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Bubble ben bernanke says "LOW RATES "WON'T" STOKE INFLATION"
- Thread starter S2007S
- Start date
Quote from sumfuka:
So the new Health Care bill (soon to be law), would you blame the FED or Politicians? Or the idea that the gov should own a failed company (GM)? Okay, this one is going to take the cake; When the nation goes to war with a foreign nation in the middle of the desert?
I'm not saying the FED is a wonderful institution or whatever, but you got to see who is really CAUSING inflation.
I understand what you are saying - certainly the government spends more than it takes in. But the Fed is the one whose mandate is to apparently pick a mystical interest rate that will create "just the right amount" of inflation. Having 0% interest rates when there is already rampant inflation is just stoking the fire.
The effects of deflation are:
Decreasing nominal prices for goods and services
Increasing real value of cash money and all monetary items
Discourages bank savings and decreases investment
Enriches creditors at the expenses of debtors
Benefits fixed-income earners
Recessions and unemployment
Deflation is generally regarded negatively, as it causes a transfer of wealth from borrowers and holders of illiquid assets, to the benefit of savers and of holders of liquid assets and currency. In this sense it is the opposite of inflation, which is similar to taxing currency holders and lenders (savers) and using the proceeds to subsidize borrowers. Thus inflation may encourage short term consumption. In modern economies, deflation is usually caused by a drop in aggregate demand, and is associated with recession and (more rarely) long term economic depressions.
While an increase in the purchasing power of one's money sounds beneficial, it amplifies the sting of debt. This is because after some period of significant deflation, the payments one is making in the service of a debt represent a larger amount of purchasing power than they did when the debt was first incurred. Consequently, deflation can be thought of as a phantom amplification of a loan's interest rate. If, as during the Great Depression in the United States, deflation averages 10% per year, even a 0% loan is unattractive as it must be repaid with money worth 10% more each year. Under normal conditions, the Fed and most other central banks implement policy by setting a target for a short-term interest rate â the overnight federal funds rate in the US â and enforcing that target by buying and selling securities in open capital markets. When the short-term interest rate hits zero, the central bank can no longer ease policy by lowering its usual interest-rate target.
Decreasing nominal prices for goods and services
Increasing real value of cash money and all monetary items
Discourages bank savings and decreases investment
Enriches creditors at the expenses of debtors
Benefits fixed-income earners
Recessions and unemployment
Deflation is generally regarded negatively, as it causes a transfer of wealth from borrowers and holders of illiquid assets, to the benefit of savers and of holders of liquid assets and currency. In this sense it is the opposite of inflation, which is similar to taxing currency holders and lenders (savers) and using the proceeds to subsidize borrowers. Thus inflation may encourage short term consumption. In modern economies, deflation is usually caused by a drop in aggregate demand, and is associated with recession and (more rarely) long term economic depressions.
While an increase in the purchasing power of one's money sounds beneficial, it amplifies the sting of debt. This is because after some period of significant deflation, the payments one is making in the service of a debt represent a larger amount of purchasing power than they did when the debt was first incurred. Consequently, deflation can be thought of as a phantom amplification of a loan's interest rate. If, as during the Great Depression in the United States, deflation averages 10% per year, even a 0% loan is unattractive as it must be repaid with money worth 10% more each year. Under normal conditions, the Fed and most other central banks implement policy by setting a target for a short-term interest rate â the overnight federal funds rate in the US â and enforcing that target by buying and selling securities in open capital markets. When the short-term interest rate hits zero, the central bank can no longer ease policy by lowering its usual interest-rate target.
A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.[9] Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause. The Great Depression was regarded by some as a deflationary spiral
Quote from ivanbaj:
A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.[9] Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause. The Great Depression was regarded by some as a deflationary spiral
Thanks for the descriptions of deflation - there's not even a hint of deflation where I live.
Quote from ivanbaj:
A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.[9] Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause. The Great Depression was regarded by some as a deflationary spiral
So a reversion to the mean that brings about some much needed adjustments to the "bubble pricing" we've seen in tuition costs, home prices, food prices, health insurance premiums after near parabolic increases during the previous Fed experiments is the "enemy" according to this line of logic?
No, instead we should create a bifurcated centrally planned economy whereby the working stiffs carry the load and pay the price for continued, manipulative tinkering to create constant rising prices, even while the real economy is sucking wind.
This is the madness that we've been conditioned to accept.
Quote from Ghost of Cutten:
They certainly contributed, with their insane policy of keeping interest rates extremely low from 2001 all the way up to 2004, 3 whole years after a very mild recession had ended, and by not doing anything at all to restrict untrammeled insane lending practises in the housing and sub-prime sector. Totally ignoring and being unaware of the fact that half the domestic banking system was in danger of going insolvent was also a blunder of epic proportions. The 2nd biggest property bubble in human history took place caused in large part by Fed policies, without them even realising it, and they did nothing to stop it or mitigate it once it started crashing.
So basically yes, the Fed directly caused almost the entire increase in national debt since 2007, mostly by public bank bailouts.
Quite shocking that you are blaming the spending habits of your politicians on the Fed. Think about it - the USA debt issues started way before 2007...
Quote from sprstpd:
Thanks for the descriptions of deflation - there's not even a hint of deflation where I live.
Exactly, but you see these devious bastards will tinker with the formula to create the outputs that fit their centrally planned targets.
So now the fact that a house is trading 30% off of its bubble highs, yet still 200-300% above its mid-late 1990s prices is considered "gravely deflationary" and merits a full on press of quant easing and record low mortgage rates because, you see, those bubble prices need to be reached again NO MATTER THE COSTS to the real economy.
We'll strip out every other essential from the equation because health insurance premiums, gasoline prices, tuition costs, food prices, assorted auto and home insurance policies don't count.