patrick.net

Deflation sounds great given all the inflation over the past 13 years. I'd love to see prices, especially housing prices, deflate to 1990s levels. Finally a reward for savers.

Dan8267 says

Finally a reward for savers.

problem is unless you have your savings stashed in a coffee can, deflation will make it difficult for the person your savings were lent out to to pay you back.

Prohibitively difficult.

http://research.stlouisfed.org/fred2/graph/?g=jPV

Bellingham Bill says

Dan8267 says

Finally a reward for savers.

problem is unless you have your savings stashed in a coffee can, deflation will make it difficult for the person your savings were lent out to to pay you back.

Prohibitively difficult.

http://research.stlouisfed.org/fred2/graph/?g=jPV

Well, nothing wrong with stashing some money away. Or putting it into banks up to the FDIC insured amount. Or into some other form of tangible, value-retaining asset(s). It's not a novel concept.

Inflation isn't low-they just calculate it differently. The only thing that is low is wage inflation.

Bellingham Bill says

problem is unless you have your savings stashed in a coffee can, deflation will make it difficult for the person your savings were lent out to to pay you back.

Not so for savings in
1. Money Market accounts
2. Checking Accounts
3. Savings Accounts
4. Short-term bonds reaching maturity

From what I can see inflation is definitely happening. I see it in groceries and supplies that I routinely buy...not to mention that $20.00 (base price) car wash the other day.

robertoaribas says

people that think "deflation would be good" are simply utterly ignorant about what deflation is, and economics generally.

Oh yes, inflation is always good and deflation is always bad. Furthermore, rising prices are always good and falling prices are always bad.

Look at electronics, ipods, plasma tvs, and smart phones. All those things have been devastated by lowering prices. Who the hell would want to buy a 60" plasma t.v. and where could you find someone willing to sell you one?

Luckily some commodities only rise in prices. The best sectors of our economy are housing, health care, college, and gasoline. If we're really, really lucky, prices in all those commodities will continue to rise unconstrained. I just can't wait for $7/gal gas. I get all goosebumps just thinking about it.

And who doesn't want doctor visits to cost more? The one problem with hospitals is that they are too damn cheap. It just encourages people to stay long after they get healthy. After all, the rooms are such a steal!

So let's all pull together to get gas to hit double digit prices per gallon by the end of the year. If we all clap hard enough, it just might happen.

robertoaribas says

yes, you are correct. You want stable and low inflation, say 2%... You absolutely don't want deflation,

Actually, no. This is what I want...

The money supply should be a constant, i.e. 0% inflation, 0% deflation. If more monetary units are needed because of population increase, simply divide the single dollar (or whatever) into smaller units, say making pico-dollars the smallest unit of exchange instead of nano-dollars.

The prices of goods and services should asymptotically fall to a minimum level as technology, infrastructure, experience, and industry efficiencies are developed. Things like housing, education, and health care should get cheaper with time until those industries reach 100% efficiency.

Zero-sum games, including monetary policies and microtrading, should be strongly discouraged or outright prevented by the economic, legal, and taxation systems.

I guarantee you that a system designed by my criteria would be far more stable and productive than our current system. Nonetheless, simply unwinding the reckless inflation done over the past 13 years with just an equal amount of deflation would be great for our economy. There is simply too much money chasing too few goods and services and this causes rampant and destructive speculation.

Worst still, the money created by the inflation was given to a handful of powerful financial firms, not the public at large. These powerful firms are using that money to gamble in such a way that causes great disruption in employment.

robertoaribas says

people that think "deflation would be good" are simply utterly ignorant about what deflation is, and economics generally.

OK explain to a retired senior citizen who no longer has to worry about losing a job why a situation which allows them to buy more stuff on a limited fixed income is bad.

robertoaribas says

are you an engineer? because in my life, engineers are the only people who:

1. always think they know everything

2. are a bunch of fucking idiots on many topics, outside their area.

As you know, I've stated my career many times on this site. Your not fooling anyone.

Furthermore, I have never claimed to know everything or even 1% of the total knowledge of mankind at this moment. That said, I most certainly can have informed ideas regarding specific subject matters. Those ideas are based on reading and listening to many arguments.

Your counter-argument is nothing more than a lame attempt at poisoning the well. If I am so wrong, it should be easy for you to clearly explain why. Resorting to a stereotype is not a convincing counter-argument.

Do you really think that our economy would be better if health care, college, and gas were more expensive?

robertoaribas says

Dan8267 says

Recent sudden drops in prices strongly encourages consumption.

you don't seem to know what deflation is.

Inflation is an increase in the money supply. Deflation is a decrease in the money supply. Rising prices are an effect of inflation; lowering prices are an effect of deflation.

