Falling prices VS. monetary deflation.

[jueco2005]

Falling prices are very different from a monetary deflation.
Although decreasing prices have some degree of inflexibility, we must reject “deflation as danger” (FED best selling story).
Attached is a description about the differences in falling prices due to free market, vs. deflation caused by a reduction in the money supply.

YOU BE THE JUDGE!!

FALLING PRICES
INCREASES IN PRODUCTION AND SUPPLY

1. No wiping out of business profitability, since nothing is present to reduce aggregate business sales revenue. Indeed, a modest increase in aggregate sales revenue and profit to the extend that the increases in production and supply includes an increase in the production and supply of commodity money, which results in rising aggregate spending.
2. No greater difficulty of repaying debt, but greater ease, to the extent of the increase in the quantity of money and volume of spending. (In other words a very elastic market demand created by real production)
3. A rise in the real incomes of virtually all members of the economic system, who can take advantage of the lower prices with the same aggregate money incomes: or who can take advantage of a lesser decline in prices accompanied by greater aggregate money incomes.

FALLING PRICES
MONETARY CONTRACTION

1. Wiping out of business profitability due to immediate decline in sales revenues in the face of costs that fall only with a more or less significant time lag.
2. Greater difficulty of repy8ing debt including widespread insolvencies and bankruptcies.
3. Mass unemployment until such time as wage rates and prices fall, to correspond to the reduced quantity of money and volume of spending for goods and labor.

 

[gnome]

In spite of Fed and everybody else in the Powers bitching about the evils of deflation, it's really a healthy revaluation mechanism.

True "value" for all things are restored (or at least improved), and cash regains purchasing power.

This apparent rant/obsession against deflation is nothing more than yet another ploy by the Powers to SCREW the prudent and financially responsible people out of their assets...

 

[laminustacitus]

The Fed's deflation fairytale has been misleading individuals and drawing attention away from their mass-inflation for sometime. Its about time economics realizes falling prices aren't a calamity and that, thanks to a more efficient structure of production, prices naturally do fall with time.

 

[gnome]

Quote from laminustacitus:

The Fed's deflation fairytale has been misleading individuals and drawing attention away from their mass-inflation for sometime. Its about time economics realizes falling prices aren't a calamity..."

The Gummint's "needs" are for tax receipts based upon the current [highly inflated] level of economic activity. That's why they preach the "evils of deflation".... like it is the WORST possible of all alternatives... in fact, the Gummint abhors deflation to such a degree, they are willing risk BANKRUPTING THE USA... PERHAPS EVEN THE WHOLE WORLD... to short-circuit the current deflationary phase.

The TRUTH is that deflation benefits many.... savers, retired folks on fixed income, and all financially prudent investors... it just doesn't benefit Gummint.

Deflation is all about CORRECTING the inflated BS inflationary policies of the past... a natural correction, of course... but one vehemently opposed by the Powers... for obvious self-serving and greedy reasons.

 

[jueco2005]

I wonder if there is any country engaging in a very active "tight money supply".

 

[short&naked]

Increase in money supply does not necessarily mean higher inflation, especially after major damage to credit markets. Ask the Japanese.

 

[short&naked]

Quote from jueco2005:

Falling prices are very different from a monetary deflation.
Although decreasing prices have some degree of inflexibility, we must reject “deflation as danger” (FED best selling story).
Attached is a description about the differences in falling prices due to free market, vs. deflation caused by a reduction in the money supply.

YOU BE THE JUDGE!!

FALLING PRICES
INCREASES IN PRODUCTION AND SUPPLY

1. No wiping out of business profitability, since nothing is present to reduce aggregate business sales revenue. Indeed, a modest increase in aggregate sales revenue and profit to the extend that the increases in production and supply includes an increase in the production and supply of commodity money, which results in rising aggregate spending.
2. No greater difficulty of repaying debt, but greater ease, to the extent of the increase in the quantity of money and volume of spending. (In other words a very elastic market demand created by real production)
3. A rise in the real incomes of virtually all members of the economic system, who can take advantage of the lower prices with the same aggregate money incomes: or who can take advantage of a lesser decline in prices accompanied by greater aggregate money incomes.

FALLING PRICES
MONETARY CONTRACTION

1. Wiping out of business profitability due to immediate decline in sales revenues in the face of costs that fall only with a more or less significant time lag.
2. Greater difficulty of repy8ing debt including widespread insolvencies and bankruptcies.
3. Mass unemployment until such time as wage rates and prices fall, to correspond to the reduced quantity of money and volume of spending for goods and labor.

Going by your definition, we are experiencing monetary contraction. But on the other hand we know that the money supply is growing at an enormous rate. What is the answer? CREDIT CONTRACTION! Under that senario you'd also experience mass unemployment, greater difficulty in paying debt, etc.

 

[jueco2005]

Quote from short&naked:

Going by your definition, we are experiencing monetary contraction. But on the other hand we know that the money supply is growing at an enormous rate. What is the answer? CREDIT CONTRACTION! Under that senario you'd also experience mass unemployment, greater difficulty in paying debt, etc.

I dont think you got it my friend. read again.

I was talking about the differences between falling prices due to production vs. falling prices due to a contraction in the money supply.

What we have now is a decrease in consumer demand combined by a reduction in credit as you well said.

 

[short&naked]

Quote from jueco2005:

I dont think you got it my friend. read again.

I was talking about the differences between falling prices due to production vs. falling prices due to a contraction in the money supply.

What we have now is a decrease in consumer demand combined by a reduction in credit as you well said.

I got it fine, my friend. What we have now is NOT montary contraction, even though your points qualify it as such. Your definitions are way off! Write again.