Bernanke is right

[trefoil]

Quote from benwm:

Amazingly, despite what some describe as a twenty year 'deflationary spiral' the yen is stronger now than where it was at the 1989-90 bubble peak.

FX reflects, over long periods of time, relative inflation levels between the currencies being traded. It is, therefore, axiomatic that after a long period of deflation, the yen would be higher than it was at the start.
It also shows that regardless of how hard the BOJ tried, they never did succeed in easing credit in Japan, else there would have been inflation, and debtors would indeed have been somewhat relieved of their debt by it, rather than committing suicide in the tens of thousands every year.

 

[denner]

Quote from trefoil:

FX reflects, over long periods of time, relative inflation levels between the currencies being traded. It is, therefore, axiomatic that after a long period of deflation, the yen would be higher than it was at the start.
It also shows that regardless of how hard the BOJ tried, they never did succeed in easing credit in Japan, else there would have been inflation, and debtors would indeed have been somewhat relieved of their debt by it, rather than committing suicide in the tens of thousands every year.

Why should debtors be relieved at the expense of savers? Taken to its illogical extreme (which we've lived thru in the US), reckless borrowing and leveraging ensue under this sort of ideology.

 

[zdreg]

Quote from The Fetus:

You completely misread me, zdreg. The second one was not an apology at all.

You're kind of on the touchy side, aren't you? It's probably better that we discontinue our dialog. Go ahead and take your last shot, though that one about my character was a pretty good parting shot. I actually think you might mean that. That's a pity. I'm not as bad as you think. Your call. I'll refrain from a response.

You asked for precedence so I'll honor that request. One popular answer would be The Great Depression. Remember the roaring 20's? And how long did it take us to pull out of that deflation?

Another answer is the Japanese experience, but we've been on that topic too long.

How about the "South Sea Bubble" for a British variety.

There are many. You could even cite the Tulip Bulb Mania as an example of what I said.

You are also correct on one point. Bernanke is clearly trying to fight deflation and not letting it run its natural course. My point is that he'll fail. It will run its natural course any way and cause much havoc in the process. But he's really just a politician with a legacy to protect. He's just doing what any politician would do.

Merry Christmas, zdreg, and I do really mean that.

"Inexcusable! I'm truly sorry if I hurt your feelings."
if that is not your 2nd apology the sun rises in the evening.
I told you once don't apologize but u are a wise guy so you apologized a second time in a snide manner that my feelings are affected by what u write. u must delve in a lot of wishful thinking about your self importance to come up with that. by the way refraining from a response if one is called for and publicly announcing it is also a form of snideness.

presenting two cases from over 4 centuries ago doesn't cut the mustard that deflation follows inflation in relatively the same magnitude. a crash in the stock market or in one or two asset classes doesn't constitute deflation. it is the general price level change which determines if there is inflation, deflation or price stability. you have a second opportunity to think about it.
"Another answer is the Japanese experience, but we've been on that topic too long."
considering that u never proved that the japanese suffered more than a mild case of deflation your remark has a pompous edge to it.
whether bernanke is a politician is not clear cut. in his own mind he considers himself to be an astute economist. it is hard to believe that he values his legacy based upon his role as a politician and not that of an economist.

 

[trefoil]

Quote from denner:

Why should debtors be relieved at the expense of savers? Taken to its illogical extreme (which we've lived thru in the US), reckless borrowing and leveraging ensue under this sort of ideology.

So death is better than debt? Also, I don't believe it costs savers a dime to inflate a little bit. Interest rates would just rise so as to give them a real rate of return regardless. This is why, for instance, you're supposed to ladder your maturities if you're a coupon clipper, precisely to hedge a bit against rate changes.
Finally, the economy is supposed to be tilted towards entrepreneurship, not coupon-clipping. If you've ever run a business you know that you live and die on your credit. Deflation implies tight credit, inflation implies looser credit conditions. Business does better under the latter.

 

[sprstpd]

Quote from trefoil:

So death is better than debt? Also, I don't believe it costs savers a dime to inflate a little bit. Interest rates would just rise so as to give them a real rate of return regardless.

If the Fed didn't keep interest rates artificially low, then this might be correct. But savers at this point are getting reamed.

 

[denner]

Quote from trefoil:

So death is better than debt? Also, I don't believe it costs savers a dime to inflate a little bit. Interest rates would just rise so as to give them a real rate of return regardless. This is why, for instance, you're supposed to ladder your maturities if you're a coupon clipper, precisely to hedge a bit against rate changes.
Finally, the economy is supposed to be tilted towards entrepreneurship, not coupon-clipping. If you've ever run a business you know that you live and die on your credit. Deflation implies tight credit, inflation implies looser credit conditions. Business does better under the latter.

This is all academic theory at this point. Honestly, where to even begin with the over simplified jingoistic scenarios that you've outlined. In a free market (without a constantly intervening Federal Reserve) I'd be inclined to agree, but none of the scenarios you've outlined even remotely describes current conditions.

