Quote: (01-31-2013 03:43 AM)T and A Man Wrote:  

Quote: (01-30-2013 12:36 PM)n0000 Wrote:  

The idea that deflation is bad is pure keynesian propaganda spread by the central banks and establishment economists.

yeah, except no.

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Deflation is the natural and beneficial condition that occurs when the quantity of goods in the economy increases.

Yup that's true, but behaviour changes when you move beyond a barter economy.

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The same amount of money is chasing around more goods, leading to an increase in the buying power of the dollar.

OK.... but the point about deflation is its impact on producers, particuarly with long time frames.

The point is if petroleum for your car is $1.80/gal today...and $1.30/gal next year.. winner!!!.

Except for the organisationh that outlays $10 billion and spends 8 years building a oil producing facility from scratch.

After 8 years, your scenario sees $0.55 /gal, and they'll never recoup their money.

So they don't build extra production facilties.

Deflation inhibits production, the argument has nothing to do with consumer setiment towards lower prices.

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In a free market, where money is probably going to be gold based and deflation is the norm, you don't have to venture out into the risky stock/bond market to save for retirement. All you do is hold cash and your buying power appreciates as the economy grow and is able to produce more goods.

More goods don't appear if producers are disincentivised.

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Falling prices are the wages of a prosperous, free economy.

No they aren't, constant prices in an economy with increasing wages are propserous.

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The idea that individuals "hording" money or hiding it in their mattress is bad is also nonsense. If you take money out of the money supply and bury it in the ground it is a deflationary act. Everyone elses buying power increases because of the decrease in the money supply.

When nobody buys stuff, thus production stops and people lose their jobs, their buying power becomes zero.

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We should have government posters encouraging people to lock their money away in the mattress.

If you want to fuck government over, you should barter. it can't be taxed.

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The federal reserve is a government backed institution with a monopoly on the printing of money. The legal tender laws restrict the species that are valid for use in contracts. I cannot write a contract to buy a car and pay in gold, only federal reserve notes. The purpose of the federal reserve is to provide as a lender of last resort so banks can print money, causing inflation and decreasing the buying power of the dollar.

Well that's its current mandate. mandates can change.

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Austrian economics describes reality.

No, Austrian economics is based on cynicism, and wants to eliminate all structures that can be manipulated.

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Keynesian economics is fantasy

The keynesian era was 1945 - 1975, its was first disrupted in 1971 with Nixon going off the U.S. gold exchange standard, and put down with Reagan pursuing the Milton Friedman-esque fantasy.

The 1945-75 era of the west was to most prosperous era in human history. The middle class burgeoned to a greater size that ever sen before, technical progress was unparalleled and 'all boats rose' with every person getting a claim.

Since the scholl of Chicago started making the rules, we've seen 3 major global contractions in 1982, 1991 and 2007. One may argue the one in 1982 was a residual effect from things changing.. but the other 2 were worse than anything that ever happened in the keynesian era, the worse being 1961.

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and is the basis of the welfare/warfare state and out of control government spending that is occuring today.

yeah, but no.

that is not the basis of it all, considering keynesian policies were dismantled 30 years ago.

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Want to know why the US has gone to war so much as of late without raising taxes? It is because of the ability of the government to run unlimited deficits because of the ability to print money.

So the same method of the confederacy in 1861-1865..... 70 years prior to keynesian policies being invented?

history shows printing money is not a keynesian invention.

Well, you came out swinging in defense of Keynesian economics.

Keynesian approach was tried aggressively in many countries in the 70's, but it only served to illustrate that not all spending is equally good. What is important is what the money is spent on and how much value is created. It was because of stagflation that Keynes was discredited, which you conveniently forgot to mention.

In addition, I don't believe it was ever truly discredited, it's too convenient for politicians - it's become their primary raison d'etre. Neo-classical theory is a pretty sound long-term view, I'd say, but it has its limits especially in the short term. I guess nothing's perfect.

In additon, your example of falling producer prices is useful theoretical example, but is this true in practice? Does this really occur?

We're talking deflation at less than 1% a year. In 10 years prices would less than 10%. And since everyone wants to achieve a middle class lifestyle, demand pressures will almost certainly drive up commodity prices inspite of small-scale deflation.

Yeah... you're arguments are theoretically sound, I had them too... but in practice? Less certain.

Quote: (01-31-2013 04:11 AM)ElJefe Wrote:  

Well, you came out swinging in defense of Keynesian economics.

Keynesian approach was tried aggressively in many countries in the 70's,

It was implemented the 3 decades prior as well.

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but it only served to illustrate that not all spending is equally good.

That's under any system. Today we have Wall st bailouts with no material beneficial impact, and that's following Friedman to the letter.

