Forum Post: Inflation.....or a World War.....are the Only Answers.
Posted 12 years ago on Nov. 4, 2011, 2:20 a.m. EST by puff6962
(4052)
This content is user submitted and not an official statement
Don't post some stupid comment without reading the article. You might learn something useful.
http://www.thefiscaltimes.com/Columns/2010/07/23/What-Can-the-Fed-Still-Do.aspx#page1
Interesting. I had no idea. : ( I hope we don't deflate I don't know what I'd do about my debts.
You would have less incentive to pay them. That is the nature of deflation.
There should be no inflation and no interest on money at all. The monetary system is a sick broken pyramid scam. Money based on debt is never going to work in the long run, it is always fated to end this way. Money needs to represent value not debt. This system can not be "fixed" it is based on impossible premises that just do not work in reality.
Beyond that, the the economic model is similarly fated to fail. Infinite growth on a finite planet is an impossibly. As we are now seeing. Econ 101 teaches impossible ideas that also do not hold up in reality. Growth of capital can not be the goal of all human endeavor. Growth of human happiness can be, and should be that goal. We need to focus on regenerating our shattered ecosystem, to rebuild the systems that sustain all life. There will be no shortage of "jobs" when our focus is on our continued survival and increasing all our happiness, not only the greedy wealth stockpiling of the few.
Search; Degrowth, Relocalize, Permaculture, Slowmoney.
The biggest question right now on Planet Washington is whether the congressional supercommittee will reach an agreement.
That's the wrong question. Agreement or not, Washington is on the road to making budget cuts that will slow the economy, increase unemployment, and impose additional hardship on millions of Americans.
The real question is how to stop this austerity train wreck, and substitute the following:
First: No cuts before jobs are back -- until unemployment is down to 5 percent. Until then, the economy needs a boost, not a cut. Consumers -- whose spending is 70 percent of the economy -- don't have the money to boost the economy on their own. Their pay is dropping and they're losing jobs.
Second: Make the boost big enough. 14 million Americans are out of work, and 10 million are working part time who need full-time jobs. The president's proposed jobs program is a start but it's tiny relative to what needs to be done. It would create fewer than 2 million jobs. We need a big jobs program -- rebuilding America's crumbling infrastructure, and including a WPA and Civilian Conservation Corps.
Third: To pay for this, raise taxes on the super-rich. It's only fair. Never before has so much income and wealth been concentrated at the very top, and taxes on the top so low. Go back to the 70 percent marginal tax we had before 1980. And include more tax brackets at the top. It doesn't make sense that any income over $375,000 is taxed at the same 35 percent, even if it's a billion dollars. And tax all sources of income at the same rate, including capital gains.
Fourth: Cut the budget where the real bloat is. Military spending and corporate welfare. End weapons systems that don't work and stop wars we shouldn't be fighting to begin with, and we save over $300 billion a year. Cut corporate welfare -- subsidies and special tax breaks going to big agribusiness, big oil, big pharma, and big insurance -- and we save another $100 billion.
Do you hear me, Washington? Do these four things and restore jobs and prosperity. Fail to do these, and you'll make things much, much worse.
Those are all good points. You should read, "Freedom From Fear," about the Great Depression and you'll realize how much of this echos the discussions in the 1930's.
I'm sorry that the world does not work the way you think it should.
However, capitalism is the best model that humans have devised for maximizing freedom and creating things. You have never lived under an alternative system, so your thoughts are understandable.
The law of large numbers means that growth cannot drive proportionate increases in wealth in a manner similar to in the past. A steady state model will increasing be seen over the coming century. But, until China's citizens experience wealth commensurate with the rest of the world, instabilities will be present that will cause manufacturing workers around the world to lose their jobs.
The solution to these instabilities is the trade system that I have previously described.
But, compared to the alternative, capitalism is a paradise. If only it can be so for all of us instead of the few.
The current system is corporate-state-capitalism (fascism) with a money system that creates endless interest payments to private for-profit bankers. The simple word "capitalism" has little meaning in this context.
Interest now composes 40 percent of the cost of everything we buy!
The table is tilted, the system is rigged. The banking/monetary system, the very way money is created, is the largest part of what maintains the inequity we now suffer under. Why do private for-profit bankers get the right to create money from debt, and charge interest for doing this? They get endless free money, skimming 40% from every dollar you spend. The interest is compounded, and last forever. The vast majority of all collected tax money goes to service a debt owed to private for-profit bankers. We the people should create the money we need through the government, money that is not based on debt, and is interest free. This broken system must change. Period.
http://www.truth-out.org/time-economic-bill-rights/1320938466
Corporate fascism is real. It is currently titled, The Republican Party. It has an odd mixture of followers....neocons, theocons, dumb people, rich people, middle class suburbanites, mean old senile people....but the ideology is based upon false assumptions and it's followers don't really care. They only want to preserve the fairy tale they have adopted.
"The vast majority of all collected tax money goes to service a debt owed to private for-profit bankers."
Can you cite your source here?
Very few have any idea that this nation has never even paid the note for the Civil War. It's all been imaginary money ever since. Even fewer realize exactly what has and is actual collateral on the two bankruptcies.
Money is always imagination.
No, some things have intrinsic and time proven value of which does not change. You haven't bartered for many things in your life, have you?
I have, I've bartered for things of which a stack of FRNs, totalling more than $100K, wouldn't touch.
Money is always imagination.
Yes, but even if you go back to gold coins, you are dealing with a currency whose value can be manipulated.
I guess we could go back to bartering.
If the currency can have it's value manipulated, it is not absolute currency. Gold's value has remained constant for many years, and it's demand has not lessened. The same can be said for many other elements.
Have you ever bought any large quantities of semi-precious high temperature white metals? Better than gold, in some instances.
There is no absolute currency....never has been.
Let me ask you this, how preposterous does it sound to you to completely divorce the people's government from any regulation regarding publicly owned corporations, banks and all activities of the stock exchange?
Taxation on them based strictly on wealth produced and eliminate all loopholes, no more subsides or incentives. But if they want to fraud people, allow people to form their own casino contracts and bring their causes to court if there is a breach.
I don't want to pay thousands of inefficient and often corrupt bureaucrats to protect, or in our reality today, not protect people from their own greed and laziness, especially when they foolishly choose to square off against formidable financial experts whose clear intent is only to make themselves far wealthier.
