How do you stop deflation?

Quote from jprad:

Right prices have to come down relative to wages, makes perfect sense.
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No, prices need to come up relative to wages. :p

You're about as dumb as dogshit when it comes to Macroeconomic Theory.

Cause if you had any classical education in the discipline besides what you read off Wikipedia, you'd realize you're in way over your head.

When prices rise relative to wages, GDP falls, you dumb turd.

Why? Because discretionary income buys less. Less "things" bought = less output = lower GDP. Incidentally, thats why we're here!

Perhaps you'd like to regal us how we should "inflate wages by 50%" without affecting CPI!! That should be good for a laugh!

Here, let me give you a head start :

http://www.fed.gov/ :D


Quote from jprad:

Tough to control prices when you buy so much that's imported.
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Its not about controlling anything.

Its about letting prices - absent from Government intervention and tinkering - find their own equilibrium. Thats how free markets work.

And thats the only way we get a recovery - after deflation has run its course.

Quote from jprad:

Tougher still when real income is down close to 50% due to the dollar.
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Tougher to do what, exactly??


Quote from jprad:

Then again, none of it matters if you're one of the people who've been down-sized or your job was outsourced and now make half of what you used to.
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No argument there. Let me guess, in your world, Globalization "just happened".




Quote from jprad:

Thanks, I feel so much better that this was all planned and not the result of short-sighted, self-centered greed at the expense of others.

Not that it matters. I have it on good authority that an alien is coming to visit on 12/12/08 and he's going to tell us that this isn't our planet and will help us to get our act together for good.
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You got everything right except the short-sighted part.

Fixed economies suffer inflationary shocks = BOOMS = when excessive liquidity floods the market. The result is a Crash.

Every economists worth his salt knows that.

Everyone, except you, that is.

Seems you subscribe to Greenspans fained ignorance.

"I had no idea that 0% rates would create a Bubble. I SWEAR!!"

You're an easy Mark.
 
Ilum, gold is a little bit of different kind of beast. Fear also makes it rise, as well as inflation concerns. So, when the market totally tanks to new multi-year lows, gold goes up. FWIW, it had been going down before that.

Oil is good to look at to gauge inflation, pretty much most of the commodities are.
 
Quote from achilles28:

You're almost as irrelevant as Jpad.

Suggesting a mere re-industrialization of America to "encourage investment" goes against 20 years of pre-mediated WTO expansion, multi-lateral treaties, abolition of protectionist tariffs, preferential tax treatment for off-shorers. Not to mention the X TRILLIONS in US capital sunk into plant and equipment overseas...

You think slashing Corporate Tax to 10% will offset the labor, pension, medicare, insurance, litigation and pollution costs American producers realized by exporting manufacturing overseas??!? Until you deal with the POLITICAL Agenda for Western de-industrialization, your "suggestion" is a dumb one.

Second. New Deal Economics to stimulate jobs. Might work. Its definitely a better idea than handing out money to insolvent Banks!

Tax revenues need to stay up. Why? To fund a Trillion Dollar Defense Budget for an unnecessary War? To pay the bloated salaries of Public Teachers who can't educate students to read or write? Perhaps to fund the DEA to fight the Drug War that was lost before it started? Or fund the legions of prisons, cops and judges to incarcerate the millions of non-violent criminals who use it?? Maybe pour endless Billions in the Department of Homeland Security who can't even shut down the Fucking Border?

Or perhaps we "must keep tax revenues high", as you say, to pay the bloated pensions of all the listless fucks mentioned above who make a living sucking off Public Money?? Is that what you mean, by "keep taxes high"?

Otherwise, variable expenditures by Government come down as prices deflate. So its a wash if revenues decline. If homes get cheaper and CPI deflates, Social Security checks tied to CPI come down near-commensurate, don't they? Same for medicaid, drugs, surgeries, food stamps. Get it, Corky? Deflationary revenue shortfalls have no impact on Government Handouts tied to CPI.

As for Federal Debt Service. Another Red Herring.