But the type of spending that Keynesian thought promotes include full employment, which built up the middle class, andresearch. In 1960, 70% of MIT graduates worked in STEM related fields. Today, 85% of MIT grads work in finance.

I would assert the previous was a much more efficient allocation of resources.

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What is important is what the money is spent on and how much value is created.

Technology advanced greater between 1945-1975, than say 1982-2012. That is in effect real wealth creation. The Keynesian era has the track record of being the highest wealth creation period in human history.

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It was because of stagflation that Keynes was discredited, which you conveniently forgot to mention.

I can't forget something I don't agree with. What we saw with the Keynesian period, all empirical evidence shows, was that the middle class expanded, the highest recorded proportion of STEM research and contracting income distribution.

The rentier, especially those of old money didn't like this. We saw more 'old money' disappear, and more 'new money' start up that any other time in history. Class mobility was at all-time highs.

In other words we had a meritocracy. of course some vested interests would want this status quo changed.

I would assert the failure of bond holders to accept their losses, stemming from Nixon effectively defaulting in 1971 with coming off the gold exchange standard.

It has took a decade for it all to filter through.

Today shows how long these things can take when vested interests are protected by government. This will be the 6th year after the GFC started, and nothing has been resolved in the entire world other than U.S. property prices.

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In addition, I don't believe it was ever truly discredited, it's too convenient for politicians - it's become their primary raison d'etre.

Then where are the full employment policies? Keynesian economics was given public consensus because full employment was in effect in reality, if not name, during WWII. Except we had 8% of the population engaged in wealth destruction, namely lead bullets, lead artillery ordinance, steel ships, etc.

If those 8% were also engaged in creating product, rather than destroying it, then living standards would increase.

That is the raison d'etre of Keynesian economics. Full employment, measured period to period by GDP, which is an otherwise second rate marker.

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Neo-classical theory is a pretty sound long-term view, I'd say, but it has its limits especially in the short term. I guess nothing's perfect.

???

I don't think any school has been demolished in the past 5 years more than neo-classical. Ricardian equivalence has been shown to be a sham.

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In additon, your example of falling producer prices is useful theoretical example, but is this true in practice? Does this really occur?

Yep, the 1890's depression was it in full. Combine it with leverage and you get Irving Fisher's debt deflation, which was the hallmark piece of the great depression.

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We're talking deflation at less than 1% a year. In 10 years prices would less than 10%.

OK, but producers don't want to wear any loss, and they especially won't for 19 year projects before product comes on line, like the example I gave with oil, gas, mining, etc

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And since everyone wants to achieve a middle class lifestyle, demand pressures will almost certainly drive up commodity prices inspite of small-scale deflation.

That's not certain. Food in the west has gone down for 60 years.

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Yeah... you're arguments are theoretically sound, I had them too... but in practice? Less certain.

Keynesian policies can be viewed empirically. The very worst of that era was still markedly better than the events of 1991, and especially 2007.

Default caused stagflation, and keynesian thought was a convenient, and wanted scapegoat for removal, for those that wanted to return to their own ancien regime.

Ever since then, we have seen the middle classes cannibalised. The sad part was, the middle class disappearing with the dismantling of Keynesian policies was entirely predictable.

Quote: (01-31-2013 07:10 AM)T and A Man Wrote:  

It was implemented the 3 decades prior as well.

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but it only served to illustrate that not all spending is equally good.

That's under any system. Today we have Wall st bailouts with no material beneficial impact, and that's following Friedman to the letter.

But the type of spending that Keynesian thought promotes include full employment, which built up the middle class, andresearch. In 1960, 70% of MIT graduates worked in STEM related fields. Today, 85% of MIT grads work in finance.

I would assert the previous was a much more efficient allocation of resources.

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What is important is what the money is spent on and how much value is created.

Technology advanced greater between 1945-1975, than say 1982-2012. That is in effect real wealth creation. The Keynesian era has the track record of being the highest wealth creation period in human history.

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It was because of stagflation that Keynes was discredited, which you conveniently forgot to mention.

I can't forget something I don't agree with. What we saw with the Keynesian period, all empirical evidence shows, was that the middle class expanded, the highest recorded proportion of STEM research and contracting income distribution.

The rentier, especially those of old money didn't like this. We saw more 'old money' disappear, and more 'new money' start up that any other time in history. Class mobility was at all-time highs.

In other words we had a meritocracy. of course some vested interests would want this status quo changed.

I would assert the failure of bond holders to accept their losses, stemming from Nixon effectively defaulting in 1971 with coming off the gold exchange standard.

It has took a decade for it all to filter through.

Today shows how long these things can take when vested interests are protected by government. This will be the 6th year after the GFC started, and nothing has been resolved in the entire world other than U.S. property prices.

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In addition, I don't believe it was ever truly discredited, it's too convenient for politicians - it's become their primary raison d'etre.