I truly believe, that people who choose to involve themselves in swimming with sharks shouldn't be bothering prudent citizens with their cries of foul play. After all, it is their own greed that has them investing their "wealth" to increase it via pure wealth extraction, with no value added, off the works and production of those who do work.
And then make it unlawful to speculate on commodities deemed to be necessary in sustaining our existences here on this planet?
I'm even for abolishing all wealth extraction enterprises which do so while blatantly adding no value, and in some cases, decreasing the actual value while driving consumer costs upwards.
You certainly do not hear people crying how the people's government should help them because they lost their money at the race track or casino. What did the bailed out people invest in with their free or nearly free tax payer money? Many bought TBills, like patriots used to do, when there was faith in our nation.
Zero interest loans, backed by tax payers, converted to TBills guaranteed at a 4% ROI, and bingo, multi-million dollar bonuses for those who plotted and executed these schemes, which were much more reserved and conservative than what many others did with their free loans.
However, I'm not making light of the actual fraud and foul play perpetrated on many by financial sectors, and I've experienced it myself by signing a debt instrument of which I had to learn the hard way, the meanings of all the onerous and tedious fine print, much of which, clearly shows no intent, on behalf of financial institutions, to act in good faith.
I'm fortunate that it worked out well for me and I know many others have not been so lucky.
Would you agree that substance backed currency is better than Fiat debt instruments?
Frankly, I like bartering value for value and both parties walking away certain they got the better end of the deal. One of my definitions of a bargain.
i read the article and thanks for posting. the one possibility that is not addressed in the article is that the federal reserve knows full well that keeping funds rate near zero and the inflation rate low, coupled with awarding the banks for hanging onto their reserves, will keep loans to a minimum and keep the economy in a depressed state. the columnist takes it for granted that the fed is working with the common citizens best interests in mind.
Yes, everything remains very frozen. It is like the groundhog emerging from his hole at spring. Everyone keeps waiting for a robin to be pecking at their door and that is making the winter last even longer.
I think that if you believe that the Fed is against the best interests of our economy then you are suggesting a conspiracy involving hundreds of independent Federal reserve employees and leaders.
i don't claim to understand it all, but what i do know of the organization leads me to think that they are a shady bunch. for one, they are not a government body. when asked what andrew jackson prized most of his presidency, he replied, "i defeated the central bank". i do understand that the central bank is not the federal reserve, however, they are similar in that the central bank was a private institution, and so is the federal reserve. lincoln was killed when he threatened to go back to printing greenbacks after the civil war. john f. kennedy was making moves to do the same thing when he was assassinated.
i know all of this sounds like a bunch of conspiracy theory rhetoric but all the facts are out there for one that wants to know the history of our privately run banking system.
let me ask you this, ben bernanke was chosen to fill the most important economic position in this government not to mention a very important player in the world, responsible for making decisions that effect the whole nation and we are to believe that he is so naive that he somehow is missing what the columnist is saying. a concept that makes perfect sense and is fairly simple to comprehend (i claim to be no scholar in economics and i didn't have any difficulty with it).
the argument that hundreds would have to be involved really doesn't stand up as with these things, very few people at the top would be all that would be needed to do exactly what that organization is set up to do, manipulate the countries economy. it is important to understand that the federal reserve is a private institution. it is owned by a number of banking families who prefer to remain anonymous.
People have always demonized what they do not understand and, honestly, the Fed is often unsure of how to act. But, their interests are tied to our country and these men go to bed every night wondering what else can be done to turn this shitpot around.
In the past, particularly under Alan Greenspan, the Fed was held in very high regard. However, history has shown that Greenspan talked nonsense because his ideology was nonsense. Let's hope that the Fed, currently demonized, will be remembered for its historic attempts in our financial crisis.
based on your prior posts, i consider you a learned man that understands the workings of things more than most, so let me ask you if you do not mind, how do you know that "these men go to bed every night wondering what else can be done to turn this shitpot around."?
"these men go to bed every night wondering what else can be done to turn this shitpot around."?
how many people do you personally know that you could honestly say are social deviants, just for no reason but to be evil? It has been my understanding that people do what they personally feel are the best actions in their current predicament. the fed is a mockery to the nation when no one trusts them, so it is in their interests to garner american trust, not a faction's trust. no?
Do you understand everything your doctor tells you?
Do you understand everything you pilot must know to fly an airplane?
The Fed looks at hundreds and hundreds of variables and tries to formulate the correct monetary policy.
However, if you have simply 10 assumptions and each has a 5% chance of being irrelevant or incorrect in directing a particular choice, then the chances our you overall decision making are little better than chance.
The Fed has a tough job. An impossible job. An unpopular job at the moment.
But, if you allow are trying to plug a deflationary hole like the one we experienced in 2008 and 2009, then you will have to flood money....liquidity.....everywhere just to keep credit flowing and the banking system solvent.
The absence of a credit system across this country would have led to things that I don't believe you could imagine.
Because Ben Bernanke has become a Keynesian.
i'd say there is three ways the standard of living will rise, one, we past a fair progressive tax. two, we put people to work. three we leave the fed alone so they can flood the market with money. envision a house fire and the fed as the fire man. as a nation we could get together, and put the house out our selves, taxes. or those with all the private fire men could use their resources to put it out, jobs. 'o yeah, four, we could all respect each other.
Inflation is the only answer....but not runaway inflation. It is a tightrope for the Fed.
Deflation, again, in an inefficient method of economic readjustment and it creams the little guy. Inflation allows a smoother transition and effects those of high net worth more than the general population.
This is why the wealthy have demonized the Fed.
In either event, whether we get there by deflation or inflation, as a nation we are not as rich as we once thought we were.
I think that if you believe that the Fed is against the best interests of our economy then you are suggesting a conspiracy involving hundreds of independent Federal reserve employees and leaders.
Not a conspiracy. Just the result of people motivated by the same thing given a monopoly control over our currency.
The politicians benefit by making the costs of their actions harder to see. The businesses profit because they get government contracts from the politicians and then give a tiny percent of that back to re-elect the politicians. The banks profit because they get lent money at artificially low interest rates and get to spend it before it gets devalued thus generating money for themselves at the cost of the value of all other dollars in circulation.
Banks don't spend money, they lend it. If there is an excess money supply, there is usually inflation. If there is inflation, past loans become devalued and banks are paid back in dollars that are of less value.
In 1920's Germany, where rents were controlled or contracted, landlords simply stopped collecting the rent because the money was worthless.