Prices can drop even during times of inflation because of decrease demand. However, the inflation still causes a relative rise in the prices compared to what they would have been if inflation did not occur during the decrease in demand.

I await your apology.

MsBennet says

From what I can see inflation is definitely happening. I see it in groceries and supplies that I routinely buy...not to mention that $20.00 (base price) car wash the other day.

It is unfortunate that the general population has been so thoroughly misinformed by politicians and the financial industry that they have completely bought into the Newspeak redefining of inflation.

Inflation is the change in the money supply over time, not the change in consumer prices. The proper term for what you are talking about is cost of living increases or coli.

It is important to distinguish between inflation and coli in order to understand and discuss the causes and effects of monetary and fiscal policies. This is true irrespective of your politics and economic philosophy. Clear, accurate, and honest diction is the basis for all communication and cooperation in developing models for managing complex systems such as an economy.

robertoaribas says

New Renter says

o let me get this straight - your definition of a Hell on earth is people not constantly buying a bunch of overpriced crap and probably doing so by taking out unsustainable debt?

Hell on earth to you is people living within or below their means?

what part of "deflation is bad' led you to that conclusion?

this site is a joke; you guys should seriously quit writing and do more reading.

I read the article - did you?

HEHEHEHEHE

robertoaribas says

this site is a joke; you guys should seriously quit writing and do more reading.

Said the guy with 4,000+ comments.

Dan8267 says

Just realize that any profit that comes from non-wealth producing activities is, by definition, a zero-sum game. Any bit of profit realized by one person is taken from one or more other people, and usually the losers don't even choose to participate in the game.

Trusting counterfeiters, no matter how clever you believe them to be, and no matter how scared you are about reality, is a bad idea. Watch and learn.

robertoaribas says

Dan8267 says

Oh yes, inflation is always good and deflation is always bad. Furthermore, rising prices are always good and falling prices are always bad.

yes, you are correct. You want stable and low inflation, say 2%... You absolutely don't want deflation, or to put it another way: YOU find a country and historical period when deflation didn't correlate with suffering.

Or, go ahead and continue to confuse technological advances with deflation, that so makes your economic case!

Nominated ;) Germany in the mid-to-late eighties, had no inflation and solid real growth. Yeah, tons of suffering then, I remember - LOLZ! You want 1% inflation max, 2% on a steady basis is already brutal, it's simple math, take a starting salary and compound and then see how much that person has to get their pay raised over the years to keep pace. Keep getting your heads out of your Keynesian asses as it is clearly not working ;)

At the end of the day inflation is primarily driven by wage increases in my opinion. Certain actors always get first dibs. Those actors are landlords, healthcare sectors and universities. Others will always be far behind. I remember clearly how rents got jacked up when social security tax was cut those 2 years. As far as gold worshippers, I feel that most of them were right wingers who were used and then thrown away by right wing talk show hosts who wanted to get their followers to believe that government spending and money printing was somehow magically going to create inflation all on their own and that somehow some way gold was supposed to be a store of value. No one however mentioned that gold was in a speculative bubble and that it has no inherent store of value capabilities and that moreover these talk show hosts were operating a ponzi scheme to increase the value of their holdings at the expense of the dupes. "Some of them want to use you, some of them want to get used by you." lol

http://research.stlouisfed.org/fred2/graph/?g=k9R

nominal rents and wages indexed at 100 = 1970

Dan8267 says

A fixed money supply has natural, built in negative feedbacks which provide stability. Hording money takes it out of circulation, which increases the purchasing power of everyone else at the expense of the hoarder. Also, in a fixed money supply, deflation is impossible just like inflation.

This is the most ridiculous statement i have heard in a long time.
So you think that if i take away my $100 from circulation. Everybody's dollar has more purchasing power but not mine. do my dollars now change from green to red ?
if the money supply is constant, there is no way growth can happen since there is no incentive for a business to operate, the more it produces , the less the value of its products. if it doubles its units, the value of each will become half and moreover it can aswell sit on the cash and enjoy the increasing value of the cash when some other idiot is producing more units. even during old times, money supply was increasing because gold supply or other units of currencies ( salt ..etc) were increasing.

As technology advances, the above products should cost less, not more. The only reason those products cost more dollars today than in 1913 is because of the increase in the money supply. Quite frankly, if you don't understand that, it's your problem. If the money supply were the same as it was in 1913, the price of all those goods would be less than they were in 1913.