Then where are the full employment policies? Keynesian economics was given public consensus because full employment was in effect in reality, if not name, during WWII. Except we had 8% of the population engaged in wealth destruction, namely lead bullets, lead artillery ordinance, steel ships, etc.

If those 8% were also engaged in creating product, rather than destroying it, then living standards would increase.

That is the raison d'etre of Keynesian economics. Full employment, measured period to period by GDP, which is an otherwise second rate marker.

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Neo-classical theory is a pretty sound long-term view, I'd say, but it has its limits especially in the short term. I guess nothing's perfect.

???

I don't think any school has been demolished in the past 5 years more than neo-classical. Ricardian equivalence has been shown to be a sham.

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In additon, your example of falling producer prices is useful theoretical example, but is this true in practice? Does this really occur?

Yep, the 1890's depression was it in full. Combine it with leverage and you get Irving Fisher's debt deflation, which was the hallmark piece of the great depression.

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We're talking deflation at less than 1% a year. In 10 years prices would less than 10%.

OK, but producers don't want to wear any loss, and they especially won't for 19 year projects before product comes on line, like the example I gave with oil, gas, mining, etc

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And since everyone wants to achieve a middle class lifestyle, demand pressures will almost certainly drive up commodity prices inspite of small-scale deflation.

That's not certain. Food in the west has gone down for 60 years.

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Yeah... you're arguments are theoretically sound, I had them too... but in practice? Less certain.

Keynesian policies can be viewed empirically. The very worst of that era was still markedly better than the events of 1991, and especially 2007.

Default caused stagflation, and keynesian thought was a convenient, and wanted scapegoat for removal, for those that wanted to return to their own ancien regime.

Ever since then, we have seen the middle classes cannibalised. The sad part was, the middle class disappearing with the dismantling of Keynesian policies was entirely predictable.

I am not going to bother responding in full to this, because 1) you make a lot of postulations excellent economists disagree on 2) I absolutely disagree with you on several points and especially the commodity price aspect you're being intellectually dishonest, because you ignore subsidies. You take a lot of events, like the financial crisis, and assign a meaning to them they don't have, and I strongly disagree with Ricardian Equivalence being discredited. It obviously applies very strongly - just look at consumer confidence today. What makes it apply, I think, is awareness. Not until recently have people become seriously aware of government's long-term budget problems, which is why it didn't matter before.

As for your long-term investment horizon point, I'll give you a concrete of example of how off the mark you are. In the late 00's, European energy companies blew a tremendous amount of money on building LNG terminals to deliver Russian gas to the US at premium prices. A boom in SUPPLY destroyed that investemt, as well as the investment of many European energy companies in long-term gas contracts. Not to mention that the quota market for CO2 is also worthless, and coal is getting cheaper.

Commodity prices are denominated in dollars, but in reality that is just a completely arbitrary number. What's interesting is the relative price vis-a-vis substitutes. Deflation in one currency is not going to have an impact. Nor in all currencies. What is interesting is relative prices.

The discussion was about inflation anyways, and to get back to my main point, I doubt the argument that mild inflation is good, inspite of menu costs, sticky prices and nominal wages, because people discount future utility aggressively. This is behavioral economics. I believe you just exacerbate a tendency for people to choose instant gratification over long-term stable utility.

Quote: (01-30-2013 05:33 PM)n0000 Wrote:  

You ask 5 different economists and you get 20 different answers, 12 different theories, 22 hypotheses, 200 jargon statements that don't really mean anything, and 32 backstabs in the dog-eat-dog world of economic academia.

Fixed it for you.

I never really understood the structure of the ECB / FED.

From what I understand they're actually owned by the banks.

So if they're just printing money and buying stocks/bonds, aren't the banks just making themselves richer? Why does the state give them this power?

Quote: (01-31-2013 04:43 PM)Dvorak Wrote:  

I never really understood the structure of the ECB / FED.

From what I understand they're actually owned by the banks.

So if they're just printing money and buying stocks/bonds, aren't the banks just making themselves richer? Why does the state give them this power?

Inflation is always beneficial to the state and has been used to finance public works projects and wars as long as humans have formed societies in one form or another. During the Roman empire the coinage was debased to the extent that Diocletian attempted to put a ceiling on prices by decree as well as setting the ratio of exchange for certain coins. All the coins that had gold in them were taken out of circulation, leaving behind only coins made of copper or lead. Something similiar has happened in this age with pre 1965 coins that have silver in them. They are almost never circulated but are traded as "junk silver"

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

Inflation functions as a hidden tax that slowly but constantly erodes the buying power of the dollar. The wealth is transferred from all holders of the currency to those that are injecting the money(banks). Before the injection all prices are at a pre injection price. The bank injects the money and uses it to buy something directly or loans it to somebody else who buys something with it. This bids up the price of whatever they are buying and the money makes its way around the entire economy until the sum total of all prices in the economy is higher than it was before injection. The injector buys with newly minted money at pre-injection prices, but post injection all buyers pay for goods/services at the inflated price.