All parties have strong incentives for economic growth and low inflation.....except debtors. Debtors love inflation and that is who we need to help now at the expense of the banks, Chinese holders of our dollar, and high net worth individuals/entities. This may lead to higher interest rates in the long run, but it will help plug the foreclosure spiral for now.
Yes banks get to loan the money they borrow from the Fed at very low rates they also use fractional banking to further loan out these funds. As the money supply increases we get an increase in prices however it isn't until that newly created money is fully observed (realized to exist) that this increase hits (12-18 month lag normally).
This means the banks are loaning the newly created money at full buying power while as it gets used it loses buying power. This is most advantageous to the banks and those who control it - who then by real assets with that purchasing power before the money they used to buy those assets suffers the effects of the loss in purchasing power.
I agree debtor's love inflation but that isn't a reason we should encourage it. Inflation destroys the ability to save because it forces individuals to move their money into areas of market risk. It also keeps the poor poor since they don't have the ability to move their assets into goods not subject to inflation or even to durable goods to protect future use from inflation. They are also the last to use the dollar so experience the full weight of the fully realized monetary expansion.
In short the banks get dollars that are magically created to get profit. The purchasing power of that new magic money is pulled out of all existing money. This acts as a wealth transfer from all users of money (the closer to paycheck to paycheck the are the more you use it more often) to the banks.
It is the clearest and most devious transfer of wealth from the 99% to the 1% that there is.
“If you feed enough oats to the horse, some will pass through to feed the sparrows."
Banks require collateral in order to use the discount window of the Fed....but one man's collateral is another man's liability.....and that is why Bank's want your checking and saving's accounts.
The result is more money into the system. While this may benefit the wealthy, it also can help all. Simply increasing the money supply, in the absence of inflation, does not target it's benefits to any one particular group.
Inflation is an increase in the money supply which can result in higher prices. - I go by the Austrian definition of inflation.
That being said increasing the money supply confuses market signals about the real availability of funds - remember money being in the present available would in a real market show a preference for current consumption as opposed to future. This would allow the capital to flow into the ramping up of production to meet that current demand. However this market signal doesn't exist or is corrupted when money is released without signifying anything.
Monetary expansion must be weighed against the velocity of capital. In my opinion, it is the product of the two that predicts inflationary trends.
Of course, when inflation is underway, there develops a positive feedback of people spending now in fear of their retained dollars dropping in value. This increases the velocity of money more quickly than the Fed can clamp it down.
This is somewhat happened in the late 1970's and ended when Paul Volcker locked down the flow of capital in 1980-81.
The Revolution has a new song!
http://www.youtube.com/watch?v=P89PlNkk0eY&feature=related
http://occupywallst.org/forum/make-a-stand-join-the-clan/
The Revolution starts here!
People just need to pay off their debts, both personal, business and federal. Than we need to start a society that lives within it's means for the next 100 years until the population reduces again.
Everyone should pay their debts.....but, with prevailing rates.
This program does not cancel out any debt. It only provides an avenue for those underwater to dig their way out.
We will have inflation and also war may very well be on the horizon also. If war breaks out, then the US will be fighting against several other Countries. If we get in a conflict with Iran then China and Russia will both side with them. Iran's nuclear rocket making abilities have taken a downturn lately as it appears they had some explosions at a few of their nuclear facilities. That is not saying though that they may have operations elsewhere to.
I think that trade wars will be framed in terms of currency wars. If the US does better devaluing the dollar, then they will follow suit.
The only thing that has restrained this impulse has been large foreign holders of our treasuries. If those guys don't buy treasuries at low rates, then interest rates would spike.
The Fed is walking a tightrope.
“New occupy website launched to protest Fannie Mae and Freddie Mac”
For Immediate Release
(New York, NY November 19, 2012)---Thursday marks the second month since the Occupy Wall Street movement began, but now there’s a new way residents in each state can show their support for the movement with the purchase of a T-shirt. “We’ve officially launched OccupyFreddie.org and OccupyFannie.org, where both websites will raise awareness and call citizens to non-violent action through the vehicle of public protests at both headquarters,” said Aaron Fraser, developer and spokesman for the new websites. The protest, funded and sponsored by Gotham Dating Partners Inc., will be held Nov. 28 at the Freddie Mac building in the 8200 block of Jones Branch Drive, McLean, Va. and Nov. 29 at the Fannie Mae headquarters, located in the 3900 block of Wisconsin Avenue in Washington, D.C. “The public can go to OccupyFreddie.org and OccupyFannie.org website to buy shirts to participate in the movement, Fraser said, before adding, “I want to connect with the young and old who are tired of corporate greed and want to show it by publically protesting.” Fraser explained that the protest’s primary goal is to help bring an end to what he believes is corporate greed. “It is also an attempt to bring all of the occupy movements under one umbrella,” Fraser noted. The Occupy movement has, however, had its share of setback. Early Monday, police raided and evicted the Occupy Oakland camp that had been pitched outside of City Hall for more than a month. Lines of police in riot gear closed in around 5 a.m. on the hundreds of protesters who had gathered at Frank H. Ogawa plaza in anticipation of the eviction. “Right now is the time for us all to join together to show that the Occupy movement will continue to fight against corporate greed across America,” Fraser said. “We have Occupy T-shirts for every state. By registering with our website, the public can be informed of upcoming demonstrations in their area.” A portion of the proceeds, Fraser said, will go towards feeding those protesting. “We are asking Americans to protest the corporate greed found in places like Freddie Mac and Fannie Mae while middle class Americans lose their homes while executives at Freddie Mac and Fannie Mae have decided to give themselves millions in bonuses,” Fraser said. Karen Johnson, 42, a participant in Occupy Houston, said she would be more than willing to support the new site with the purchase of a T-shirt and encouraged others to do the same. “It really is a shame how companies, the banks and more are literally sitting on millions in funds that we the taxpayers bailed them out with and they won’t even use it to hire us or give out loans, which is what the bailouts were for in the first place,” Johnson stressed. “I am tired of all the corporate greed, I am tired of seeing millions of people in America suffer when they don’t have to, I am just sick and tired of being sick and tired, so I will definitely buy a T-shirt. I may even buy a couple of T-shirts just for additional resources. I hope others will do it do.”
For more information, please visit: OccupyFreddie.org and OccupyFannie.org
It's too late to protest Freddie and Fannie.....you now own them and they are, today, being run like they should have been for the last 20 years.
You cant inlfate your way out of 50t
You can't deflate yourself out of it either.
Let's see the Fed fix the $600 Trillion Time Bomb.
