.

In short, inflationary policies are anti-capitalism.

And you know who gets fucked the most by inflation? Old people on fixed incomes.

What Bernanke is trying to do is FORCE these people to take on outsized risk as they reach for yield in an enviroment that is hostile to savers.

So what happens to these people when the stock market gets yanked out from under them AGAIN?

That's right. They'll be impoverished. A lifetime of building wealth, stolen by Fed policies.

It's criminal.

 

 

 

 

209

Oh, and you know what's never talked about? If you are concerned about people hoarding cash in a deflationary cycle, you can always encourage them to invest it but creating an environment that is FRIENDLY to commerce rather than hostile to it.

You know, like cutting red tape and bureaucracy. Or helping companies save money on compliance by simplfying tax and regulatory codes.

And by providing a stable, predictable set of rules instead of piling on a bunch of bullshit legislation like health reform that will send their cost of doing business skyrocketing.

 

 

210 The video is way too long already. If they also went into why the Fed is full of shit saying weÂ’re in a deflationary period overall rather than just in the exploding bubbles, it would have been even longer. So they made a joke about how the Fed doesnÂ’t like lower prices when people are out of jobs, and prices are rising anyway for the essentials. It seems a perfectly reasonable trade-off to me: less egghead, more wacky.

211 Short answer: Deflation favors lenders. Inflation favors borrowers. The economy more or less runs on borrowed money, so any time there is a negative change in the inflation rate you chop the economy off at the knees. It's more about the way the inflation rate changes than what the number is under normal circumstances.

Not so normal circumstances? There's also the matter of leeway before you hit a liquidity crisis, which you touched on with the "better to bury your money in your mattress than lend it." You get that territory and you start getting into Japan's lost-decade, great depression style awful stuff. Having a few points of inflation leeway before deflation sets in thus helps absorb shocks to the economy.

212 Schwalbe@26: Sugar is a bad example as there's been crazy-nuts speculation in the sugar market. (Speculators - yet another distortion of the market.) The price took the biggest one-day hit in 30 years a couple days ago. I'm "speculating" that commodity prices have been bid up in anticipation of a broader recovery, and if the prospects of that dim, commodity prices will come back down.

213 The danger of deflation can be explained in a less esoteric manner if we focus on its effect on wages. Wages are "sticky downward." Workers generally expect their wages to go up nominally. They will strenuously resist any nominal cut, even if the raise in purchasing power during deflation justifies it. Even if an employer manages to extract concessions, the drop in workplace morale and hence loss in productivity would more than offset it. And needless to say, minimal wage laws mean wage correction isn't even an option for some employers. Falling prices and relatively static wage structure means ever increasing pressure on profit margin of businesses, which leads to reduction in investment and sometimes outright failure. It's useful to look at the problem this way because it immediately suggests what could go wrong with QE (and monetary easing in general). Central bankers are assuming that their efforts will affect the economy uniformly, when there's really no reason to assume that's so. Some producers may have greater pricing power as a result, but many others won't. If the newly created money ends up flowing into commodities (a phenomenon that we are definitely seeing), the increase in price of raw materials and energy means these businesses are actually worse off than before the QE. Some win, some lose, but the effect overall can be positive, right? Well, the problem here is that the winners are likely to be upstream, while the losers are likely to be downstream--retailers, restaurants, and other businesses that are nearest to consumers. The overall impact on consumer confidence thus is likely to be negative. The ADM and Alcoa of the world could be doing gangbuster, but if people see shuttered shops on the street where they live, they will think the economy is in decline and adjust their spending accordingly.