The reason the system of inflation and fiat currency is in place is that it transfers wealth and power from the people to the government. Politicians look good when spending money on various projects and are given credit and power. The public debt is reduced by inflation. Governments can run large deficits and have them slowly widdled down by the printing of more and more money.

The US has a long and proud tradition of inflating the money supply. See:

Revolutionary war fiat currency:
http://en.wikipedia.org/wiki/Early_Ameri...l_currency

Civil war fiat currency.
http://en.wikipedia.org/wiki/United_States_Note

The lesson to be taken from all this is that all fiat currencies go to zero eventually because politicians cannot resist printing money and then spending it profligately on wars and wealth transfer schemes. Compare M2, a measure of the US money supply with the zimbabwe dollar.:





I would encourage you guys to research this yourself. Realising that our currency and government is a scam is a different type of red pill.

EDIT:
Here is a graph of the purchasing power of the dollar since the establishment of the federal reserve system

Quote: (01-31-2013 09:19 AM)ElJefe Wrote:  

I am not going to bother responding in full to this, because 1) you make a lot of postulations excellent economists disagree

Also, ones that a lot of excellent economists do agree on.Economics is far from a settled social science.. all i am doing is picking a side.

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on 2) I absolutely disagree with you on several points and especially the commodity price aspect you're being intellectually dishonest, because you ignore subsidies.

No I don't, you've made an unfair assumption here.

I'm Australan, and I also have market experience in Malaysia. Not everyone runs argiculture policy like the U.S. Prices in every country for agricultural commodities have declined. My experience was not formed on the basis of U.S. agricultural subsidies.

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You take a lot of events, like the financial crisis, and assign a meaning to them they don't have,

Can you point out where?

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and I strongly disagree with Ricardian Equivalence being discredited.

Hyman Minsky.

OK. I have found the work of Steven keen, whilst a few points I disagree with, to have the most comprehensive in explaining the GFC, and in fact predicting it prior.

He is a post-Keynesian, with his theories based on Minksy's financial instability thesis.

It explained Japan from 1990+, it was the predictive model for now, and when Keen screamed fro the roof tops in 2005 what would happen on a macro-scale it did.

Minksy's instabiltiy thesis is incompatiable with Ricardian equivalence.

Vested interests moving knowledge away from perfect information is incompatiable with Ricardian equivalence.

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It obviously applies very strongly - just look at consumer confidence today. What makes it apply, I think, is awareness.

Erhh contrarians typically make their money in environments like today, again.... contrarian is not compatiable with Ricardian equivalence.

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Not until recently have people become seriously aware of government's long-term budget problems, which is why it didn't matter before.

???

People have known of the U.S. federal government balance sheet issues since the 1980's.

It has always mattered.. exceot in the mind of the Randian lunatics between 2000 and 2008.

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As for your long-term investment horizon point, I'll give you a concrete of example of how off the mark you are. In the late 00's, European energy companies blew a tremendous amount of money on building LNG terminals to deliver Russian gas to the US at premium prices. A boom in SUPPLY destroyed that investemt, as well as the investment of many European energy companies in long-term gas contracts. Not to mention that the quota market for CO2 is also worthless, and coal is getting cheaper.

How is that my invesment view? hard commodities always get new online production spikes. In fact, it's what the entire economy of my country is right now. You're telling me something that I observe every day at work.

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Commodity prices are denominated in dollars, but in reality that is just a completely arbitrary number. What's interesting is the relative price vis-a-vis substitutes. Deflation in one currency is not going to have an impact. Nor in all currencies. What is interesting is relative prices.

Not in the mind of consumers it ain't.

As was raised before (edit: by you) .... nominal wages... not real wages... play an extremely important part in the sentiment of the typical person in regards to the inertia of money. Behavioural finance has built up as a field because of this.

Sentiment is important in the second part of QToM... velocity.

Keynes again lead from the front in regards to velocity.

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The discussion was about inflation anyways, and to get back to my main point, I doubt the argument that mild inflation is good, inspite of menu costs, sticky prices and nominal wages, because people discount future utility aggressively. This is behavioral economics. I believe you just exacerbate a tendency for people to choose instant gratification over long-term stable utility.

I agree it exists, but I don't espouse it, I personally espouse an eternal, zero inflation environment.

I'm not a pro-keynesian anyway because I believe that the after-effects of a boom should see the rentier punished hardest. I have the greatest faith in 'creative destruction', which is why I am pro booms, and disagree the counter-cyclical effects to some degree.