There has always been a debt bomb in America......the same arguments we're having today were discussed in 1919.
Let's try to avoid their mistakes.
Conservatism = Paying Your Fucking Bills
Instead of more inflation, they should just nationalize the federal reserve and end the debt based system entirely. The way the federal reserve operates is not in accordance to Section 1 Article 8 of the constitution.
You cannot have a modern industrial state without a central bank.
How so? And what exactly do you mean by central bank?
Look up HR 2990 the National Emergency Employment Defense Act of 2011
You cannot have a modern credit system without a central bank.
no one is suggesting to get rid of banks. That's why there's a huge support for credit unions and such that didn't receive bailout money. They're just saying don't continue to let the federal reserve have a privatized debt based monetary system.
Read Section 1 Article 8 of the constitution. We can still have banks, we just won't have the federal reserve in the way it's currently setup.
Look up HR 2990 the National Emergency Employment Defense Act of 2011
There are transactions so large that a central bank is essential.
Illegal transactions like the printing of 7.7 trillion dollars for their own private interests?
END THE FED
7.7 trillion dollars created from nothing http://www.youtube.com/watch?v=d9_nHOeKWgI
But, I have never truly understood what would take the Fed's place or how corruption, bad judgment, and human nature could be taken out of the calculation.
It is a sad irony, but the Fed was following Keynes horse and oats metaphor when they repumped the system with liquidity. They were tying to plug a 56 trillion dollar hole.....left by the evaporation of the derivatives and securities market.....and I was actually surprised that the number was this LOW.
What is criminal, however, is that they structured the money in such a way that banks could earn between 1 to 3 % on these borrowings without actually loaning the money out into the broader economy. (The banks just lent the money to the government by purchasing AAA securities and were paid interest on those bonds).
The Fed had the biggest hand in history and they folded before the first bet.
Check out HR 2990, the NEED act, if you haven't already done so. Also check out section 1 article 8 of the constitution, if you haven't already done so.
Will get reading. Thanx.
Sir, I completely agree. However, tread lightly with obvious wise truth to masses. So many among all people are fearful of any righteous changes which may not be painless for them.
I also believe publicly owned corporations, the stock market and all forms of wealth extraction, which add zero value, should be abolished as well.
Do You Mean (Keynsian?) REFLATION {Public Sector Expenditure and Investment In Large Scale Infrastructure Capital Projects etc.} ?
OR do you believe that ... An Increase In The General Level Of Prices & The Cost Of Living is somehow desirable ?!
Also perhaps see : http://topdocumentaryfilms.com/category/economics/ .
e tenebris, lux ?!!
By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. - John Maynard Keynes
Both are inevitable.
necesse non oportet
It doesn't behoove us, but is necessary? Latin novice here.
What is inevitable here is an efficient method of adjusting to our excessive debt. We have found out that we are not as rich as we thought we are now we are left with two choices......adjust wages and prices downward while paying off old inflated debts with dollars that are now worth more (due to deflation) being spent elsewhere (thus encouraging people to walk away from their debts.....in worsening deflation) OR you pump money into the system with monetary and fiscal policies so that the old debts get devalued by inflation while wages remain fairly stable.
The difference in the two scenarios lies in who gets screwed.....adjusting to the new world via deflation screws the little guy while protecting the high net worth entities. Adjusting via inflation screws banks and those of high net worth.
It is a war of priorities......but, in strictly economic terms......it is more efficient to utilize inflation.
In the end, we are all a little poorer. But, we stand on the edge of a period of great calamity and pain. It would be best to choose the most efficient method of getting the world back to some form of normal.
I'm with you on inflation. Have been reading on the subject for the past couple of hours and Krugman makes the case well. There are additional benefits to devaluation as well...
But my question was on your latin phrase. :) It's a little subtle for me - necesse and oportet are near-synonymous, no?
"inevitable, not desirable"
Thank you; and good thread, as usual.
Thank you.
Though 'Inflation' may well be inevitable in certain economic circumstances, I am extremely confused as to how 'Reflation' is "inevitable", as it is a Conscious Decision of Economic Policy !!
Because it is the only way out.
Quantitative Easing: http://www.youtube.com/watch?v=PTUY16CkS-k
Quantitative Easing = "Queasing" (ie 'that which is bound to leave one feeling nauseous!) = 'Bail Outs' {by another name!} of Banks and Corporations BY Private Central Banks, with the actual long term tab being picked up by The 99% and Their Future Generations via 'long term austerity' and the 'impoverishment of the commons'.
fiat lux et fiat justitia ruat coelum ...
You have no idea what a deflationary spiral looks like.
The last time it happened in this country was 1932. Go read for the next year what that year was like and then maybe I will find you intelligent enough to insult.
Until then, you have my pity.
I don't understand.
[Removed]
Marxism is theology without God. Marx realized the common hope of man, is finally heaven, or in his concept, a perfect world. But, Marx thought...why wait until you die to go to heaven. Marx believed heaven could be brought down to earth. Man could claim the righteous crown of the divine and become an Uberman. Rightly so, with the right political, environmental, occupation - the natural evolutionary process would optimize and create the superman.
No facts about Marxism here, but this comment does include a segue from ad hominem remarks about Marx to the zarathustran thought of Nietzsche, who was writing 30-40 years after. Anachronism is what that is called.
The Republican party is corporatism without God. Ronald Reagan has become Jesus. Barry Goldwater was his John the Baptist. Moses was William Buckley. The Laffer Curve has become the Sermon on the Mount. The Apostle Paul is, of course, Rush Limbaugh. Ann Coulter is Mary....oooooohhh.....and Obama is your antichrist.
Now you're just being silly. These forums are for serious discussion, if you don't have something pertinent to say, just keep it to yourself.
BTW, a UFO was spotted over near the San Francisco OWS.
http://epod.usra.edu/.a/6a0105371bb32c970b0162fc4065bf970d-pi
Next time you're in your church and hear someone discussing politics, do this little test. Merge into the conversation and, while they are badmouthing Obama, say that you were hoping Hillary would win.
Watch their faces. Watch them float away from you like you just floated a bear muffin. And, most of all, watch them never look at you the same again.
Religion has been corrupted with Republicanism.