More likely, savers robbed, small businesses cut off from credit, rates kept artificially low so as to repeat the virtuous cycle of guaranteed re-capitalization of banks that aren't past the brink, etc, etc...

I don't even think you buy the load of bull that you wrote above because I'd like to think that you are more intelligent than that. Really, we are so far gone from the concepts of a "little bit of inflation", it's ridiculous.

 

[RewriteQuran]

Bernake cannot do anything.
Business is about profit & loss. Do not expect patriotism.

Capitalism is not scalable in globalized economy because
Chinese economy = American capitalism - Human rights
Indian economy = American capitalism + Wage slavery

Free markets = Race to the bottom.

 

[The Fetus]

Yes, yes. I know. It's Christmas and it's pathetic to be posting on Christmas day, but the kids just finished the morning present mayhem (though a much smaller Christmas this year), there's a lull in the action and I'm an economics junky.

So here's a little something that ties up my thoughts on the whole "entrenched Japanese deflation" subject.

I hope all of you, yes even you, zdreg, have a blessed Christmas Day and rest of the holiday season. May 2011 be much better for everyone -- much, much better than I fear. On my outlook for the future, I'd love to be proven wrong!

From TradingEconomics.com and Bloomberg regarding Japan (November 26, 2010)...

<Quote><b>Entrenched <u>deflation</u> is weighing on an economy at risk of contracting this quarter after a climb in the yen to a 15-year high undermined export growth. <u>The currency’s 11 percent advance against the dollar this year has also exacerbated price declines</u> by lowering import costs, adding to the case for the Bank of Japan to provide more monetary stimulus.

<u>Falling prices</u> undermine an economy by eroding corporate earnings, putting pressure on wages, and making debts harder to pay off. <u>Deflation has afflicted Japan for more than a decade</u>, contributing to its being surpassed by China in the second quarter as the world’s second-largest economy, after the U.S.</b></Quote>

P.S. I don't agree that more monetary stimulus, after a decade of it, is an answer to Japan's problem. Perhaps they need to think outside the Keynesian box. Something along the lines of benwm's comments on a new tax regime (vis a vis Singapore) would be bold.

 

[intradaybill]

Quote from denner:

More likely, savers robbed, small businesses cut off from credit, rates kept artificially low so as to repeat the virtuous cycle of guaranteed re-capitalization of banks that aren't past the brink, etc, etc...

To start with, happy holidays to all.

I see nothing wrong with the above. trefoil is - as always - spot on because he knows and understands economics in depth.
Why protecting savers? This cannot be an axiom. Savers demand a cut from the wealth generated by the production of borrowers. Where does the interest come from otherwise? Thus, it is not the only truth that savers get hit during inflation at the expense of borrowers. Borrowers get hit by savers for extended periods of time, when lenders demand higher interest; this high rate is passed to the lenders by the banks. It is the borrowers that produce wealth, keep this in mind. This is one reason that (a) the banking institution is necessary for the production of future wealth and (b) that a nominal inflation rate is always good to avoid morbid capital accumulation.

What is happening in Europe for example, is the fact that the elite there, a group of oligarchs, is refusing to accept a little inflation. These oligarchs have instituted the mandate of ECB which is solely "zero inflation". In Europe they do not think creation of any more wealth is necessary because they can leave this mundane task to Americans and then impose fines to them like they did to MSFT and INTC. Thus, the oligarchs, instead of printing some money to finance the debt of those countries that bought their products, they want to use their surplus to lend again those countries and consumers. This is a different situation than what is happening in the US where the problem is an uncontrollable transfer of wealth to China in the past decade.

So we have the situation that American savers must give up some in the form of inflation and European borrowers must borrow more. The resolution of this conflict cannot be other than the collapse of one of the two economies. I believe Europe will collapse. The force will not be economic but social. The unrest will leave no room for functioning governments and they will have to either establish martial law or dissolve the union and go to local currencies with a simultaneous erase of all debt.

 

[Nine_Ender]

Quote from denner:

Really, we are so far gone from the concepts of a "little bit of inflation", it's ridiculous.

In reality, we have very little inflation right now, and the recession in the US has already ended. Looking at world history, it seems that a gradual rise in inflation is the best option, far better then a deflationary environment.

If inflation and/or GDP starts to spike, the US government will put the brakes on it fairly quickly. Canada provides a good example. We were growing faster then the US, and started to raise interest rates. This trend ended when we had a one month flat GDP, suggesting they may have overdone their changes. This kind of give and take will go on for several years. Now the US is starting to grow should be interesting to see how it all plays out in 2011.

Investing in this environment is easy. Corporations are doing exceedingly well, and their outlook is even better in 2011. If you can afford it, buy a piece of them. The bonus is if the US economy truly kicks in and jobs appear, this could be something really big.
Otherwise, the bad side can't possibly appear until summer 2012, unless we get some massive geopolitical event like a Korean War.

I'm starting to understand the US panic on these investment sites. Your country had it too good for too long, and the idea of working hard for less with higher taxes must be disappointing.
The main thing you should be focussing on is why the top 1% of your population is still fleecing the remaining 99% to such a degree despite the downturn in 2008.