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morganist
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HYPERINFLATION VS DEFLATION
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You followed up your question with a suggestion supporting one answer, which means you held a position supporting one argument.
History supports deflation actually. For 150 years the United States was thriving off of deflation up until 1913. Guess the Federal Reserve ruined it once again. Deflation is not the AntiChrist of economics. In certain fields it is good, look at PCs and technology. But as a whole deflation has proven that it isn't always bad. Deflation does have benefits. As for inflation, economists and politicians use that as a tool. Also for the last century Inflation is all our economy has seen since 1913 so economists fear it.
I'm not sure I understand what deflation is, and why they say it is so bad and to be feared.Quote from McFadden5252:
History supports deflation actually. For 150 years the United States was thriving off of deflation up until 1913. Guess the Federal Reserve ruined it once again. Deflation is not the AntiChrist of economics. In certain fields it is good, look at PCs and technology. But as a whole deflation has proven that it isn't always bad. Deflation does have benefits. As for inflation, economists and politicians use that as a tool. Also for the last century Inflation is all our economy has seen since 1913 so economists fear it.
I know I lived through what we called inflation, and it was a real bitch. Just about everyrtime you think you found some way to beat it, it came back and would bite you in the ass. It seemed, no matter how smart you were, there was nothing you could do about it.
Finally, we just all went out and bought things, because no matter what you bought today, it was going to be more expensive tommorrow.
Never heard the term "deflation" back then. What is it? And why is it so bad?
a contraction in the volume of available money or credit that results in a general decline in prices --MW
Basically, prices drop every year. 1850's you could put 30 bucks in the attic and in the 1880's it would be worth more than 30 dollars. It's the exact opposite of inflation in a way. The social norm however is people accepting inflation. "Oh prices always rise, that's just how it works."-Some idiot.... All politicians and economists however fear deflation with a passion. Now that most people are becoming Keynesians, deflation scares them to death. They want to flood fiat money into the economy and open up the floodgates. Econ 101-the more of something there is, the value decreases. Deflation would be the exact opposite of what most leftist economists prefer although conservatives are fearful of it as well. Deflation has pros and cons, im not defending it. However people only envision the cons and see it as the end of western civilization. In my opinion hyperinflation is a MUCH worse contender. ex: Weimar Republic, anywhere in Africa, Great Depression(Contraction of the money supply happened too late).
Basically, prices drop every year. 1850's you could put 30 bucks in the attic and in the 1880's it would be worth more than 30 dollars. It's the exact opposite of inflation in a way. The social norm however is people accepting inflation. "Oh prices always rise, that's just how it works."-Some idiot.... All politicians and economists however fear deflation with a passion. Now that most people are becoming Keynesians, deflation scares them to death. They want to flood fiat money into the economy and open up the floodgates. Econ 101-the more of something there is, the value decreases. Deflation would be the exact opposite of what most leftist economists prefer although conservatives are fearful of it as well. Deflation has pros and cons, im not defending it. However people only envision the cons and see it as the end of western civilization. In my opinion hyperinflation is a MUCH worse contender. ex: Weimar Republic, anywhere in Africa, Great Depression(Contraction of the money supply happened too late).
well that makes sense I suppose. Everybody likes money and no one would like to see less of it available. Especially since you know how that would go, only the rich would have it.Quote from McFadden5252:
a contraction in the volume of available money or credit that results in a general decline in prices --MW
Basically, prices drop every year. 1850's you could put 30 bucks in the attic and in the 1880's it would be worth more than 30 dollars. It's the exact opposite of inflation in a way. The social norm however is people accepting inflation. "Oh prices always rise, that's just how it works."-Some idiot.... All politicians and economists however fear deflation with a passion. Now that most people are becoming Keynesians, deflation scares them to death. They want to flood fiat money into the economy and open up the floodgates. Econ 101-the more of something there is, the value decreases. Deflation would be the exact opposite of what most leftist economists prefer although conservatives are fearful of it as well. Deflation has pros and cons, im not defending it. However people only envision the cons and see it as the end of western civilization. In my opinion hyperinflation is a MUCH worse contender. ex: Weimar Republic, anywhere in Africa, Great Depression(Contraction of the money supply happened too late).
Sorry for belated reply. I have been having a hurricane...have a residence in NJ; now relocated to ski house in VT. Cable, heat, gas...ski slopes open on Sunday...beats the Jersey Shore right now.
Morganist, it does not make any sense to me that you can explain the price change by international trade alone. I don't know any ecnomist who takes that position and it does not make any sense to me.
Stardust, private credit is is not sovereign credit. It is the entire market of securitized debt issue by private issuers. You should look at the economic data published by the Federal Reserve Bank of St. Louis....look at the varioius "H' reports, look at the 'velocity' measure, look at aggregate assets held by private banks.
Piezoe, I agree with you, and you should konw that generally the Fed bought assets from the bank.
Early in the 2008 balilouts before and after the collapse of Lehman the Fed used their open market window to make loans to 'banks' and tool illiquid assets as collateral for those loan programs...ECB is doing similar with its programs now...however, in the case of the Fed those loans have been replaced with Fed buying the securities as a way to put cash into the bankings system. In 2009 Fed purchased about $1T of RMBS and CMBS securities...they bought the debt from the banks at the market rate at the time. Since then the Fed purchased about another $1T of treasury debt at market at the time...and they have reinvested on maturity...now they are committed to buy RMBS and Treasuries going forward....They are no longer lending on collateral and they have been buying at market for several years now. So that should settle your querry about whether they own the securities or if they are simply collateral.
I agree with your first post because it is obvious that the value of the private securities they purchase has gone up. The value of the treasuries they purchased has also gone up.
