patrick.net

Heraclitusstudent says

Explain what is going to prevent the central bank for putting guaranties on everything assets Wall Street touches.

The answer is inflation. If the interest rate returns to historic norms, debt service becomes 1/3 to 1/2 of the budget right quick. This means either default of cut the 1 trillion dollar defense budget and entitlements and any superfluousness like what you describe.

Once USD (DXY) closes above 90 real deflation is on it's way and just the beginning of what I would consider a long term deflationary cycle.

My question is @ what "price point" is deflation @ critical mass and the collapse/destruction of the USA or global financial systems taking place? Is it DXY 95, 110, 120?

I have notion that at the brink of destruction what ever that might look like, the USD will lose as stand alone standard currency.

Heraclitusstudent says

What about debts of corporations to buy back stocks?

Very productive.

1. Debt for consumption = mostly stupid, but manageable in moderation. Brings demand forward so eventually the reverse has to hold true when consumer debt stops expanding.

2. Debt for speculation = inflates asset prices, so profitable until it blows up (bubbles....)

3. Debt for real investment (expanding a business) = good idea, unless it proves to be mal investment.

Overall I think deflation is ugly but necessary to clean up the bad debts, especially from category 2.

Graybox says

I have notion that at the brink of destruction what ever that might look like, the USD will lose as stand alone standard currency.

Most likely, as the BRICS gains momentum. The fat tail...

indigenous says

Heraclitusstudent says

Explain what is going to prevent the central bank for putting guaranties on everything assets Wall Street touches.

The answer is inflation.\

Again we were talking of deflation. Please try to keep track.

indigenous says

If the interest rate returns to historic norms, debt service becomes 1/3 to 1/2 of the budget right quick. This means either default of cut the 1 trillion dollar defense budget and entitlements and any superfluousness like what you describe.

This won't happen without strong nominal growth in which case the fiscal deficit can easily be closed.

Heraclitusstudent says

Please try to keep track.

Back at ya

bgamall4 says

I realize that inflation is necessary to compete with some other nations but it is mainly a rip off of the frugal and of the guy on fixed income. It is a rip off of the working people as well. It is a tax. Add to it the commodity tax of cornering the markets in so many ways, and you have a lot of theft from the people

The only correct statement in there is that inflation hurts people on fixed incomes.

Working people are only hurt if their income doesn't keep pace with inflation--and that has nothing to do with inflation, but rather their leverage in the labor market.

bgamall4 says

indigenous says

Heraclitusstudent says

Please try to keep track.

Back at ya

No, we have had massive inflation over the years. This allows wealthy and governments to rack up debt and pay it off. Frugal people are washed out and that is wrong over the long term. I realize that inflation is necessary to compete with some other nations but it is mainly a rip off of the frugal and of the guy on fixed income. It is a rip off of the working people as well. It is a tax. Add to it the commodity tax of cornering the markets in so many ways, and you have a lot of theft from the people.

Inflation is always bad when not naturally occurring as result of an organic boom. In fact countries don't need it to be economic powerhouses and stable, take Germany or even better Switzerland since the 90s with very tame inflation since then, yet their economies rock. There's nothing to fear about deflation as a symptom, only the Fed and the wealthy they protect are fighting it with tooth and nail.

Graybox says

Once USD (DXY) closes above 90 real deflation is on it's way and just the beginning of what I would consider a long term deflationary cycle.

My question is @ what "price point" is deflation @ critical mass and the collapse/destruction of the USA or global financial systems taking place? Is it DXY 95, 110, 120?

I have notion that at the brink of destruction what ever that might look like, the USD will lose as stand alone standard currency.