Other than full employment, and certain government funding to education, health, defence and scientific research, I don't believe the government has a role in spending.

I am more of a chartalist with a centre-right application.

However I am still stating empirical evidence, Keynesian policy has worked best to date.

Austrians are loons, and Neo-Classical and Friedman's monetarist theories should be taken out the back and shot.

Quote: (01-31-2013 04:43 PM)Dvorak Wrote:  

I never really understood the structure of the ECB / FED.

From what I understand they're actually owned by the banks.

So if they're just printing money and buying stocks/bonds, aren't the banks just making themselves richer? Why does the state give them this power?

Because by itself, sitting inert, cash has no value.

The purpose of inflation, theoretically, is to maintain price stability in line with increase of chain volumes.

If an economy is 100 apples, and there is $100 in circulation, then logically you'd say each apple was $1 each.

Productivity enhances see the next year produce 125 apples. If the money supply stayed constant, you'd see apples priced at $0.80.

in otherwords 20% deflation.

To maintain price stability, 25 futher dollars are added, to increase the money supply to $125. Apples stay $1 each.. no inflation.

Likewise, print and extra $150, $250 in supply... apples become $2 each, or 100% inflation.

These nominally non-government bodies perform the task because it was was to keep it independent of government, who can obviously distort money supply to offer favour to the electorate.

Nothing demonstrates this when excess cash leaked into housing prices across the western world, making the electorate 'feel' richer.

**double post**

Quote: (01-31-2013 03:43 AM)T and A Man Wrote:  

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The same amount of money is chasing around more goods, leading to an increase in the buying power of the dollar.

OK.... but the point about deflation is its impact on producers, particuarly with long time frames.

The point is if petroleum for your car is $1.80/gal today...and $1.30/gal next year.. winner!!!.

Except for the organisationh that outlays $10 billion and spends 8 years building a oil producing facility from scratch.

After 8 years, your scenario sees $0.55 /gal, and they'll never recoup their money.

So they don't build extra production facilties.

Deflation inhibits production, the argument has nothing to do with consumer setiment towards lower prices.

Note to disregard all the great posts in here, but I was just thinking on this point:

Yes, the organization would realize less return due to being able to sell their goods for less relative to what their inputs and production cost, but at the same time, don’t the shareholders and employees of the company--those that ultimately absorb the company’s profits-- experience increased purchasing power from those profits? So shouldn’t those shareholders and and employees be nearly indifferent (with their indifference dependent on the price change of their company’s goods relative to other goods)?

And actually, now that prices are down, couldn’t a new company justify entering the petroleum market (either buying the losing company’s facilities or producing their own), and provide the product that the market demands? I mean, obviously prices can’t deflate to 0, there’s some kind of equilibrium.

Quote: (01-31-2013 03:40 AM)ElJefe Wrote:  

Quote: (01-30-2013 04:58 PM)Samseau Wrote:  

Also, the idea that deflation means people won't spend is pure bullshit.

If prices are FALLING, how is it possible that more people won't be buying these cheap goods?

Think about it - if you're running a business, and you lower prices, more people will buy your shit.

Not necessarily.

If you're on the housing market, and you expect prices to drop 10% in the next year, you will wait.

Prices drop.

Now, was that your fault, or was that the market? It becomes a self-fulfilling prophecy.

Who cares how long it takes? The end result: people buy.

And it's not like prices fall forever... eventually a floor is hit and people begin to buy again.

Quote: (01-30-2013 12:36 PM)n0000 Wrote:  

The idea that deflation is bad is pure keynesian propaganda spread by the central banks and establishment economists.

The housing market for the past 7 years has been an example of deflation. If you are a renter with a lot of savings looking to buy a home, deflation is your friend. If you own a home and see the value of homes declining year after year, this is bad news for you. If you have a lot of debt, deflation is going to destroy you. Deflation is terrible for anybody that owns assets or has a lot of debts. It's great for people holding cash.

Quote: (02-01-2013 04:25 PM)speakeasy Wrote:  

Quote: (01-30-2013 12:36 PM)n0000 Wrote:  

The idea that deflation is bad is pure keynesian propaganda spread by the central banks and establishment economists.

The housing market for the past 7 years has been an example of deflation. If you are a renter with a lot of savings looking to buy a home, deflation is your friend. If you own a home and see the value of homes declining year after year, this is bad news for you. If you have a lot of debt, deflation is going to destroy you. Deflation is terrible for anybody that owns assets or has a lot of debts. It's great for people holding cash.

Do you not remember what preceded the housing bubble ? Inflation.

That is not deflation what you describe. That is a bubble that popped.