So if i can sit on my cash and capture all the productive of the society , what is my motivation to invest ?
if there are total $1000 in a society for 1000 products. lets assume , due to the labor of some people , now there are 2000 products. each dollar can fetch 2 products rather than 1 . great ! until you realise that you can capture the same gain by putting your dollar under the mattress while somebody else is toiling.

to fix this problem:
like you suggested somewhere else in this thread,lets assume , the govt decides to take your money though bank and promise you 1% return . now the govt has created DEBT. the very same thing you hate -> it has increased the money supply. now the bank owns you $100 and it also lends the same $100 to somebody else. There is debt in the system now.. the money supply is now $200 even though there are only $100 worth of products.
which is no different than what the fed does today with money printing.

The problem with lot of people is that they have partial knowledge of economics. The dangers of incomplete knowledge in a subject becomes amplified if the subject is related to money, because it can make people play with one of most important aspect of their life - money.
Thats what happened with gold investors.
The gold salesmen used the complexities of economics to create fear among the general public to fleece them and they continue to do that.
The greedy will always take advantage of the fools. nobody can stop that.....its the side effect of a bell curve in IQ

a bell curve is part of nature and will remain so for ever.

Ben and the Fed's day's are over, as all the new-comers to the country from Latin America and Asia aren't buying into their debt ponzi scheme.

Dan8267 says

The rich-poor gap is the greatest it has ever been. The middle class is
shrinking under the status quo. The quality of life of Gen X is lower than that
of the Boomers, and the quality of life of the Millennials is even lower. That's
two consecutive generations of quality of life declines. How can it be that our
current system isn't broken?

The system is broken, but it has nothing to do with the rate of inflation.Dan8267 says

The only reason those products cost more dollars today than in 1913 is because
of the increase in the money supply. Quite frankly, if you don't understand
that, it's your problem. If the money supply were the same as it was in 1913,
the price of all those goods would be less than they were in 1913.

Dan--you're smarter than that. The price of anything is based on supply and demand. The world population has increased significantly since 1913. Has production of all of foods increased the same, more, or less? Have people's tastes changed--is demand exactly the same as it was in 1913?

Semantics

Wikipedia has a good page on inflation:
https://en.wikipedia.org/wiki/Inflation

From the page:
[quote]
Peter Bernholz writes that "from then on, nearly every Chinese dynasty up to the Ming began by issuing some stable and convertible paper money and ended with pronounced inflation caused by circulating ever increasing amounts of paper notes to finance budget deficits."[20]
...
The term "inflation" originally referred to increases in the amount of money in circulation, and some economists still use the word in this way. However, most economists today use the term "inflation" to refer to a rise in the price level. An increase in the money supply may be called monetary inflation, to distinguish it from rising prices, which may also for clarity be called 'price inflation'.[29] Economists generally agree that in the long run, inflation is caused by increases in the money supply.[30]
...
Following the proliferation of private banknote currency printed during the American Civil War, the term "inflation" started to appear as a direct reference to the currency depreciation that occurred as the quantity of redeemable banknotes outstripped the quantity of metal available for their redemption. At that time, the term inflation referred to the devaluation of the currency, and not to a rise in the price of goods.[27]
...
This relationship between the over-supply of banknotes and a resulting depreciation in their value was noted by earlier classical economists such as David Hume and David Ricardo, who would go on to examine and debate what effect a currency devaluation (later termed monetary inflation) has on the price of goods (later termed price inflation, and eventually just inflation).[28]
[/quote]

Homeboy says

You have it backwards. Wealth disparity did not cause the system to fail; the failure of the system caused wealth disparity. Taxation is only one piece of the puzzle. Monetary policy and the actions of the Fed disproportionately benefit the elite as well. Every time there's a bailout, wealth simply flows upward, from the poor to the rich.

That's right. And what's worse is that you cannot claw that money back easily via taxation, not just because of missing support. People will leave the country, put their money and businesses offshore and come up with all kinds of schemes to avoid clawbacks. Sure, you can say good riddance to those and call them unpatriotic, but the net effect is still the same, some of the money you pumped in is gone, has been booked and locked away as privatized gains while the losses were socialized. This is not the early 20th century, this is a globalized world where you can move your family and your assets with the blink of an eye.

Dan8267 says

As technology advances, the above products should cost less, not more. The only reason those products cost more dollars today than in 1913 is because of the increase in the money supply. Quite frankly, if you don't understand that, it's your problem. If the money supply were the same as it was in 1913, the price of all those goods would be less than they were in 1913.

Proof of this is there was no inflation in the U.S. from 1776 until 1913.

1937 is just getting started

The Single Largest Driver of the US Economy is About to Collapse

June 26, 2013

The markets continue their dead cat bounce while the economic data worsens.