214 @200 That's nonsense. Assume a 100% reserve gold standard for simplicity, although its the same with competing currencies that are allowed to fail: If the economy was in a state of stagnation, then deflation would not be occurring by definition. What you think is "slowed productivity" would be the economy experiencing a state of real growth and not the bubble blowing which occurs due to inflation. In addition, you completely ignore human time preference and forget that good investments will always yield higher returns than hoarding. The free market ethos beats mercantilism, it's history 101. Maybe you just prefer a corporatist system that produces severe bubbles and income inequality, I don't know. However, what the fed and the left(everyone in the mainstream who understands what's going on really) are deathly afraid of is not this kind of deflation. The deflation that we are experiencing is the result of a severe contraction of the currency supply and is the consequence of inflationary policies and the corporatist regulatory state in general. The deflationary spiral is real, GASP! However, it is a necessary evil. The FED is determined to do whatever they can to extend and pretend because the system is fundamentally broken and will collapse as it should if left to the invisible hand. Whether extend and pretend is for well-thought out strategic reasons or incompetence is too lengthy of a topic to discuss in this post. The consequence of extend and pretend is BIFLATION. We are experiencing severe deflation of the shadow banking industry and severe inflation of various commodities. Shadow banking liabilities in the first half of 2010 were collapsing at an annualized rate of 4 TRILLION USD. It's hard for me too say what the effect of the collapse of shadow banking liabilities will be but it's doesn't look good for the current account deficit and american corporations. And many commodities are inflated well over 30% YTD . The interesting thing is that for the time being the general public has been shielded from most of the inflationary effects by banks holding excess reserves and corporations eating their margins. This won't last forever. The shit will hit the fan. Look to the PIIGS and US MUNIs. It won't be pretty. The world's central banks and governments are making it much worse by the day.I had more to say but I forgot and the post is already too long... P.S. I thought that video sucked and was filled with many inaccuracies, although it's debatable that it is semantics for the most part. Oh, and read Denationalisation of Money by Hayek. Amazing work.

215 @Ass of Catalonia: I agree Denationalization of Money is a good plan. Money need to stop being centrally planned.

216 Considering the dollar has lost nearly 100% of its value in the hundred year tyranny of the Federal Reserve (after 140 years of relative price stability), I think we're due for some good old fashioned deflation. It's a boon to savers and it will create a whole new generation of homeowners in affordable, appropriately leveraged homes (20% down and six months' expenses in the bank? Madness!). While we're at it, return to the gold standard and watch the deficit spending come to a grinding halt.

217 The video has it right.

Deflation is bad for governments and banks and irresponsible people who owe way more money than they bring in, but good for responsible individuals. And since inflation is good for governments and banks and irresponsible people who owe way more money than they bring in at the expense of the responsible penny-pinchers (since the devaluations of their debts also devalues - or steals value from - the responsible individuals' savings), deflation is not only good, it's morally right.

A stable un-inflated currency (0% inflation, after deflation normalizes value) is best.

Also, inflation is simply the printing of money - nothing more. Every time the Fed prints money - like this QE2 - it is inflating the currency. The devaluation through changes in prices comes after the inflated money inventory is passed through the system (see 'money velocity'). Inflation is here, and the cycle of hyper-inflation has likely begun.

218 Everyone seems focused on the inflation vs. deflation issue, which is fine -- there's some legitimate debate there. How about someone fact checking the narrative in the video about Goldman Sachs -- is all of that true?

219 Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
---John Maynard Keynes

Keynes may have railed against deflation slightly more than he railed against inflation, but he was certainly no fan.  Inflation beyond seignorage is not "Keynesian" in any meaningful sense. 

220

I think this is a moot point - there is NO deflation in the GENERAL economy.  The only real sector that has experienced a deflationary trend is housing.  BUT then how can you call the drop in housing prices deflationary when housing prices were in a INFLATIONARY BUBBLE like the Dot Com bust.  Normally this is called a correction. 

The Fed is using the rubic of DEFLATION as a ruse to cover up for the for massive printing of money to buy Treasuries and Mortgage Bonds that no one wants at the absurdly low interest rates.  Interest rates are currently being manipulated by the Fed to unsustainable low levels so as not to blow up the Federal Budget due to interest costs. 