I attend a fundamentalist Baptist church. Several of the people are straight Democrats. They belong to a Union. The reason many church going Bible believing people are Rep. is because of the Rep. parties so-called moral stance. Which I am a bit skepticaI. I consider myself a fundamentalist, and I am politically independent. It's a God given right to believe what you want to. As far as the "separation of church and state." You can thank the Baptists for that. Talk about bad mouthing Obama, I've witnessed many of the "99%" distance themselves from his political corporatism. So, the old saying goes, "you can not judge a book by it's cover. Stereotyping people can only cloud your judgement.
I support the OWS movement 100%. I do not agree with their grass-root philosophy, but we all can agree on this Government is not listening to the people.
Why does everything have to be in video? Are you some art student?
This is just a rehash of the liquidity trap. As if the Fed can only print money for banks! There have been plenty of "stealth quantitative easing measures", which basically entail the Fed printing money for government spending.
The fix for the liquidity trap is what's known as a Helicopter Drop: http://en.wikipedia.org/wiki/Helicopter_drop
That's what FDR did in the 30s, and that's probably what the Bernank will do eventually.
Yes. Keynes thought that monetary policy could only do so much. If the velocity of money is zero, infinite monetary stimulus gives zero. So, all of those underwater mortgages and other loans act as a monetary black hole. Any money going to individuals holding old (now inflated in nominal dollar terms) debt, is primarily directed at servicing that debt and not to spending or bank deposits (where it could have a multiplier effect and increase the money supply). So, your point is will made....if people expect deflation, they will service old debt and will otherwise wait for prices to continue dropping. We just sold our old house, so I've seen this dynamic in action.
The only way out, as shown in the Great Depression, is overwhelming monetary support coupled to fiscal stimulus. In the 1930's this role was finally played by our support of Britain and eventual entry into WWII.
Krugman has suggested that we now imagine that we have been attacked again and start making things....anything....but get the fiscal wheels rolling.
I wonder how many teabaggers or Libertarians actually understand the dilemmas we face.
Well there are other solutions - the most obvious of which is "debt jubilee". That term terrifies the 1% because it means all debt is forgiven. Since the 1%'s entire wealth and power structure is based on EXTRACTING LABOR TO SERVICE UNPAYABLE DEBT, debt jubilee would mean their immediate fall.
Interestingly, the Bible talks of debt jubilees every 100 or so years... Probably the debt/default cycle was somewhat accelerated because they didn't have fractional reserve banking, mostly it was just "usury" by smaller lenders. In our age, the monetary authorities just keep enlarging the money supply because it's not based on anything of value!
Hyperinflation will hurt everyone, but there will be increasing pressure upon the Fed and Congress to act if home prices continue to fall. That stage of this depression will occur when everything else has been tried...and has failed....and we begin to look like Japan in the 1990's. I have been buying rentals in anticipation of this necessary transition. I'm borrowing at today's rates anticipating that inflation and a rise in rates will be inevitable. Hopefully, for all of the reasons here discussed, I'm right.
Inflation is like being robbed every day yet being unable to do anything about it, except borrow more. Deflation is only a problem if you are in debt (as previously mentioned). If all debt were forgiven, a mass deflation could fix the economy.
There's only one "problem" with that - the world system of "economic slavery" would stop functioning!
Your investment strategy could work, it depends on what area you are in (you don't want to "catch a falling dagger"), and what policies to encourage lending are implemented in the next few years. Oh, and if the financial and economic systems are brought to a lurching halt by the Occupy movements of the world...
Ya. Falling daggers hurt. But, I look at the cash flows...not the day to day property values. In the long run, if you can find a home or properties that you can own for the rest of your life....buy them now and keep buying as long as <5% rates last.
I'm thinking more along the lines of "exit the rat-race of excess material wealth".
In October 2010, Nobel laureate Joseph Stiglitz explained how the U.S. Federal Reserve was implementing another monetary policy—creating currency—to combat the liquidity trap.[4] Stiglitz noted that the Federal Reserve intended, by creating $600 billion and inserting this directly into banks, to spur banks to finance more domestic loans and refinance mortgages. However, Stiglitz pointed out that banks were instead spending the money in more profitable areas by investing internationally in commodities and the emerging markets. Banks were also investing in foreign currencies which, Stiglitz and others[5] point out, may lead to currency wars while China redirects its currency holdings away from the United States.
This is the key failure of the Fed's policy.
Well, it's only a failure if you believe the Fed's PUBLICLY STATED OBJECTIVE. And... why would you believe that? Right now, they've successfully accomplished one of the largest and most rapid transfers of wealth from the middle to the top 1%. I see no reason to doubt that this is their objective.
Remember how the banks praised the affordable housing programs, saying "more Americans can recognize the dream of home ownership"? In reality they were just pumping CDOs and other derivatives which required borrowers. Always read between the lies...
I don't think that you know about the lines. The Fed had no part in bundling of securities or their sale around the world.
Where did I say that the Fed bundled securities or sold them? Actually the Fed BOUGHT the securities from their buddies who were stuck with them!
You missed my main point: you took the Fed's publicly stated objective at face value, and accused them of failure. Funny, the IMF says the same thing - they've "failed at alleviating poverty".
The Fed was attempting to stop the dominoes of major bank failures. Over 12 trillion dollars suddenly evaporated and the entire solvency of our credit system was threatened. The Fed did some crazy things, but it was determined to make the mistake of doing too much rather than too little. Someday, your kids will study this era and how the Fed tried to avoid the mistakes of the Great Depression. Hopefully, that story has a happy ending.
Now you're telling fairy tales. Major bank failures have happened hundreds of times in the past 40 years, read up on Sweden, Argentina, Hungary, etc. There is plenty of academic work on the different ways to handle this problem, it's really not a big deal at all. Under no circumstances is wise to keep "zombie banks" alive. You nationalize them and/or write down their debt. The government bails out depositors and the holders of the debt eat it.
The 12 trillion dollars that "evaporated" wasn't real to begin with, it was lent into existence and subsequently deleveraged. Their "credit system" (not ours) was confronted by facts on the ground: "stop the fraud because the bubble is too big". The Fed just perpetuated it. Now they expect the 99% to eat the bad debt. Nope. The history books certainly won't praise this failure.
That is why I have another forum topic..."Inflation is the only answer." The Fed has done everything it can do to bring on a low grade inflation rate that will translate to stabilizing home prices. However, the housing sector is still deleveraging and will be for the next five years. Unfortunately, people are now paying off inflated debts on deflated assets using deflated dollars. Only food prices and some commodities have shown some inflationary effects....and that hurts mainly poor people.
For the target rate of inflation to kick in, velocity of money trends must hasten and that will require a more aggressive fiscal policy from congress.