The funny thing about QE is that it was promoted as a scheme to reduce interest rates...but if you track what actually happpens when the Fed announces then implements QE, is that interest rates rise...the value of the bonds declines during QE and then rises when the QE ends....this process since 2009 has resulted in ratcheting interest rates lower, up on announcing QE then down more on expiration of QE, then repeat. QE doesn't work to lower interest rates; contraction and deflaiton lowers interest rates.
McFadden, deflation is not good for the credit market...it does make performing credit more valuable becuase although the value of your credit security goes up by interest rate it goes down by increased default rate where borrowers cannot sustain the agreed interest payments. That is why a 20% Greek debt instrument may not be such a good deal.
Oldtime, read my defination of deflation early in this thread, every word I used in that definition took years of contemplation. Remember that savers can only do well if they get thier capital and interest paid back without default. Think about saving on a risk adjusted basis...deflation produces a shortage of good investments for savers....does them no favors.
Morganist, it does not make any sense to me that you can explain the price change by international trade alone. I don't know any ecnomist who takes that position and it does not make any sense to me.
Stardust, private credit is is not sovereign credit. It is the entire market of securitized debt issue by private issuers. You should look at the economic data published by the Federal Reserve Bank of St. Louis....look at the varioius "H' reports, look at the 'velocity' measure, look at aggregate assets held by private banks.
Piezoe, I agree with you, and you should konw that generally the Fed bought assets from the bank.
Early in the 2008 balilouts before and after the collapse of Lehman the Fed used their open market window to make loans to 'banks' and tool illiquid assets as collateral for those loan programs...ECB is doing similar with its programs now...however, in the case of the Fed those loans have been replaced with Fed buying the securities as a way to put cash into the bankings system. In 2009 Fed purchased about $1T of RMBS and CMBS securities...they bought the debt from the banks at the market rate at the time. Since then the Fed purchased about another $1T of treasury debt at market at the time...and they have reinvested on maturity...now they are committed to buy RMBS and Treasuries going forward....They are no longer lending on collateral and they have been buying at market for several years now. So that should settle your querry about whether they own the securities or if they are simply collateral.
I agree with your first post because it is obvious that the value of the private securities they purchase has gone up. The value of the treasuries they purchased has also gone up.
The funny thing about QE is that it was promoted as a scheme to reduce interest rates...but if you track what actually happpens when the Fed announces then implements QE, is that interest rates rise...the value of the bonds declines during QE and then rises when the QE ends....this process since 2009 has resulted in ratcheting interest rates lower, up on announcing QE then down more on expiration of QE, then repeat. QE doesn't work to lower interest rates; contraction and deflaiton lowers interest rates.
McFadden, deflation is not good for the credit market...it does make performing credit more valuable becuase although the value of your credit security goes up by interest rate it goes down by increased default rate where borrowers cannot sustain the agreed interest payments. That is why a 20% Greek debt instrument may not be such a good deal.
Oldtime, read my defination of deflation early in this thread, every word I used in that definition took years of contemplation. Remember that savers can only do well if they get thier capital and interest paid back without default. Think about saving on a risk adjusted basis...deflation produces a shortage of good investments for savers....does them no favors.
Quote from McFadden5252:
History supports deflation actually. For 150 years the United States was thriving off of deflation up until 1913. Guess the Federal Reserve ruined it once again. Deflation is not the AntiChrist of economics. In certain fields it is good, look at PCs and technology. But as a whole deflation has proven that it isn't always bad. Deflation does have benefits. As for inflation, economists and politicians use that as a tool. Also for the last century Inflation is all our economy has seen since 1913 so economists fear it.
This is mostly incorrect. It is true that while the currency was backed by a hard asset there were both periods of mild deflation and periods of mild inflation, but it is not true that "inflation is all our economy has seen since 1913. The period following the "Nixon shock" in the early 1970's began a new era, and what preceded that with regard to inflation and deflation has relatively little relevance to the current economy.
ok Ed, I'll re read it. How'd that place on the Jersey Shore make out? I can't believe a kid like me from Indiana suddenly knows about the Jersey Shore and Staten Island.
The thing I was thinking about, sure, you can't make money by breaking windows, but that's a lot of money, they say at least 7 billion that was sitting in conservative investments in the insurance companies that are now going to be paid to homeowners that are in turn going to pay it to construction workers to rebuild.
That's a lot of money moving around that wouldn't have been otherwise. It's not like they are taking it from anybody. It has been paid in premiums for years. One of the few examples of American savings now all getting unleashed.
The thing I was thinking about, sure, you can't make money by breaking windows, but that's a lot of money, they say at least 7 billion that was sitting in conservative investments in the insurance companies that are now going to be paid to homeowners that are in turn going to pay it to construction workers to rebuild.
That's a lot of money moving around that wouldn't have been otherwise. It's not like they are taking it from anybody. It has been paid in premiums for years. One of the few examples of American savings now all getting unleashed.
M
morganist
Quote from Ed Breen:
Morganist, it does not make any sense to me that you can explain the price change by international trade alone. I don't know any ecnomist who takes that position and it does not make any sense to me.
That is because that is not what I said. I said that there are many factors that impact on inflation but the observed relationship seen between money supply alterations and inflation alterations was more to do with the impact it had on the exchange rate than the relationship between domestic money supply and domestic output alone. I justify this argument by stating most of the goods and resources of the world are not developed in one country to obtain them they have to be purchased on international markets. As the exchange rate impacts on the price and the money supply impacts on the exchange rate my argument is that the main factor that impacts inflation is the relationship money supply has on exchange rates and I then claim the impact interest rate alterations and QE have on exchange rates is different.