A bit of inflation is good for the economy because it implies that the demand is slightly bigger than the offer.Deflation is catastrophic because it shows that a good portion of income does not get reinvested but is spared and hidden as treasure.Japan's economy with the natural tendency of Japanese to spare and not consume faced catastrophic deflation in the 90's.The same would happen in Germany but German banks keep an iron fist by reinvesting hidden capital.
The natural tendency of Mediteraneans to consume more than they produce is the source of constant inflation for the euro.Germanics take advantage of that to make their products cheaper and more competitive than they would be without the inflation driven by the southern consumerism.They also balance their spare tendency in this way by withdrawing the flow of capital from the natural flow to southern countries where it is required to pump demand.

The whole point is what level of inflation is beneficial for the economy to work.Most try to keep inflation between 2-5%.If deflation dominates stable assets like real estate lose value and investors are dicouraged to take risks.To keep them optimistic a slight inflation has to dominate.If inflation surpasses certain limits the trust to the currency and the local economy gets undermined and investors are again more hesitant to take risks.They do only if they get paid in stable currency.Employees feel more happy if they get a 10% income rise with a 15% inflation(so their real purchase power is decreased) than when they get a 0% income rise with a 5% deflation(although their purchase power relatively increases).This psychology effect plays great role and is one of the reasons for the Greek crisis(no possibility to get relief for the employees by inflating the currency by devaluation).

Quote: (02-01-2013 05:44 PM)Greek kamaki Wrote:  

Employees feel more happy if they get a 10% income rise with a 15% inflation(so their real purchase power is decreased) than when they get a 0% income rise with a 5% deflation(although their purchase power relatively increases).This psychology effect plays great role and is one of the reasons for the Greek crisis(no possibility to get relief for the employees by inflating the currency by devaluation).

Is it psychology or ignorance?

Quote: (02-01-2013 08:29 AM)nmmoooreland20 Wrote:  

Note to disregard all the great posts in here, but I was just thinking on this point:

Yes, the organization would realize less return due to being able to sell their goods for less relative to what their inputs and production cost, but at the same time, don’t the shareholders and employees of the company--those that ultimately absorb the company’s profits-- experience increased purchasing power from those profits?

It's not clear how you're coming to that conclusion here.

I think you're trying to say that if prices deflate like I gave as an example, even though less return goes to the fiscal stakeholders, it's not that relevant because the purchase price of all other products fall at similar (or greater) intervals?

Irving Fischer's debt deflation here is seminal, because it was the first to state the dynamic effects of debt during deflation, namely because it is nominal, not real.

As debts gets amortised away during inflation, it's burden is enhanced during deflation. Virtually all forms of production rely on debt.

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So shouldn't those shareholders and and employees be nearly indifferent (with their indifference dependent on the price change of their company’s goods relative to other goods)?

Relative to other goods.. perhaps.

Relative to debt... no.. definitely no. Servicing debt comes at at a constant nominal figure, not a real figure.

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And actually, now that prices are down, couldn’t a new company justify entering the petroleum market (either buying the losing company’s facilities or producing their own), and provide the product that the market demands? I mean, obviously prices can’t deflate to 0, there’s some kind of equilibrium.

The saying in finance, real financiers is that only monkeys pick bottoms.

Building a petroleum facility will require debt. No one has a lazy ten+ billion of cash stuffed in the mattress.

As I said, if today's prices are $1 / gal, you maybe calculate in a fixed cost of $0.60 / gal to repay your debt, keeping $0.40 to distribute to stake holders.

Gas slips to $0.80, you've got $0.20 to redistribute.

Gas slips to $0.55, then you can't even service your debt.

So if the prevailing mood is deflation, behaviourally investment will be withheld until it looks better.

But whilst that investment is withheld, other people down the value chain... guys who provide uniforms to oil&gas workers, boots, soaps that washes this shit off... also suffer below cyclical returns, and they start laying people off, adding further deflation.

This compounds the cycle.

Quote: (02-01-2013 04:06 PM)Samseau Wrote:  

Who cares how long it takes?

People without jobs.

I would assert living in a country going through recession is a fantastic place to live materially... if you have a job.

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The end result: people buy.

OK... but the question is how long does the stand-off play out?

What lasts longer, the time it takes to buy houses again... or how long you can live without food that you can't afford due to no work.

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And it's not like prices fall forever... eventually a floor is hit and people begin to buy again.

Yep, eventually... but the time to reach 'eventually' has been prolonged in the world by internetion by government designed to protect the rich.

During credit bubble, bond holders are meant to lose their shirt, because of poor lending policies.

Here we have seen banks protected so bonds don't become valueless... and then the same people who f*cked up by poor lending, are now meant to be the same mob who will lead us back to prosperity by now making right decisions.

Quote: (02-01-2013 09:07 PM)T and A Man Wrote:  

Quote: (02-01-2013 04:06 PM)Samseau Wrote:  

Who cares how long it takes?