Once again I have to disagree about inflation being the only answer. Inflation only helps people in debt, and (more importantly) only if wages rise during the inflation. Of course, wages generally trail behind inflation by 3-5 years. This means that inflation will HURT the VAST majority of people for 3-5 years.
The obvious alternative is to FORGIVE DEBT: student loans, credit cards, mortgages, etc. This could fix our economy overnight.
In any scenario, we are all going to be "poorer" than we were in 2006. The advantage of inflation over deflation is that companies will have products made with lower dollar value inputs versus their inflated final sales price. That tends to provide a temporary cushion for producers and unemployment tends not to worsen.
With deflation, the price of inputs for companies are purchased with overvalued dollars and the products are sold for the price of devalued dollars.....unemployment explodes.
This is overly simplified, but a fair characterization of the dynamics.
Inflation.....or a World War.....are the only answers.
please put an exert from the article in this thread
Feel free to.
Yep. See my post at http://occupywallst.org/forum/what-is-money/
There are various means of creating inflation. Friedman would say that any condition that creates an excess of currency will end in inflation. You can cut taxes, raise government spending, print more dollars.....whatever increases the effective money supply and gets people spending.
But, the problem is that we have, even in good years, racking up huge deficits. Thank you, George Bush. So, the options we are left with are limited.
I would suggest this solution. If it is adopted, realize that you read it here first and I may someday go down in history as one of the greatest economic thinkers of the 21st century.
The idea is simple. Give tax cuts to those who need the money and make it revenue neutral by increasing taxes on those who don't need the money and whom are not spending enough. (ie. increase upper bracket taxes while lowering middle and lower effective rates).
Coupled with the Fed's incredible excesses in monetizing our debt, this fiscal stimulus....although revenue neutral....would increase the money supply, juice the economy, and produce some devaluation of debt (including mortgage debt) that would allow some equilibrium to reform.
Wouldn't it create inflation insofar as the number of dollars grows faster then the worldwide value of dollar denominated goods and services?
Problem one... you're giving the money directly to the public without letting the politicians direct it through the projects of their constituents and backers. That will never do, there's too much political power being wasted !
Problem two... you can't cut taxes on the lower brackets because they're not paying any ! I suppose you could introduce a "poor credit."
Frankly, I don't think we need to worry about the money supply until sometime after Europe recovers. As it stands, everyone is in a panic, and we can't seem to print enough dollars to meet demand ! We may as well print a bunch more and give them to the public ! The Chinese probably wouldn't even care as long as we issued them on Wall-Mart Gift cards 'cause they'd get 'em all anyway ;o)
Someday, the world WILL transition to Keynes' 'Bancor' in the form of IMF SDRs, and our free ride will be over. Hopefully I'll dead before then !
Problem two... you can't cut taxes on the lower brackets because they're not paying any ! I suppose you could introduce a "poor credit."
That's not true. Poorer individuals still pay payroll, state, and sale's taxes. These are all more regressive and hit the poor very hard. You could continue the payroll tax break....or increase it....you could increase the deduction for state and property taxes.
That statistic regarding the poor paying no income taxes is therefore misleading. The poor PAY A HIGHER PERCENTAGE OF THEIR EARNINGS TOWARDS TAXES than the wealthy. They do so, however, by routes different than the federal income tax.
I wasn't being critical. I was discussing a "zero bound" problem at the federal level.
The "zero bound" has not been reached if you look at the spectrum of taxes that the poor face. I just renewed our vehicle registrations online and it occurred to me that this would be a lot of money for a poor person. So many taxes are not tied to income or net worth. Anyway, point taken.
inflation would be a disaster for my $10,000,000 bank account
it would then be worth only $9,000,000. I would cry!
If you have 10m in a bank, then you should first allow me to manage your money. Second, if we have a second collapse, then your bank will not survive and your 10m will be gone. Finally, if you have 10m, then you should be having your mexican housekeeper answering these posts for you.
This is worth reading - at least, it contradicts the ubiquitous news reports of late that the Fed has used up all its tools and is now unable to do anything to affect the economy.
Deflation crisis coming.
a "deflationary spiral" Well, Mr P, get ready for Q2; Q3; Q4
I'm sure Uncle Ben would get a kick out of you.
You seem to be understanding what you are learning about economics, but tend to use the knowledge presumptuously.
If you think you have the answer on deflation, I suggest you go help Japan. Japan has been trapped for some time.
Give'em a call...tell me how it goes.
Japan never dealt with it's underlying issues and you ended up with Phantom banks with hidden debts and the inability to loan.
Our banks are experiencing the same thing in waves. Each downtick in home prices creates a de facto hidden debt that is now presumed to be weakening the banking industry. Consequently, every bit of momentum we get in this economy is quickly dissipated.
The only answer is another round of stimulus for defense and infrastructure projects. The stimulus should be limited to these two because, if it goes directly to consumer spending initiatives, it will be short lived and excessively inflationary. In any event, such an initiative today would not have effects for two years.....so, we're running out of time.
You are correct! let the U.S. bring the money back home and fix up our own backyard!
How do we stop spending money on the wrong things?
Have you ever read the parable of Icarus?
Ben and the FED could exclaim, "I flew too close to the sun on wings of paper."
Right now all that matters is spending upon ANYTHING. We just need to get money moving and the jobs will follow.
First Power, Then Change.
When did Beavis and Butthead come back on MTV?
My lord, there needs to be more on television.
The League, Archer, Madmen, and now Beavis and Butthead. How will I get anything done?
Hey Puffster, I think you might be my neighbor, what job do you have? Are you divorced and overweight?
Volcker employed a "price rule" starting in early 1980.
Inflation happens when our money supply is being diluted like with Q1 and Q2...
Unfortunately we have a mixed economy with government central planning and some free market principles. But yes the Fed suppresses the interest rates.. Interest rates NEED to go up.
Inflation is already happening....but it is in disguise.
What inflation? Can you show a chart? Seems to me inflation isn't a problem, and in other periods of our history has helped us solve our debt problems. See (from your favorite economist): http://krugman.blogs.nytimes.com/2011/09/19/when-inflation-was-good/
No inflation does not exist according to our government but look at your salary...did it go up? Did your health insurance go up? Did your groceries go up in price? Everything around me is going up in price including the price of gold and silver. but to the contrary...my assets are going down in price like my house.
Real inflation can be found throughout this table:
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
Right now it's nothing. Wage stagnation is not inflation. Neither are commodity bubbles, including the price of gold, silver and oil.