The USD in relatively strong compare to other shit fiat currencies since the race to global debasement has commenced - so you may have something here though the dollar long train is getting awfully crowded. Wrt to gold though I don't thinl its predicted demise is going to happen, it's putting a reversal in once again and will not reach the gold-doomers predictions imo. The demand for physical has been and is simply too high. There's a reason many countries have been stocking up on gold.

tatupu70 says

bgamall4 says

I realize that inflation is necessary to compete with some other nations but it is mainly a rip off of the frugal and of the guy on fixed income. It is a rip off of the working people as well. It is a tax. Add to it the commodity tax of cornering the markets in so many ways, and you have a lot of theft from the people

The only correct statement in there is that inflation hurts people on fixed incomes.

Working people are only hurt if their income doesn't keep pace with inflation--and that has nothing to do with inflation, but rather their leverage in the labor market.

- It doesn't hurt people on fixed income since interest rates are higher by the inflation rate.
- frugal people are free to invest their savings in assets that keep up with inflation, so they're not hurt.
- on the other hand inflation IS a tax: since we pay capital gain taxes on increased nominal values rather than real values.
- real incomes going down indeed has little to do with inflation.

Heraclitusstudent says

It doesn't hurt people on fixed income since interest rates are higher by the inflation rate.

- frugal people are free to invest their savings in assets that keep up with inflation, so they're not hurt.

- on the other hand inflation IS a tax: since we pay capital gain taxes on increased nominal values rather than real values.

Good points.

Heraclitusstudent says

- It doesn't hurt people on fixed income since interest rates are higher by the inflation rate.

But they aren't higher wrt artifically created inflation which leads to stagflation as we see now. Inflation due to economic boom raises wages and rates. this QE shit doesn't. It inflates asset prices while keeping wages and interest rates down. Very very bad for the middle-class, very good for the uber-wealthy.

mell says

countries don't need it to be economic powerhouses and stable, take Germany or even better Switzerland since the 90s with very tame inflation since then, yet their economies rock.

If you don't discourage savers, you get less internal consumption and more investments. This is the secret of running a trade surplus.

If you keep discouraging savers, you consume a lot, produce little, run a perpetual large trade deficit, and you need a large financial sector to make up the difference. Perhaps bubbles will help you maintain the illusion that all is well.

Can you tell which countries are in which category?

mell says

Inflation due to economic boom raises wages and rates. this QE shit doesn't.

You're exactly right: now they suppress rates so they don't go up as much as the increase in money supply. That's financial repression, punishing savers.

Which is why it matters how money is created and whether it circulates or not. If it is given to rich people to chase assets and push yields down, then indeed it punishes savers.

If it was spent and circulating in the economy, then we would get more growth, more inflation, higher wages and higher rates.

This is why I think all this deflation fear is phony. Governments and central banks can create inflation easily if they choose to.
They just choose not to.

Heraclitusstudent says

This is why I think all this deflation fear is phony. Governments and central banks can create inflation easily if they choose to.

Not really. Even with the record QE printing of 4 trillion, it is 5% of the money supply if you include the bond market. If they pull a Japan then they might get inflation but then there would be a fine line between runaway and the 2% they are after. If it did take off the only way to reign it in would be higher interest rates which would lead to debt service consuming a huge chunk of the budget. Which would lead to Al Sharpton leading the charge...

indigenous says

Not really. Even with the record QE printing of 4 trillion, it is 5% of the money supply if you include the bond market.

Instead of printing $4 trillions and putting it in an account where it just sits doing nothing, try giving $10,000 (free of any debt) to every man woman and children in the US and see if there is still no inflation.

Heraclitusstudent says

Instead of printing $4 trillions and putting it in an account where it just sits doing nothing, try giving $10,000 (free of any debt) to every man woman and children in the US and see if there is still no inflation.

That is the difference between investment and consumption, but they did not do that...

bgamall4 says

It has never kept pace with inflation, however, now they don't even try. It is a myth to think purchasing power has remained constant.

Of course it has. It's only since the late 1970s that it hasn't.

Call it Crazy says

I doubt there would be inflation, since that $10K would be spread through many parts of the economy and not focused in one area.