The FED can monetize mature T-Bills if there's a revenue short fall. IOW, if the inflated debt is "too high" to service in deflationary revenue conditions, the FED can print and buy those Treasuries that come due. Whats the worst thats gonna happen?? INFLATION!?! :D

So no, the Country will not go Bankrupt, the World will not End, and the Sky will not Fall if and when deflation happens (newsflash: its already happening!!).

As for Banks hoarding cash if they're allowed to fail. Guess what, Genuis?! They're already hoarding cash!! LOL
Thats why the Country isn't awash in hyper-inflation! The Banks are sitting on it!

What needs to happen is simple: CUT SPENDING AND RETURN TO A STABLE CURRENCY.

Do you even know what stimulates economic growth? I don't think you do.

Cheap Prices relative to Wages or Income.

When prices stay artificially high, consumption and investment is held back. Shit is too expensive relative to income. IOW, the debt-to-income or cost-to-income ratio is too high. Prices need to deflate if wages stay stagnant.

There is no other way around it.

All you guys read the FED wiki, and think you've got a well-rounded purview of macroeconomics.

You've got no Supply-side understanding, and it shows. You've only got 1/3rd of the equation. Besides not knowing one thing about supply-side, you naively think all this shit plays out in a Bubble. Politics trumps economics. Thats why things keep "fucking up". Because they're not fuck ups. Its designed that way from a "political" perspective.
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Who pissed in your cheerios?
 
Quote from Susannah:

That would be true, except that the little guy will lose his job and has no savings for the most part in the US. There's the crux.
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Higher unemployment will happen regardless if we deflate or inflate.

Besides running at 130% max capacity, and re-setting to tighter credit and a maxed-out debt environment, economies can't grow with unending, high inflation. Its impossible.

Inflationary Booms - through which we just experienced - always lead to deflationary episodes where prices return to mean. This is a natural consequence of Money Bubbles that inflate assets far above underlying value.

Now, we can get out of this two ways - let prices return to mean naturally, clear out the excesses, and undergo a steep recession for the next 18 months.

Or, inflate endlessly, bailout everyone in sight, and struggle to keep Real Estate values at or near Bubble Levels (its not working so far, is it?). The result will be a 1990's Japanese-style stag-deflation where the economy and prices continue their slide, albeit less severe, and we don't see growth for MANY YEARS.

The alternative being thrown around - simply print money and hand it over to homeowners. Give everyone 200K to pay off their mortgage debt.

Besides moral hazard implications, CPI would quickly go through the roof. Everyone would lend again, credit would be instantly restored, and prices across-the-board would shoot up extremely fast.

The result will be another consumer-staples Boom, that will destroy tremendous amounts of earned and saved wealth. Why?

Because wages are sticky. Prices aren't.

Prices are more responsive and rise much quicker to increased demand. Wages grow at a snails pace. The result is higher price and stagnant wages = less consumption = lower GDP = recession. Once the freebie-cash is spent, prices are much higher and income, only slightly higher.

Get it kids?

There's no way around it. The Laws of Economics are a self-righting mathematical equation that automatically trend to equilibrium, regardless of path chosen.

Recess, deflate, then grow.

or Inflate, recess, deflate then grow.

There's no inflate, then inflate, then grow option.

Its an impossibility. Otherwise, every Third-World shit-hole would be a Super Power, by now! THINK.

The only option now is how to dress this pig up for the Johnny Six-Pack Moron who doesn't know the first thing about Economics. Many of whom, happen to be on this thread :D

Its all about Political Expediency. Bailouts, tax-cuts, none of it will save us until the economy has cleared itself, prices return to mean, and the consumer has some dollars to spend.
 
Quote from achilles28:

Looks like we got another half-wit that just graduated from Wiki-College.

Do your worst :D
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No. It was googleU, and it says you're fos.
 
Quote from achilles28:

No, prices need to come up relative to wages. :p
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Either you need to start proof-reading what you write, or you need stronger meds. (I'm leaning towards the later...)

Here's what you posted:

"When prices stay artificially high, consumption and investment is held back. Shit is too expensive relative to income. IOW, the debt-to-income or cost-to-income ratio is too high. Prices need to deflate if wages stay stagnant."

Tell us, Mr. MacroEconomic Wizard, how the fuck do prices that were "artificially high" deflate and "come up" relative to stagnant wages?
 
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