Did you read the Krugman piece?
Yeh...why don't you check out Bernie Sanders website....and notice how the Fed gave away 16 trillion of our taxdollars to foreign banks?
Why don't you?
The government lies to the people Mr Looselyhuman. The price of Gold and Silver is going up.....or better I should say...since we have had Q1 and Q2 which are basically dilutions of our money supply....there is inflation. The price of gold has been the same throughout history. Its the dollar that is going down in value because more and more is being printed!
Sanders is about auditng the Fed, and is for more transparency - not abolishing it; I'm with him. The 16T has little to do with this conversation, but you might get in on this with Rico: http://occupywallst.org/forum/inflation-is-the-only-answer/#comment-319502
Not inflationary enough. Much more needs to be done. Gold, silver, bubble.
Bernie Sanders DILUTED the BI PARTISAN Audit the Fed bill by Alan Grayson and Ron P A U L.
This diluted version brought to light that 16 trillion of your taxdollars was given away to foreign banks...
As for inflation...anytime you DILUTE the money supply by merely printing more paper dollars....its called inflation. You need more dollars to buy the same product!
Quantitative Easing Explained
http://www.youtube.com/watch?v=PTUY16CkS-k
Which is why inflation is a good and necessary thing, especially considering the debt. We need more QE and more devaluing - because inflation right now just ain't happening like it needs to be. If you read the Krugman piece you'd see the levels that helped us with WWII debt, and we're nowhere near it. Tight money and austerity is regressive. We need to be progressive and get the economy growing again.
goodluck ;)
We'll talk again after all this is over.
OMG! You're a moron! The government admits it at 3.53% (http://www.bls.gov/cpi/). So you're already wrong.
Now let me try to put this in terms even an arrogant, know-it-all liberal asshole can understand.
If a bag of stuff or tank of gas (I don't care that gas is not part of the CPI) a year ago cost $20 then today it costs a mere $20.71.
You won't find too many people in grocery stores or at the pump who think inflation is 3.53%.
You don't know real inflation:
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
Now can anyone show me a clear correlation between QE and overall inflation? Seriously. Graph would be good.
And none of it addresses Puff's excellent point that inflation is (partly) the way out of this mess.
Also, and unrelated because gasoline price is not a function of inflation but more of peak oil, speculation, and geopolitics, but I won't be satisfied until gasoline is $10/gallon, which will start to approach its actual cost with externalities factored in.
Yes....but we have a tub with a lot of separate chambers. The stimulus we are providing is, in part, going to the Chinese and other major exporters, and is raising commodity and food prices more than it is helping home prices.
The Feds ultimate aim is to slow the deflationary spiral in home prices, but there remains a gaping hole in that chamber (continuing foreclosures) and the stimulus will eventually overflow the other chambers of our economy and produce inflation.
That may be the chemotherapy we need.....we're going to feel like puking for a while.....but we are trying to keep the patient alive for the long run.
Of course, in the long run, we are all dead. But, it would be nice to hand our grandkids a functional world.
Real inflation will rear it's head when the deflationary effects of housing and unemployment begin to lessen.
The next president will get blamed for any drastic rising inflation.
Obama will be re-elected.
I had to take your point for that comment. But you might be right...he is from Chicago.
HERE IS THE ARTICLE, PART I
What Can the Fed Do?
Ending the subsidy to banks for not lending would help
By BRUCE BARTLETT, The Fiscal Times July 23, 2010
This week, Federal Reserve Board chairman Ben Bernanke testified before Congress that the Fed is prepared to take additional actions to stimulate the economy in the event that growth falters. Unfortunately, the Fed does not yet appear to be considering an end to its ill-advised policy of paying interest on excess reserves at banks, which is in effect a subsidy to them for not lending.
Historically, the Fed operates primarily through short-term interest rates. It largely controls a special rate called the federal funds rate, which is the rate at which banks borrow reserves from each other on overnight loans.
Although it is generally assumed that the fed funds rate automatically impacts longer-term rates, there is little evidence that this is the case. In 2004, the fed funds rate was 1.35 percent, the corporate bond rate was 5.63 percent, and the home mortgage rate was 5.77 percent. Then the Fed tightened and the fed funds rate rose to 5 percent. But the corporate bond rate was about the same at 5.56 percent and so was the mortgage rate at 6.41 percent. Now the fed funds rate is close to zero and the corporate bond rate is 4.69 percent and the mortgage rate is just over 5 percent.
Accounting for Inflation There are many reasons why long-term rates don’t necessarily move with short-term rates. One is risk — the further out one goes in terms of a loan’s maturity, the greater the risk of default or some other factor, such as a deep recession, that might impair a borrower’s ability to repay. Another important risk is inflation, which would erode the principal of the loan.
Suppose we start from a period of zero expected inflation and the nominal interest rate is 3 percent. Then that will also be the real rate. But if inflation unexpectedly rises to 5 percent, then the real interest rate will fall to negative 2 percent (three minus five). The lender will be repaid in dollars worth less than he lent and lose money on the deal.
To protect themselves, lenders will include an inflation premium in interest rates if they have reason to expect inflation. Thus, if the real interest rate is 3 percent and inflation is expected to be 5 percent over the life of a loan, then lenders will demand a market rate of 8 percent (three plus five). The problem, of course, is that it’s very hard to predict inflation and harder still to measure inflationary expectations.
In the Case of Deflation The opposite situation comes about when there is deflation — a falling price level. Rather than being subtracted from market rates to calculate the real rate, deflation adds to market rates. If the market rate is 3 percent and prices are falling at a 5 percent rate, then the real rate is actually 8 percent. Consequently, during deflationary conditions market interest rates that are quite low may actually be quite high in real terms.
As long as there is inflation, the Fed can create negative real rates if it chooses to do so by reducing the fed funds rate below the inflation rate. But the Fed has a serious problem when deflation is the problem because it can’t cut the fed funds rate below zero. (This is known as the zero bound problem.) If the deflation is modest, the Fed can do what it has been doing and reduce the funds rate close to zero. But if the deflation is serious then the proper fed funds rate may need to be negative.
But no lender is ever going to lend at a negative market interest rate; he will just hold on to his money and in effect make a risk free return as the value of his money increases as prices fall. If deflation is 5 percent, anyone with cash is making the equivalent of 5 percent interest just by sitting on their money and doing nothing, because the value of what their money will buy is rising by 5 percent.