You think Joe 6-pack, who lives pay-check to pay check, would not go out and splurge given the opportunity, buy a vacation, a new car or an iphone?

http://www.youtube.com/embed/UW5RxOjpR8E

You are talking of people who have been programmed from a young age to BUY BUY BUY

http://www.youtube.com/embed/PRkOBgVx9Dg

The point is that they gave the money to the cronies. No inflation because the money never made it to the market place.

New Renter says

The wealthy don't need a job regardless. During inflation they can just have their people invest their cash and live off the dividends, in a deflation just eh wealthy can just bank the cash.

No work required either way.

Obviously. Inflation hurts those that need a job, however.

New Renter says

As I understand it "full employment" simply means employers don't have a problem filling job openings.

http://en.wikipedia.org/wiki/Full_employment

I doubt most employers had any problem filling openings in the great depression.

I don't think you understand correctly. Do a bit more research on full employment.

Call it Crazy says

So, how do you get inflation from that?

You need to actually understand how an economy works. It's called demand/pull inflation.

http://en.wikipedia.org/wiki/Demand-pull_inflation

Call it Crazy says

Demand-pull inflation is a theory that simply does not exist in reality.

Don't tell the Ks that...

Call it Crazy says

You think Joe 6-pack, who lives pay-check to pay check, would not go out and splurge given the opportunity, buy a vacation, a new car or an iphone?

So, how do you get inflation from that?

Either it can be produced at the same cost and it's real growth or it leads to inflation.
Either way nominal growth.

tatupu70 says

Obviously. Inflation hurts those that need a job, however.

So if you are unemployed under inflation your savings buy less and less. Under deflation your chances of getting a job (and the salary it might pay) get less and less.

Which is worse again?

New Renter says

So if you are unemployed under inflation your savings buy less and less. Under deflation your chances of getting a job (and the salary it might pay) get less and less.

Which is worse again?

If you have no money, it doesn't matter if prices are inflating or deflating.

But the point is that you are MUCH more likely to be unemployed under deflation than inflation.

tatupu70 says

But the point is that you are MUCH more likely to be unemployed under deflation than inflation.

That puts the cart before the horse. Unemployment can cause deflation, especially in subprime real estate and liar loans written to finance it. Deflation does not generally cause unemployment, except in the FIRE sector. Through decades of deflation in the tech sector, AAPL has continued to employ ever more people, both directly and indirectly. The FIRE sector tells you to fear deflation for the same reasons that the regime of Kim Jong Un tells North Koreans to fear South Korea.

curious2 says

Deflation does not generally cause unemployment, except in the FIRE sector

Of course it does. It has nothing to do with the FIRE sector, it's just Econ 101. Unless you are experiencing very high productivity gains throughout the entire economy(and it's highly competitive), deflation results from lack of demand. The same lack of demand that causes deflation also causes unemployment. And it's a positive feedback--deflation leads to unemployment, leads to more deflation, leads to more unemployment, etc.

Everyone likes to bring up a small subset of the tech sector and point to it as if the same thing could happen to the entire economy. Unless you can generate the same productivity gains elsewhere, it cannot happen.

tatupu70 says

deflation results from lack of demand. The same lack of demand that causes deflation also causes unemployment.

Congratulations, you've just refuted your own argument. Deflation and unemployment may be two children of the same parents, but the existence of the children did not cause the existence of the parents.

tatupu70 says

it's just Econ 101... it's a positive feedback....

No, it is neither of those things. You might believe those false assertions, having been unduly influenced by propaganda emanating from the FIRE sector, but they remain false. It's funny you mention Econ 101 though, it brings back fond memories for me, because I loved that class and got an A in it.

curious2 says

Congratulations, you've just refuted your own argument. Deflation and unemployment may be two children of the same parents, but the existence of the children did not cause the existence of the parents.

