Quote: (02-05-2013 07:54 AM)reaper23 Wrote:
the relationship between S and I is not as clear cut as basic macro theory would teach you. it also tells you that increased G should decrease I via crowding out, but that clearly is not happening right now.
Yep, to assert savings automatically equates to investment displays more of someone adhering to theory.
My previous post made mention of Steven keen, and an essay "roving cavaliers of credit". It is an essay of purely empirical evidence, and the reality defies what Austrian loons say.
Money supply is not fixed, in fact as a costless commodity, it can potentially expand to infinity. Government won't crowd out private enterprise because they aren't pursuing a limited resource.
As the empirical evidence shows, reality, not theory, banks create money exogenous to central banks, then chase up reserves later.
The Austrian solution is to ban fractional reserve lending.... when all the evidence shows we don't have fractional reserve lending.
They are giving an 'answer' to a different question.
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government spends like a maniac while interest rates couldn't be any lower as to be giving the money away to the private sector. that directly contradicts the fundamentals of classic macro theory they teach in uni.
because classical... or more pointedly, neo-classical, and monetarist theories don't work.
Keynes pointed this out with his emphasis on velocity.
The U.S. government failed because they gave to companies, believing trickle down worked. All they did was horde the money, they know the U.S. consumer can't afford any extra product, so they won't make it.
When I stated economics is like a vine that moves up, if bailout money was given to the average worker, instead of wall st, they would spend.. in fact they would demand more than what was available,,, you'd have short term inflation, then companies trying to capture market share trying to soak up this excess demand with increased productive output. That means hiring more people, and then those hired people would spend more than their unemployed benefits would allow, thus increasing more demand yet again.
Consumers would chase the businesses offering cheapest price or best quality.
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moderate inflation doesn't necessarily destroy savings as interest rates have inflation expectations built in and thus should preserve purchasing power even if deposited in a basic savings account. i = risk free rate plus default risk plus inflation expectation
Theoretically that is correct. interest rates in savings are meant to compensate for currency debasement, but I've never seen the after tax rate compensate enough in my life time
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now if you keep the cash in the mattress then you might have a problem in a high inflationary period. but then again, wages tend to keep up with inflation as well.
inflation as solely a monetary problem is being disproven daily as M2 soars.
It's two parts in QToM.
Money in circulation.... and velocity... money has zero velocity if it is not spent, i.e. being hoarded by business/banks.
To gain velocity it needs to be spent, and consumers, and no more rewarding that poor workers, who will spend much of what they earn anyway.
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i think the biggest influence in inflation is inflation expectations. after volker, the market believes 100% that inflation will always be kept under control and thus, inflation is kept under control.
No. Inflation is always a monetary problem. if there are no supply shocks, such as war or energy crises... then inflation can not physically occur without an increase in the monetary supply.
It has to be understood however, its the behaviour of whose hands the money is in that can determine the inflationary impact.