People without jobs.

People without jobs suffer even more hardcore in inflationary periods, because not only can they not get jobs but they also will find that their paychecks can't buy them shit.

Quote:Quote:

Quote:Quote:

The end result: people buy.

OK... but the question is how long does the stand-off play out?

What lasts longer, the time it takes to buy houses again... or how long you can live without food that you can't afford due to no work.

The poorest countries in the world are the ones that have high inflation.

There isn't a country with deflation that doesn't eventually recover. Keep reading for proof:

Quote:Quote:

Quote:Quote:

And it's not like prices fall forever... eventually a floor is hit and people begin to buy again.

Yep, eventually... but the time to reach 'eventually' has been prolonged in the world by internetion by government designed to protect the rich.

During credit bubble, bond holders are meant to lose their shirt, because of poor lending policies.

Here we have seen banks protected so bonds don't become valueless... and then the same people who f*cked up by poor lending, are now meant to be the same mob who will lead us back to prosperity by now making right decisions.

That's because you had a credit bubble where the banks were bailed out "in order to prevent massive deflation".

Bailouts = Massive government intervention (which is bad).

Remember Iceland? Iceland went bankrupt in 2008. They decided that bailouts for banks was retarded. They defaulted on all their loans and the value of the Icelandic Krona went to shit. People were unemployed for a few years.

But after a brief dip, how are they doing today?

http://www.zerohedge.com/news/2013-01-26...ning-davos

http://www.zerohedge.com/news/2013-01-26...ning-davos

Their debts are being repaid well ahead of schedule.
Unemployment is half of what it was in 2008.
GDP growth has been higher than almost any other developed nation.
Fitch ratings have been restored to investor grade.



Thus, deflation is a natural consequence of not bailing out the rich. It helps the poor in the long run, the only thing they need is some welfare to survive until the economy sorts itself out again.

Iceland is the poster child of Alpha Government. If Bank of America or whomever told me I owed them a bunch of cash after they hoed me into shitty deals and loans I would tell them to go fuck themselves and forward them the number to my nations Military if they had any issues. If they still gave me shit I would jail all their officials present in my country, peruse legal action, and again send my top General to New York/London and tell them to ''eat a dick". People strategically default on debt all the time, many Students did this prior to the Gov't (via pressure from the banks) changed the rules.

Transactions rely on faith but if the lender is a predator and dealing in bad faith from the get go then its not a even transition and IMO not held to the same standards as others. Iceland saw this and did what any rational Government would of done and tell the Banks to go fuck them selves, they took their medicine, went through hardship and now have one of the best performing economies in the globe. These Banks sniffed out and aided risk by corralling nations into dodgy deals so to me its fair game for them to loose their shirts.

Quote: (02-02-2013 11:06 PM)Samseau Wrote:  

People without jobs suffer even more hardcore in inflationary periods, because not only can they not get jobs but they also will find that their paychecks can't buy them shit.

??

They don't suffer a smuch as peole with no jobs. Purchasing power goes to zero, it doesn't apporach zero like inflation.

As I just said, it already is zero.

Quote:Quote:

The poorest countries in the world are the ones that have high inflation.

There isn't a country with deflation that doesn't eventually recover.

I would agree with that. But I am defending poor who typically have to pay a disproprtionally large burden for deflation.

For every critique of inflation, there is an equal critique of deflation, when governments defend a privileged class.

A poor person can have a wider array of options when they have a job.

Quote:Quote:

Keep reading for proof:

That's because you had a credit bubble where the banks were bailed out "in order to prevent massive deflation".

Bailouts = Massive government intervention (which is bad).

I never stated otherwise.

Quote:Quote:

Remember Iceland? Iceland went bankrupt in 2008. They decided that bailouts for banks was retarded. They defaulted on all their loans and the value of the Icelandic Krona went to shit. People were unemployed for a few years.

But after a brief dip, how are they doing today?

http://www.zerohedge.com/news/2013-01-26...ning-davos

http://www.zerohedge.com/news/2013-01-26...ning-davos

Their debts are being repaid well ahead of schedule.
Unemployment is half of what it was in 2008.
GDP growth has been higher than almost any other developed nation.
Fitch ratings have been restored to investor grade.

OK, but that's not prolonger deflation...I agree the most effective way to fix a crisis is for the standard method of repudiating debt.

Bankruptcy and default. Lenders take possession of secured assets, and then everything goes on its way again.

That's not a deflationary environment.

Europes, particularly greece, is a deflationary environment with its austerity programs.

Japan's 2 decade long death by a thousands cuts is a deflationary environment.

Cutting your losses sees one accountig period of asset price decline, then rises again.. there is a reason a reccsion has been defined as two successive accounting periods of decline.