I refuted the argument I made about 50 posts ago? Really? I'm well aware that lack of demand is the root cause....

curious2 says

No, it is neither of those things. You might believe those false assertions, having been unduly influenced by propaganda emanating from the FIRE sector, but they remain false. It's funny you mention Econ 101 though, it brings back fond memories for me, because I loved that class and got an A in it.

OK--care to actually refute it? How would lack of demand not cause unemployment?

It is not lack of demand it is a lack of production. Keynesian myth # 2842

Think of it like this: When Robinson Crusoe wanted to trade with Friday he first had to produce something to trade or even to consume what he had produced, right?

Somehow yous think that this does not apply to a modern economy, but it do.

indigenous says

It is not lack of demand it is a lack of production. Keynesian myth # 2842

Meeting end-demand is the goal of all production.

More like an obvious fact.

Otherwise we would pay people to dig holes with a spoon and other people to fill them with a fork.

Heraclitusstudent says

More like an obvious fact.

You would think so...

Heraclitusstudent says

Otherwise we would pay people to dig holes with a spoon and other people to fill them with a fork.

Currently, we pay agribusiness to fatten people with corn syrup, then pay the medical industrial complex to manage the resulting diabetes. It "creates jobs," or so we are told, as people get fatter and sicker. (Conversely, actually curing or preventing diseases would eliminate jobs, so instead we convert diseases into chronic revenue models.) While productivity gains in other sectors (e.g. tech) cause prices to fall, we can count on the medical insurance sector to produce inflation every year, as legislation written to maximize revenues puts new technology to work for that purpose.

curious2 says

Currently, we pay agribusiness to fatten people with corn syrup, then pay the medical industrial complex to treat the resulting diabetes. It "creates jobs," or so we are told, as people get fatter and sicker.

Yes they also lend to people without checking their ids, and then sell you "identity theft protection". They create problems and charge you for the solution.

That's an interesting point but I'm not sure it addresses what was discussed:
- If demand slows, production slows, employment is down.
- If employment is down, demand slows.

Heraclitusstudent says

That's an interesting point but I'm not sure it addresses what was discussed

You're right, it was just a thought after your spoons and fork. I already addressed the OP topic, and a spurious claim about employment. Tying the two together, I would point out that GDP and other macroeconomic measures (including CPI) were developed for the purpose of generating objective data that could inform policy choices. Alas, these indicators have become fetishized at the behest of certain industries. As your spoon & fork metaphor showed, increasing "employment" does not necessarily result in value (or greater overall utility), and the medical sector amplifies that point by producing many examples of people who are objectively worse off because they produce more demand and employment. The FIRE sector mouthpieces want inflation, so they love perennial inflation in the medical insurance sector and hate deflation driven by productivity gains in other sectors.

I still think the goal of economic activity is to fill the needs.
It so happens that industries that are not exposed to international competition have been disproportionately inflated compared to those that are. Sometime with the complicity of authorities. Still we are not down to my spoon and forks example.

The fault of keynesians is to assume you can compensate a persistent problem caused by globalization: low wages, with a solution which was always meant to be temporary by nature: debt. End demand may indeed be the problem in the US, but in the long term it can only come from wages.

Plus anyway if you really want international trade, you have to deal with nations saving half of what they take in (China). If this wasn't the case, the issue wouldn't be so bad.

Heraclitusstudent says

The fault of keynesians is to assume you can compensate a persistent problem caused by globalization: low wages, with a solution which was always meant to be temporary by nature: debt. End demand may indeed be the problem in the US, but in the long term it can only come from wages.

Is that what Keynesians believe? I think that's what our politicians have foisted upon us because they AREN'T actually Keynesians at all.

tatupu70 says

Is that what Keynesians believe? I think that's what our politicians have foisted upon us because they AREN'T actually Keynesians at all.

Definitions.
What matters is how Keynes ideas are translated in the real world.

Heraclitusstudent says

What matters is how Keynes ideas are translated in the real world.

I understand what you're saying, but it seems wrong to call it Keynesian as it's not at all what Keynes advocated.