explanation of fiscal schools of thought and definitions of delfation

[morganist]

this is a great paper if you want to know the different schools of thought on recession reactions. also the paper becomes more interesting when discussing the different types of deflation. the collective deflation explanation is then used to explain why this recession is worse than others due to the flows of banks being affected.

http://www.voxeu.org/index.php?q=node/4818

was this useful.

 

[achilles28]

Mainly, this deflationary recession was liquidity trap-induced. Government intervention prolonged the recession by propping asset values (read: bank balance sheets) which created uncertainty. Instead of allowing market forces to quickly flush insolvent banks and naturally seperate good credit risk from bad, Government propped most of the shit and lenders were in the dark on counterparty risk. And, as a proxy, overall market risk since another leg-down would invariably result in another economic contraction, flushing new business and retail customers in the process. So most banks reigned in loans. The FED made matters worse by paying a spread on short term deposits held at the FED + discount window loans < T-Bill rates, which was just another surreptitious way to hand out more free money to banks to "recapitalize", at the expense of the general economy, of course.

On top of all that, Obush put 5 Trillion on the national debt to save these motherfuckers (Wallstreet/FIRE), and pushed America over the cliff financially.

The more relevant question to ask is: why was the future of America destroyed to save a handful of mega-banks?

Answer: Because they own the System. The Federal Reserve System is privately owned by the Nations largest banks. Goldman-NYFED-Treasury is 3 heads of the same beast. America is now a plutocracy run by Corporate Syndicates. Banking is by far and away the most powerful, followed by healthcare/Defense/Energy as a distant 2nd, 3rd, and 4th, respectively.

IMHO, the bankrupting of America was engineered to bring America to it's knees, financially. The End Game in Washington is a complete repudiation of the Constitution, to usher in an all powerful State. Rahm Emmanuel lets no good crisis go to waste and most of Washingtons elite are pro-Global Government (yes, that's right), have no regard for the Constitution, and seize every chance they get to expand Federal Government/Power. While 95% of traders fail, it's clear to the winners where politics are trending. And that doesn't even scratch the surface. We're in deep trouble, folks.

 

[Bolts]

What always strikes me about this recession is how the public almost universally assumes it is inflationary. It occurs to me this belief actually has a beneficial effect, one that buffers deflation. If one assumes prices will be higher in the future, then there is an incentive to buy goods and services before they become more expensive.

The author mentions three deflationary spirals:
"
* Keynesian savings paradox: Individuals save as a result of a collective lack of confidence, leading to a self-fulfilling fall in output.
* Fisher’s debt deflation: Individuals try to reduce their debt driven by a collective movement of distrust. They all sell assets at the same time, thereby reducing the value of these assets. This leads to a deterioration of the solvency of everybody else and self-defeating assets sales.
* Bank credit deflation: Banks are gripped by extreme risk aversion and simultaneously reduce lending, increasing the riskiness of their loan portfolios.
"

There is a fourth one that we fortunately haven't seen happen yet, because of the public's assumption of future inflation. But if the public changes their minds, and they begin to assume future deflation, it will take place. If consumers assume deflation, they will assume lower future prices and will stop consuming, putting off purchases for the future, further driving prices down. Another deflationary spiral.

 

[morganist]

Quote from Bolts:

What always strikes me about this recession is how the public almost universally assumes it is inflationary. It occurs to me this belief actually has a beneficial effect, one that buffers deflation. If one assumes prices will be higher in the future, then there is an incentive to buy goods and services before they become more expensive.

The author mentions three deflationary spirals:
"
* Keynesian savings paradox: Individuals save as a result of a collective lack of confidence, leading to a self-fulfilling fall in output.
* Fisher’s debt deflation: Individuals try to reduce their debt driven by a collective movement of distrust. They all sell assets at the same time, thereby reducing the value of these assets. This leads to a deterioration of the solvency of everybody else and self-defeating assets sales.
* Bank credit deflation: Banks are gripped by extreme risk aversion and simultaneously reduce lending, increasing the riskiness of their loan portfolios.
"

There is a fourth one that we fortunately haven't seen happen yet, because of the public's assumption of future inflation. But if the public changes their minds, and they begin to assume future deflation, it will take place. If consumers assume deflation, they will assume lower future prices and will stop consuming, putting off purchases for the future, further driving prices down. Another deflationary spiral.

i think the understanding of inflation is based on the cost of living not the level of aggregate demand. technically they are right. things for them are becoming costly. however on the macro level it is deflationary.

 

[Covertibility]

Speaking of disinflation, from Economist's View:

I don't know where people are getting the idea that rates must go up?

 

[morganist]

Quote from Covertibility:

Speaking of disinflation, from Economist's View:

I don't know where people are getting the idea that rates must go up?

although overall there is deflation the affect on individuals cost is rising. necessity costs are rising and thing like technology is rising. most of the deflation is from the reduced demand in business.

 

[Covertibility]

Quote from morganist:

although overall there is deflation the affect on individuals cost is rising. necessity costs are rising and thing like technology is rising. most of the deflation is from the reduced demand in business.

This is the PCE not the CPI. Airplane engines and other bullshit like that are not included in this gauge of consumer inflation.

Dallas Fed Trimmed PCE - Explanation of and weighting of the index.

 

[morganist]

Quote from Covertibility:

This is the PCE not the CPI. Airplane engines and other bullshit like that are not included in this gauge of consumer inflation.

Dallas Fed Trimmed PCE - Explanation of and weighting of the index.

sorry my misunderstanding. i thought you were commenting on my earlier response about people thinking it is inflation as opposed to deflation.

great link i will bookmark that paper and look into it thank you.

 

[jueco2005]

The explanations in the website are Keynesian Macro based models. Therefore useless.

Regarding inflation or deflation. We need to see how the fed computes inflation.

For my part we will have inflation no matter what.