Classical Model

[Ed Breen]

You are thinking about people who will lose thier 'pensions'...think also about all those whose life savings were in their homes and businessess. Losing your savings and having your pension reduced is terrible. It happened to the Argentines, the Iclelanders, the Russians in recent times. Did you ever lose money?

Did you write a blog of compassion for the all the Russians whose savings and pension promises were evaporated in the Ruble collapse? How about when Argentina confiscated pension savings from individual accounts. Did you protest? Right now interest rates on savinigs are lower than cost of living increases so that retirement savings are being bled off to subsidize the cost of government debt...are you protesting that?

People invested and allowed others to invest thier money in losing ivestments. They lost the money. I myself lost money...in the past I lost millions in the S&L collapse...I didn't like it...but at some point I had to accept that the money was gone and I was still there...so I decided the best move was to reduce expenses and go out and make some more money. Its a hard thing but there really is no better choice, and you certainly can't cure the situation with more debt. So, pensions will be lost....too bad; so sad.

For the term 'inflation' or 'deflation' to have any meaninig or usefullness as a concept you have to understand that it refers to general price change in all goods and services caused by monetary policy. Supply and Demand also casues price changes but such price change is not all prices for goods and services.

If you observe that some prices are going up while other prices are going down, then I would suggest the divergence is evidence that inflation is not the primary driver and I would look carefully at supply demand as a driver for the increases.

Of course a prolonged period of incoherent and contradictory monetary policy and inconsistent fiscal policy can inhibit long project production and investment and create the circumstances for supply demand imbalance...but that is an attnuated effect of bad monetary policy and not the direct effect we would look for in showing monetary inflation presently.

 

[morganist]

Your statement.

You are thinking about people who will lose thier 'pensions'...think also about all those whose life savings were in their homes and businessess. Losing your savings and having your pension reduced is terrible. It happened to the Argentines, the Iclelanders, the Russians in recent times. Did you ever lose money?

Answer.

Both will be affected. The level of debt write off will not just take money away from pensioners but brake down the whole monetary and financial system. Pensioners cannot start again. Younger people can, harsh but resolvable.

Your statement.

Did you write a blog of compassion for the all the Russians whose savings and pension promises were evaporated in the Ruble collapse? How about when Argentina confiscated pension savings from individual accounts. Did you protest? Right now interest rates on savinigs are lower than cost of living increases so that retirement savings are being bled off to subsidize the cost of government debt...are you protesting that?

Answer.

I was a small child when this happened. And I do have a blog where I write about the current situation.

Your statement.

People invested and allowed others to invest thier money in losing ivestments. They lost the money. I myself lost money...in the past I lost millions in the S&L collapse...I didn't like it...but at some point I had to accept that the money was gone and I was still there...so I decided the best move was to reduce expenses and go out and make some more money. Its a hard thing but there really is no better choice, and you certainly can't cure the situation with more debt. So, pensions will be lost....too bad; so sad.

Answer.

Yes people have been unfortunate with moral hazard. You lost money and you were fortunate enough to be young enough to recover and to not have lost everything. Some people will lose their whole pension. Pensioners have to be supported. Tax will rise to compensate for their loss. In addition they have voting power so politicians will always pander to their needs.

Your statement.

For the term 'inflation' or 'deflation' to have any meaninig or usefullness as a concept you have to understand that it refers to general price change in all goods and services caused by monetary policy. Supply and Demand also casues price changes but such price change is not all prices for goods and services.

If you observe that some prices are going up while other prices are going down, then I would suggest the divergence is evidence that inflation is not the primary driver and I would look carefully at supply demand as a driver for the increases.

Of course a prolonged period of incoherent and contradictory monetary policy and inconsistent fiscal policy can inhibit long project production and investment and create the circumstances for supply demand imbalance...but that is an attnuated effect of bad monetary policy and not the direct effect we would look for in showing monetary inflation presently.

Answer.

Which type of inflation. Individual, Regional, national, global?

My view is that there will be a supply shock for many reasons but mainly due to the consequences high debt has on consumption. Then I think the western governments will increase money supply in an attempt to compensate. It will be like the seventies.

I think that many economists have to distance themselves from seeing inflation as money supply against commodity supply. The real inflation mechanism is prices. I cannot see anything other than people struggling to pay for goods in the future. That would indicate a real time price increase, mainly due shortages.

 

[Ed Breen]

We don't really have to discuss that it is bad for pensioners to lose money. They will need help. It doesn't all have to come from inefficient government services.

With regard to 'inflation' , 'deflatioin', it is hard to talk to you because you are trapped in an aggregate demand paradigm. The way I look at it is that there is no sustainable demand without investment in assets. If the government borrows money and spends it in the pretense that it will cause demand to go up and then 'kickstart' the economy through money multiplier effect, it will just go broke. To the extent that government select demand increases by deficit spending then producers will operate within their own existing excess capacity. They will not invest and they will resist hiring becuase they know the effect is temporary and they anticipate that there will be increased tax on assets, income and invetment. QE does no better. The U.S government has expanded the money supply more than ever in modern history and there has been no significant increase in inflation generally. We have volatility in commodity markets driven by a search for money, but we have no increase in general prices. The current confusion in how much copper China has been buying is becuase individual Chineese have been buying raw copper and covering it under tarps on thier farms as a money substitute. Now, nobody knows what the real copper demand for use in China is. The increase in base money has no transmission mechanism to translate into bank lending or general price increase where there is no private demand for debt. So, if the UK does QE they will build excess reserves, devalue the Pound and get poorer...but UK housing prices will not increase and as soon as they stop the QE, there will be a contraction. This is what happened with our Fed. QE is like shooting zombies with bullets when you know the bullets don't kill them. The deflation, contraction zombies keep coming no matter how many times you shoot them with QE bullets, you just slow them down.

Your suggestion that prices are inflation is a tautology. It like saying that measurement is inches. Monetary inflation is what happens within a currency zone depending on the monetary policy with regard to a discrete currency. So, you should not talk about inflaton outside a currency. The dollar is a special case becuase it is the reserve currency of the world. To the extend that we mismanage the dollar the inflation may show up elsewhere through carry trade where other countries are very dependent on our currency for their own monetary policy. That is not the case with the U.K. For inflation to have any meaning you have to parse out how monetary policy in a discrete currency effects prices in that currency...so the issue of regions is mute, the issue is within a currency zone.