Paradoxical Deflation coming?

[piezoe]

Quote from zdreg:

it is always same nonsense from the left that governments can repeal business and economic cycles.when depressions come its purpose to rid the economy or markets of its excesses and to prepare for the next up cycle.governments, in order to get reelected t kick the can down the road the longer you kick the can the greater the bubble. when the bubble finally busts the greater the crash. of course, to fool the masses the gov't will create inflation. we will end up in an inflationary depression with a near worthless currency.

thank you lefties and crony(bailout) capitalists for ruining a great country.

Paying on debts at fixed interest with appreciating dollars is the equivalent of having the interest on those debts raised retroactively, just the opposite of what happens with depreciating currency. In a debtor nation with large public and private debt this is not something to be wished for.

Those who would have the Fed let the country slip into deflation and deep depression to, as you say, "rid the markets of excesses" are asking for something far worse than they realize.

The root problem is fiscal and the Fed can't fix that. That has to be done by the Congress. In the meantime the Fed will do what it is supposed to do and not allow the country to slip into deflation.

The Japanese situation is somewhat different, most of their debt is held internally.

 

[zdreg]

"In the meantime the Fed will do what it is supposed to do and not allow the country to slip into deflation."

the job of the fed is to promote price stability. if all the
money being printed will not end in hyperinflation i will send you an autographed copy of grimm's fairy tales.

since central banks are slaves to the political system, they are engines of inflation.
the fed mandate for price stability has been completely ignored.

 

[Ed Breen]

Swan, granted the actual range of possible change in the capital gains rate between now and next year is uncertain. That is why I asked you to discount that risk and I stated the range, from 15% presently to 45%...the rate it will be under current law if Congress and the President do not act by January 1, 2013. It may look like hyperbole, but it is the literal fact of the current law. It is a remarkable description of the current uncertainty when you can ask the question, 'does anyone think the capital gains rate will really rise from 15% to 45%?'...what you are saying at the same time is 'does anyone think that the current law will actually be followed?' Even our laws have become uncertain.

Personally, I don't think it will stand and be raised that high...but I don't know what it will be and if I was making an investment decision focused on a capital gain that would be realized in 2013 or 2014, I would have to assume a uncertain and significant increase in that tax.

That was only one example of why the feeble claim that the fed is 'Twisting' to reduce interest rates in order to spur economic activity is so specious and why your comment that interest rate discounts in the past is not applicable to the present situation.

What will the income tax rate be next year? What will the health car benefit cost environment look like for employees? What will the pass through corporate rate be compared to the public corporate rate? What changes in tariffs and the terms of international trade are likely? What regulations changes may effect your enterprise, whether its financial, environmental, or labor based? What credit availability and cost can you expect going forward in a multi-year project? What inflation or deflation should you expect? If you project is international, should you plan to repatriot the money and if not, what currency should you hold retained profits in? Many or all of these considerations need to be discounted in an entrepreneural decision or a decison to innovate or expand, improve capacity.

Do you really think the change in interest rates on current debt by .20 basis points makes any difference to that decision? If you don't then what are you talking about that matters.

 

[piezoe]

Quote from zdreg:

"In the meantime the Fed will do what it is supposed to do and not allow the country to slip into deflation."

the job of the fed is to promote price stability. if all the
money being printed will not end in hyperinflation i will send you an autographed copy of grimm's fairy tales.

since central banks are slaves to the political system, they are engines of inflation.
the fed mandate for price stability has been completely ignored.

I too am concerned about inflation, but I think hyperinflation any like what was experienced in the Weimar Republic will be avoided. I could be wrong, but I am confident in the the Fed's ability to tighten when it becomes necessary. If the U.S. fails to get its economic house in order it won't be the Fed's fault, it will be Congresses.

I am looking forward to receiving my autographed copy.

 

[zdreg]

Quote from piezoe:

I too am concerned about inflation, but I think hyperinflation any like what was experienced in the Weimar Republic will be avoided. I could be wrong, but I am confident in the the Fed's ability to tighten when it becomes necessary. If the U.S. fails to get its economic house in order it won't be the Fed's fault, it will be Congresses.

I am looking forward to receiving my autographed copy.

you are very anxious to receive your autographed copy.
to me hyperinflation is 20%+
______________


the fed has failed to maintain its mandate of price stability.
Average Cost Of New Home Homes
1930 $3,845.00 , 1940 $3,920.00, 1950 $8,450.00 , 1960 $12,700.00 ,
1970 $23,450.00 , 1980 $68,700.00 , 1990 $123,000.00 , 2008 $238,880 ,
Average Wages
1930 $1,970.00 , 1940 $1,725.00, 1950 $3,210.00 , 1960 $5,315.00 ,
1970 $9,400.00 , 1980 $19,500.00 , 1990 $28,960.00 , 2008 $40,523 ,
Average Cost of New Car Cars
1930 $600.00 , 1940 $850.00, 1950 $1,510.00 , 1960 $2,600.00 ,
1970 $3,450.00 , 1980 $7,200.00 , 1990 $16,950.00 , 2008 $27,958 ,
Average Cost Gallon Of gas
1930 10 cents , 1940 11 cents , 1950 18 cents , 1960 25 cents ,
1970 36 cents , 1980 $1.19 , 1990 $1.34 , 2009 $2.051 ,
Average Cost Loaf of Bread Food
1930 9 cents , 1940 10 cents , 1950 12 cents , 1960 22 cents ,
1970 25 cents , 1980 50 cents , 1990 70 cents , 2008 $2.79 ,
Average Cost 1lb Hamburger Meat
1930 12 cents , 1940 20 cents , 1950 30 cents , 1960 45 cents ,
1970 70 cents , 1980 99 cents , 1990 89 cents , 2009 $3.99 ,

 

[Swan Noir]

I simply wanted to correct one mistaken generalization. You seem to want to use a hundred words in each post to refute that.