First quarter US GDP was revised down from an annual rate of 2.4% to 1.8%. The drop was due to lower personal consumption expenditures than initially forecast.

This is the crux of the US’s current economic woes: consumer-spending accounts for roughly 70% of our GDP. And QE does nothing to help incomes, " WHICH DRIVES CONSUMTION "!!!.

http://gainspainscapital.com/2013/06/26/the-single-largest-driver-of-the-us-economy-is-about-to-collapse/

chanakya4773 says

if the money supply is constant, there is no way growth can happen since there is no incentive for a business to operate, the more it produces , the less the value of its products.

You probably don't know why computer and cellphone prices have been *deflating* over decades, and manufacturers never stop making it.
You also probably never heard of huge deflationary growth in the USA during the late 19th century.

gsr says

chanakya4773 says

if the money supply is constant, there is no way growth can happen since there is no incentive for a business to operate, the more it produces , the less the value of its products.

In addition to what gsr said, a constant money supply gives far greater incentive to produce since profits are not eroded by inflation.

Dan8267 says

No, the law of economics should read as I wrote it several times: Printing money increases the prices of goods relative to what they would be had the additional money not been printed.

This happens 100% of the time.

Dan : you are right, the price of goods relative to what they would be had the additional money not been printed . but is it fair to do that ? you seem to be against unfairness ..right.
If i work for 1 year and produce 100 items and get X dollars . should it not be fair that i only get those 100 items for the same X dollars after few years down the road when i exchange them. if you don't print at all, i will be getting 200 items for my X dollars. why should it be the case ? this is called rent seeking behavior. rent seeking is exacerbated by deflation.

lets take the above example : if there are 100 items and $100 dollars in the system. now lets assume $100 is created out of thin air and somebody creates 100 items using that money ( as debt) . now we have 200 items and $200 dollars. perfectly fair to me.. if i created 100 items , i should be entitled to just 100 items.
ofcourse , this is not happening in real world ..but this should be goal --> 0% inflation. getting 0% inflation while also creating debt for invetments is a very difficult thing to do in real world hence targeting 2% inflation is reasonable .
i would take the 2% inflation rate anyday versus deflation which gives capital holders or older generation to get more than what they created by rent seeking. deflation is also hard to control once it goes out of hand. deflation economy also produces less growth than low inflation economy assuming all other circumstances are constant.

chanakya4773 says

Dan : you are right, the price of goods relative to what they would be had the additional money not been printed . but is it fair to do that ? you seem to be against unfairness ..right.

Unfortunately, we can't even have that discussion until people accept what changing the money supply is and what it does. Only when we all understand the consequences of actions can we debate whether those consequences are overall good or bad.

However, to clarify, I have never advocated long-term deflation or even net positive deflation. What I have advocated is a quick removal of the inflation that Bernanke has done over the past 7 years, particularly by removing all the money injected into too-big-to-fail banks. This would restore affordability of most goods back to 2007 levels (not that long ago) and will allow housing to reach historically normal and affordable levels while preventing tens of millions of people on fix incomes from slipping below the poverty line, not to mention the fact that wages have not reason to compensate for the decreasing purchasing power.

The "emergency liquidity injection" should not be made permanent or we'll just have the middle class getting poorer while all that new money chases fewer and fewer commodities, creating bubbles and depressions when those bubbles burst.

chanakya4773 says

i would take the 2% inflation rate anyday

In order to reach 2% inflation we need to deflate because we're well past 2% inflation.

Dan8267 says

This would restore affordability of most goods back to 2007 levels (not that long ago) and will allow housing to reach historically normal

I understand that you are frustrated by asset booms and busts which gives the opportunity for the more sophisticated to siphon off from the less sophisticated. but the problem is not due to the fed. most asset bubbles are due to bad lending standards. if fed money is loaned the right way , we will never have asset bubbles atleast due to the fed money. nobody can stop the bubbles due to private money

the current housing bubble is again the price we are still paying for the bad lending practices.ideally i would have liked to see the housing prices to go down a lot but that would have displaced too much work force from the economy and would have created imbalances.

Dan8267 says

What I have advocated is a quick removal of the inflation that Bernanke has done over the past 7 years, particularly by removing all the money injected into too-big-to-fail banks.

Thats why fed tracks inflation. it does not want to punish savers in order to create financial stability and reduce unemployment. i don't think inflation is high enough to justify keeping other people on unemployment just to give the savers small increase in buying power. you have to remember that being unemployed is not easy. you have to balance the collective good. i would rather have few people lose small purchasing power rather than have a unemployed parent not able to put food on the table for his kids.