The Fed and the Treasury are colluding to defraud investors by artificially depressing interest rates.  As soon as the Fed looses control of the PR masking their bond purchases interest rates on Bonds will go up and ANYONE holding those bonds (like the Chinese and Japanese) are going to lose significant value on the bonds they hold.

221

OK, to me, a big error is when the narrator said how aweful it was that the Fed wasn't buying bonds from the...Fed.

From what I remember, the purpose of the Fed buying bonds is to pump money into the system.  By buying bonds from people/institutions who had intitially bought bonds.

But the Fed buying bonds from the ...Fed... to me makes as much sense as me loaning money to me...

If the Fed buys bonds from the Fed, dollars go from the Fed to the ...Fed?  That makes no sense.

If the Fed buys bonds from the market, dollars go from the Fed to the market.

Which is what this whole thing is about.

222 Disagreement: Vic says that deflation had nothing to do with the wipeout of farmers in the 30s. That the bottom fell out of the market and they couldn't sell their crops for as much as it cost to grow them... but... that sort of sounds like a deflationary effect to me.

My point wasn't that there was no "deflaton" in the 30s. My point was that the "gold standard" wasn't to blame for the framers losing their farms as someone had stated in a previous comment.

Crop prices had been abnormally high in the short period following WWI due to demand and loss of European farm products in the markets. That stopped in the 30s causing prices to fall. (Even before the "depression").

223 OK, I see what Ace was doing, never mind. But also consider this; If the drop in crop prices was due to "deflation" wouldn't the cost of growing those crops also drop as the price of seed, fertilizer, etc dropped?

224 @230 Treasury bonds are sold at auctions. I don't think the Fed could just go to Treasury and buy T-bills. Suppose the arrangement can be made, what is the point? So the Fed could acquire them at a lower, "without the middle man," price? But the whole point of the exercise is to drive up the price of treasury bonds in the open market, pushing down the yield. That which is insinuated as corrupt price gouging in the video is in fact the policy goal.

225

Distinguish between DEFLATION and DISINFLATION.

Deflation is when prices fall as a symptom of the money supply shrinking--- generally a bad thing, especially when the money supply is shrinking faster than economic activity and therefore causing the economic decline.

Disinflation is a decline in some prices, which may be enough to make the overall price level decline, because of increased efficiency of production--things cost less to produce and in a competitive economy some of those savings get passed on to the consumer end-user where they gte measured in CPI of GDP Price Deflator.  This is a GOOD thing and was seen through most of the era between the Civil War and WW1, when the gold standard led by the UK kept the value of currencies stable not only with respect to each other but with respect to gold as a universal banchmark, and prices declined by about 1% per year--which roughly corresponded to increased efficiency as the industrial revolution advanced.

There was an argument in the late 1990s and after the dotcom bust that but for the Fed loosening the money supply to fight deflation, we would have actually seen disinflation as the cheaper goods coming out of China, especially, came into the world economy.

There's nothing wrong with disinflation, because the price declines are due to efficiency.  It does not perversely affect the price level in general, by (for example) making it harder to repay debt.  In fact, it makes it EASIER to repay debt because everything else (in sum) costs less so the debtor has more money left after consumption expenses, to service the debt.

Deflation, OTOH, IS a problem and should be avoided; at least, any deflation other than short-term and trivial levels.

But, our idiot Fed can't seem to tell the difference, so if there are disinflation tendencies in the CPI or GDP Price Deflator, they act as if it's deflation and try to stamp it out.  Which is why despite improved technology and efficiency, the dollar keeps losing value (down about 95% since the Fed was created in 1913).

Also, this is why while I welcome Pence's trial balloon about removing from the Fed its responsibility to pump the economy and just leave them responsible for currency stability, I'm skeptical it will solve the problem, because the Fed seems of a mind to inflate anyway... Bernanke has said his target is 2% inflation, which is outragheous--at 2% the dollar loses half its value in 35 years, 3/4 of its value in a (short) 70-year lifetime.  And there is no history of anyone ever being able to so carefully and accurately control inflation over a long period--once it starts and is encouraged it tends to grow out of control.