Quote from Ed Breen:

Swan, granted the actual range of possible change in the capital gains rate between now and next year is uncertain. That is why I asked you to discount that risk and I stated the range, from 15% presently to 45%...the rate it will be under current law if Congress and the President do not act by January 1, 2013. It may look like hyperbole, but it is the literal fact of the current law. It is a remarkable description of the current uncertainty when you can ask the question, 'does anyone think the capital gains rate will really rise from 15% to 45%?'...what you are saying at the same time is 'does anyone think that the current law will actually be followed?' Even our laws have become uncertain.

Personally, I don't think it will stand and be raised that high...but I don't know what it will be and if I was making an investment decision focused on a capital gain that would be realized in 2013 or 2014, I would have to assume a uncertain and significant increase in that tax.

That was only one example of why the feeble claim that the fed is 'Twisting' to reduce interest rates in order to spur economic activity is so specious and why your comment that interest rate discounts in the past is not applicable to the present situation.

What will the income tax rate be next year? What will the health car benefit cost environment look like for employees? What will the pass through corporate rate be compared to the public corporate rate? What changes in tariffs and the terms of international trade are likely? What regulations changes may effect your enterprise, whether its financial, environmental, or labor based? What credit availability and cost can you expect going forward in a multi-year project? What inflation or deflation should you expect? If you project is international, should you plan to repatriot the money and if not, what currency should you hold retained profits in? Many or all of these considerations need to be discounted in an entrepreneural decision or a decison to innovate or expand, improve capacity.

Do you really think the change in interest rates on current debt by .20 basis points makes any difference to that decision? If you don't then what are you talking about that matters.

 

[StarDust9182]

Quote from piezoe:

....................

Those who would have the Fed let the country slip into deflation and deep depression to, as you say, "rid the markets of excesses" are asking for something far worse than they realize.

The root problem is fiscal and the Fed can't fix that. That has to be done by the Congress. In the meantime the Fed will do what it is supposed to do and not allow the country to slip into deflation.

...........

I agree with your comment on asking for something far worse. Iceland and Latvia are exceptions. No bank would tell a homeowner in hock to them without the ability to pay to spend more in the hope that they would eventually be able to borrow their way out of debt. If we think that is different for countries, then where is the size line that that now becomes true.

I would contend that the root problem is fiscal caused by an uninformed and poorly educated youth along with politicians willing to say and do anything to be re-elected.

I guess my question is whether the FED has any choice on deflation in the long run. I doubt it. Hyper-inflation is possible, but saying the FED is out of bullets is akin to saying deflation is inevitable in the long run (as Keynes said we are all dead in the long run) Either the lender or the borrower must pay eventually.

 

[StarDust9182]

Quote from FrostBead:

Stardust,

In economics you want to produce things cheaply, more efficiently so that people can consume more and enjoy more "economic benefits". In light of this, we still want more expensive housing? Something is amiss... My take is that there has been a long term wealth transfer to home-owners. Private spending has been boosted by a housing bubble. Housing has both a consumer property and a financial asset property.

This has masked the very real global wage arbitrage/convergence. Real income is higher in asia, lower in the industrialized world. Although, skilled labor has been left better off by this effect. I don't think you can stop the convergence without trade restrictions but this is another topic.

Solutions:
Intuitively I think that housing should be made cheaper. Tax housing much more, progressive income taxes with super-low taxes for the low income, high taxes for high income as their services now have a global market.

There are government investments that needs to be done to enable the US economy to produce more and more efficiently; dont just fix roads, make it so that the regular american is less dependent on using the car --> less oil imports. Here it is important to differentiate the kind of government spending that do not lead to efficiency: entrenched interest groups that leech on the government budgets. I just think of those as a form of corruption, and I understand why some republicans mistake all government spending as leechy welfare.

I recognize that there are real estate developers that take risks and that there should be rewards for those risks, but when housing is made expensive everywhere - thats just money going into the pockets of the finance industry and the already wealthy, adding to wealth concentration problems. However, if you tax housing heavily - the money goes to the government who can make investments. Housing would paradoxically be cheaper as people can't take on huge loans because they have to pay property taxes.


I think with these broad strokes you have sounder fiscal policies, saving the FED from an impossible situation. The solution is definitely on the fiscal side.

Excellent comments. I wonder if the process we are going through is inevitable as the economic power shifts from the US elsewhere. In the last depression the UK lost and the US won. Perhaps that is just that is happening now.

 

[Ed Breen]

Excellent comments? Are you joking? That is a prescription to make everywhere look like Detroit! You're right it makes housing really cheap. You should go to Detroit and buy and house.

 

[piezoe]

Quote from zdreg:

you are very anxious to receive your autographed copy.
to me hyperinflation is 20%+

I think that an annual inflation rate of 20% is at least conceivable. Thank you for defining what you mean by "hyperinflation". That's helpful.