We all should collectively see the real problem.. the real problem is and always will be the banks which gamble with our money (fractional reserve system) for the sake of fat bonuses for executives.

chanakya4773 says

Thats why fed tracks inflation. it does not want to punish savers in order to create financial stability and reduce unemployment.

That must have been sarcastic.
Makes sense at savings rates around .5 percent and inflation around 5%.

chanakya4773 says

i don't think inflation is high enough to justify keeping other people on unemployment just to give the savers small increase in buying power. you have to remember that being unemployed is not easy

Those savers save

a) for themselves so that they won't end in poverty in bad times or at old age, having a cushion for the unforseen

b) so that they don't end up costing money for future generations.

chanakya4773 says

Thats why fed tracks inflation. it does not want to punish savers in order to create financial stability and reduce unemployment.

Once we accept that there are negative consequences to inflation, we can weigh those consequences against the positives, and even more importantly, we can discuss alternative solutions that accomplish what you are trying to gain through inflation but that do not suffer from the negative consequences of inflation.

I would submit that a progressive wealth tax would accomplish everything people say are the good results of inflation without the numerous bad consequences. You can prevent wealth hording, lack of consumer spending, and unemployment while not causing the working man's wages to go down, forcing people to gamble with their savings to avoid losing them, and harming people on fix incomes and salaries, which have not kept up with inflation.

Why should the 18-year-old working two low-paying jobs to save up for a car so he can commute to a better job be penalized by inflation? Why should the parents saving a few thousand dollars a year for their children's education be punished? Why should the young couple saving up for a middle class home be robbed by inflation and forced to go into debt for that home? Why should the retired widow be forced to eat cat food because social security has not kept up with inflation? Why especially when there are an infinite number of alternatives to accomplishing whatever you want to accomplish with inflation?

Here's one alternative: a wealth tax. Tax all household wealth over $500,000 at 1% per year, over $1,000,000 at 2%, over $1,500,000 at 3%, etc. up to some maximum, say $5,000,000 at 10%. This would discourage wealth hording far more than any inflation possibly could. It is the middle class, not the wealthy, who truly bare the costs of inflation.

The wealthy can hide from inflation with gold, stocks, land, real estate, rare art, diamonds, etc. These stores of wealth are not affected by inflation and are dominate by the wealthy. The middle class family cannot save up for a major purchase like a house or college degree by buying Picassos. A wealth tax would include all these things in its calculation.

A wealth tax would accomplish everything you want to use inflation to accomplish without all the horrific effects of inflation. Why not at least consider that alternative?

Dan8267 says

Here's one alternative: a wealth tax. Tax all household wealth over $500,000 at 1% per year, over $1,000,000 at 2%, over $1,500,000 at 3%, etc. up to some maximum, say $5,000,000 at 10%. This would discourage wealth hording far more than any inflation possibly could. It is the middle class, not the wealthy, who truly bare the costs of inflation.

I have to disagree with that point. Tax should not be on income the tax should be on spending.

The unfair advantage would be gone if you did away with the FED.

And while we are at it the rules for insider trading should apply to congress and the senate. As right now it is completely legal for them to profit from illegal insider trading.

indigenous says

I have to disagree with that point. Tax should not be on income the tax should be on spending.

Just to be clear, a wealth tax is not an income tax. A wealth tax is a tax on accumulated wealth beyond a given point.

Anyway, spending or sales taxes would discourage consumption and encourage saving -- or as some like to call it, hoarding -- money. As such, a spending or sales tax would do exactly the same things that long-term deflation does.

Dan8267 says

A wealth tax would accomplish everything you want to use inflation to accomplish without all the horrific effects of inflation. Why not at least consider that alternative?

Because then the wealthy would flee to Belgium and we would miss them terribly. That and they'd take all their crap with them. Like their houses, their factories, their hotels, their...

Oh.

Dan8267 says

Anyway, spending or sales taxes would discourage consumption and encourage saving -- or as some like to call it, hoarding -- money. As such, a spending or sales tax would do exactly the same things that long-term deflation does.

But saving is a natural signal that entrepreneurs should invest as (without the FED) interest rates will lower when there are excess savings. Also as interest rates fall it is a natural signal that consumers will spend as they have no incentive to save. Which is also why the entrepreneur wants to invest.

For the most part up until 1913 we did not have a central bank. Would we have comparative advantage without the government meddling? me thinks we would as it is organic to these humans* to practice such.

The wealthy and their money have a way of parting without any aide. The highest turnover of any income quintile is a the top. The only way they remain blue bloods is cronyism other wise GM and the big banks would be no more.

Otherwise they would loan out there money and contribute to growth. No meddling required.

You do realize that the inequality meme is just that?

* not sure this applies to everyone on this forum?