226

 If deflation means that money increases its value by 1% per year with no risk at all (and you can insure it, I guess, against the risk of theft or destruction), that means that any investment will have to pretty much guarantee a 2.5% return at minimum before being worth any investing at all.

Why do you think a +1.5% net return would be more unlikely in a deflationary environment than in an inflationary environment?  And in deflation, don't the benefits go first to the people with savings accounts, which by and large will be citizen savers who will mostly want to buy something useful?  -At least as opposed to the government, which, judging by the porkulus, would immediately rush to pay off its union cronies with it.  (After The Goldman Sachs, of course.)

 

@38  A NYT link to "prove" that Japan was crippled by deflation?  How 'bout I quote Samuelson from a piece yesterday to counter that (he may be a lefty economist, but he's not a Krugman.)

Deflation doesn't explain persisting economic stagnation. Japan's consumer prices have declined in nine out of the last 20 years; the average annual decline was six-tenths of one percent. "People aren't going to say, ‘I'll wait until next year to buy a car when the price will be a half a percent cheaper,'" says economist Edward J. Lincoln of New York University, a Japan specialist. If the Japanese were delaying spending, the household saving rate would have risen; instead, it fell from 15.1 percent of disposable income in 1991 to 2.3 percent in 2008.

 

Isn't it great that the people who most benefit by screwing the rest of us with inflation (the gov't and the Fed's banks) are the ones in charge of deciding whether there's inflation or not?

 

@54 Food is up 48% and energy is up 23% in a year. The reich casts aside these 2 on inflation figures though.

Yeah, and the left says Palin is lying about about prices going up.  Given a choice between their eyes at the grocery store and their narrative...

 

It's not the rate of inflation that matters so much, but the changes to it.  A 1% loss at 3pm every Tuesday is better than 3% this month and -1% next month, et c., which is in turn better than not knowing what the heck it'll be and only being sure the BLS will lie about it.

On deflation: as previous commenters note, growth deflation - more, better and new things for a given sum of money - is good.  Unfortunately, central banks subtract this from the real inflation to get an apparent inflation and publicize that instead.  If you add the deflation we should have gotten, plus the real inflation we did get (and include the amount they're lying about it), an official 2% inflation rate can mean something like a 10% hidden tax on the money supply.  This does seriously nasty things to whether and where people save and invest and is probably one of the biggest reasons for under-saving and bubble-blowing.

 

 

227 @Vic In a deflationary economy, prices don't fall uniformly. Price of labor, in particular, is sticky. Incidentally, farming in the 30s was still very labor intensive.

228 Price changes don't all go in the same direction within an economy. In some industries they go up. In other industries they go down. A overall inflation rate of zero means half of the economy is in deflation. To keep the whole economy out of the deflationary death spiral, we have to have a small of amount of inflation.

229 You're advancing the argument that the price of labor is sticky with respect to small family operations that utilized unpaid child labor to a large extent?
(Since this was before the reforms of the Great Depression, it's also extremely likely that most farm laborers were paid a percentage, rather than a set wage.)

230 Isn't the 'deflation is good' argument what won Hayek the nobel prize? 
Did anyone refute F.A Hayek's arguments here?

231 I can't see where investment has been much good for anyone except the particularly wealthy except in rare cases in human history anyway.  Savings suck the hard one even  in economic booms; the best interest rates I ever saw for a savings account was 4% during the Carter recession.  Most folks don't have access to a lot more than that, you're better off burying your money in a jar than using anything banks offer most people.

232 Let's not confuse deflation with deleveraging.  After a bubble, deleveraging is a necessary process in which prices should correct to pre-balloon levels (e.g. market clearing price). 

This may look like deflation, which is bad, but it is not.  Again, deflation != deleveraging.

233 Consolidation in agriculture in this country was already well underway by the 1920s. Even smaller operations would need to hire seasonal farmhands. If labor is somehow cost free, as you seem to imply, then what was the economic incentive for mechanization?

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