Quote:Quote:

Thus, deflation is a natural consequence of not bailing out the rich. It helps the poor in the long run, the only thing they need is some welfare to survive until the economy sorts itself out again.

You're not aligning properly debt repudiation with deflation.

Deflation is an event of a prolonged time-frame. Resetting prices with deault sees the future horizon pointing to upward prices and or production. Deflation sees the horizon of lower prices.

The best welfare you can give any person is a job.

Quote: (01-30-2013 04:58 PM)Samseau Wrote:  

Also, the idea that deflation means people won't spend is pure bullshit.

If prices are FALLING, how is it possible that more people won't be buying these cheap goods?

Think about it - if you're running a business, and you lower prices, more people will buy your shit.

not if they think it will be even cheaper tomorrow

what is interesting is how M2 is rising but inflation per CPI is not. what has resulted has been a debasement of the USD and asset price inflation in the US.

even with a lower USD inflation still has not gone up as classic international view points would predict.


from my perspective deflation is bad because i own commercial real estate with fixed debt and rents that will eventually reset. if deflation means that rents go down while my debt stays high, that is a bad scenario for me.

inflation when you own assets purchased with debt is a good thing and should be welcomed.

productivity lead deflation will not have the same impact on debt holders as a general decrease in prices in the economy as a whole.

Quote: (01-30-2013 11:01 AM)nmmoooreland20 Wrote:  

So we have inflation, which is essentially an increase in the CPI, which is comprised of the prices we pay for certain goods and services.

We also have inflation-linked prices like tolls.

Now, if inflation goes up, tolls go up....which in turn would increase the CPI and consequently inflation, right?

Seems like a fucked up circular reference.

Meh, this tread is full of leftist shit and overall bad understanding of macroeconomics.

Inflation is the increase in the general level of prices as opposed to increase in money supply, which is a tool of expansionary monetary policy.

CPI is a measure of inflation, essentially a sample of prices for basic goods needed for survival and well-being of an individual. Inflation is generally asymmetric - if inflation is 5%, some prices may stay the same, while others might increase by 10%.

Inflation comes from 2 sources: wages & costs. If companies start paying more, people have larger disposable income and can spend more, increasing aggregate demand in the economy and consequently prices, which finds it reflection in measures like CPI. When costs go up, supply shifts upwards, increasing the prices and lowering the aggregate output via decrease in aggregate supply. Basic market forces in action here.

This is true that governments & central banks target inflation at around 2-3% (if interested, google central bank losses function in the scope of DSGE models). There is almost always a trade off between inflation and employment represented by Phillip's Curve (wiki it).

Re Keynesians & monetarists, it's just a fucked up outright retarded argument. Keynes introduced his theory of boosting the economy via fiscal policy in times of gold standard (where a dollar would represent a claim for gold in Fort Knox and whatnot). When this system was abandoned in 1971 in Bretton Woods, the currencies effectively began competing against each other and measure relative strengths of the economies. No longer tied to gold, the modern currency is fiat money, a social arrangement that you can buy this and that with the amount that you have. No longer obliged to hold enough gold, the countries began to borrow from each other, pump this money into economy (again, fiscal expansion) thus increasing national welfare (GDP & shit).

The crisis at our hands now is indeed Keynesian, but not because he was an idiot, but because the game has changed. Modern economics (as an academic subject) needs to come up with a new integrated paradigm and consensus between monetary and fiscal policy and sustainable budgets.

You're welcome to ask any questions.

Also, watch this - pure gold

Quote: (02-04-2013 11:39 AM)reaper23 Wrote:  

what is interesting is how M2 is rising but inflation per CPI is not. what has resulted has been a debasement of the USD and asset price inflation in the US.

even with a lower USD inflation still has not gone up as classic international view points would predict.


from my perspective deflation is bad because i own commercial real estate with fixed debt and rents that will eventually reset. if deflation means that rents go down while my debt stays high, that is a bad scenario for me.

inflation when you own assets purchased with debt is a good thing and should be welcomed.

productivity lead deflation will not have the same impact on debt holders as a general decrease in prices in the economy as a whole.

Proceeding with my rant, this is what is called liquidity trap. When the interests rates in the money market are close to 0%, increase in money supply (M2, any M aggregate, whatever), has no effect on the interest rates, thus having no effect on lending and borrowing and no consequent multiplication of that. Effectively, money gets printed or deposited into banks accounts (QE), paid out, and that's it.

Re Iceland, same happened to Russia in 1998. Defaults do help (sometimes).

Low inflation is positive, high inflation is fucked up (Germany in 1920s, current Zimbabwe, etc). Deflation is shit (Japan now - if you follow Zero Hedge, there would be plenty of articles about it there + some hedge fund managers keep Japan short for a prolonged period of time).

T And A Man nailed it.

Finally,

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

Keynes