Not only does deflation discourage lending, it also imposes an added burden on those who borrowed before the deflation began. In effect, they are repaying loans in dollars that are worth more than those they borrowed in the first place.
Why Banks Aren't Lending Thus the zero-bound problem is a very severe constraint on monetary policy. Presently, the Fed can’t reduce nominal interest rates enough to encourage lending, which would get money circulating throughout the economy, stem the deflation and raise growth.
This is why the Fed’s monetary expansion of the last two years has been largely ineffective. As I pointed out in my column last week, banks have more than $1 trillion of excess reserves — money that the Fed has created that banks could lend immediately but are just sitting on. It’s the economic equivalent of stuffing cash under one’s mattress.
PART II
Economists are divided on why banks are not lending, but increasingly are focusing on a Fed policy of paying interest on reserves — a policy that began, interestingly enough, on October 9, 2008, at almost exactly the moment when the financial crisis became acute.
The Fed has long required banks to hold a percentage of their deposits in reserve at the Fed itself — in effect, the Fed is the bank for banks. This serves two purposes. It protects depositors from a bank run and it helps the Fed control the money supply. Raising reserve requirements will reduce the funds that banks have available to lend; reducing reserve requirements will make more money available.
Historically, the Fed paid banks nothing on required reserves. This was like a tax equivalent to the interest rate banks could have earned if they had been allowed to lend such funds. But in 2006, the Fed requested permission to pay interest on reserves because it believes that it would help control the money supply should inflation reappear.
It’s not clear whether the Fed contemplated the impact of paying interest on reserves in a deflationary situation such as we have now. Although the interest rate that is paid is very modest presently — one quarter of a percentage point — it is a risk free rate and has the deflation rate added to it. As noted above, during deflation cash in effect earns a rate of return even when interest rates are near zero.
Thus many economists believe that the Fed has unwittingly encouraged banks to sit on their cash and not lend it by paying interest on reserves. Eliminating interest on reserves would therefore encourage lending. A rumor that the Fed might do so caused the stock market to rise earlier this week, according to press reports. But the policy remains in place.
Discouraging Excess Reserves Some economists go further and suggest that the Fed impose a penalty rate on excess reserves. This is what Sweden’s central bank does. There, banks currently pay 0.25 percent on reserves — called the deposit rate — rather than receiving 0.25 percent as they do here. This may be a key reason why Sweden has bounced back much more rapidly from the worldwide economic crisis than the United States has.
Interestingly, Ben Bernanke is probably the leading academic expert on what the Fed should do when facing the zero bound problem, and one of his former colleagues at Princeton, Lars Svensson, is now deputy governor of Sweden’s Riksbank. However, rather than follow the lead of his former colleague, Mr. Bernanke is sticking with more of the same — saying that the fed funds rate will be held near zero for an extended period and keeping the rate paid on reserves unchanged.
Former Fed economist Joseph Gagnon, now at the Peterson Institute, argued in a July 21 commentary that because deflation is a more serious risk for the economy than inflation, the Fed should be more aggressive. He suggests a package of actions including cutting the interest rate on reserves to zero combined with a policy of buying longer-term Treasury securities. Gagnon thinks the economic impact would be equivalent to a $600 billion fiscal stimulus.
Over the longer term, serious thought needs to be given to the question of whether zero inflation is really a desirable goal for monetary policy. Although it sounds good in principle, it means that any recession is guaranteed to create deflation and tie the Fed’s hands from being able to ease monetary policy sufficiently. It may be better for the Fed to target a higher inflation rate because that’s a lesser evil than double-digit unemployment.
The Fed says that it is targeting a long-run inflation rate of 1.5 percent to 2 percent, but it expects just 1.1 percent this year, a reduction of 0.4 percent since April, when it was predicting 1.5 percent. This disinflation borders on deflation and is eroding the Fed’s credibility as a stimulative force in the economy. To use a hackneyed phrase, the Fed needs to think outside the box and be more innovative and aggressive about getting money to circulate, getting banks to lend, and raising inflationary expectations. Ending payments to banks on money they aren’t lending would be a step in the right direction.
Perhaps Bernanke is forcing banks to become excessively liquid to cover us until Europe settles down? I've long thought that we basically decided to tackle the problem in stages; US first, Europe later (how could they have NOT had a problem of comparable proportion?). While everyone is thinking the Fed should move away from the "crisis" strategy and transition into a "recovery strategy," perhaps the Fed knows the crisis isn't actually over just yet ? Lord knows Bernanke is inserting liquidity world-wide; maybe he knows something. He's a pretty bright guy (and we're lucky we had him at the helm during all this in my amateurish opinion).
Europe has only one option as well.....but, Germany here is the high net worth country who will be hurt by inflation and further devaluation of the Euro.
With the clarity of hindsight, I don't see how the pros like Bernanke could miss that Europe was going to have a huge problem because of their political barriers. I think he's shoring us up against Euro-risk. If they don't unleash the ECB, they're all going to end up pushing austerity to keep their COM down, and that's going to push them down further into spiral. We're already seeing France get more austere, and that's the wrong thing to be doing. It's all very much like how the depression spread, and I think the Fed (and the Brits) are trying to inject liquidity worldwide to help stave off the spiral. Hmmmm... I wonder if our banks won't be buying some EuroBanks before this is all over.
Re Germany... I wonder how much time has to pass before they forget hyperinflation? Heck, here in the US, people have already forgotten Vietnam !
Bernanke worries about European banks more than he does about American banks.
Weakness of, particularly, German banks would spell doom for the world's economy.
Deflation is actually a much more dangerous problem than inflation.
For instance, imagine that you bought a home for 100k and took out a mortgage. You then had a deflationary crisis and now your home is worth only 50k. Say that you were initially paying a 6% rate on your mortgage but, because of 50% deflation, it will now feel to you as if you are paying a 12% rate. Your 600 dollar payment will not go down with deflation and you will react to the fact that you should be paying only 300 dollars a month for what your home is currently worth.
Also, banks don't loan in deflationary periods because any equity in the home rapidly evaporates as prices drops.
Deflation is the enemy of the common man, inflation is the enemy of bank profits and the rich. It does effect us all, but to a lesser extent than a deflationary spiral.
Deflation is the consumer revolting against high prices.
Ask your grand parents how much their first home cost. Why can't you buy it for the same price? Inflation made that $7k home now have a sale price of $100k. Before government and the federal reserve housing was pretty much steady, even in deflationary times. It's because people thought of it as a roof over their head and not an investment. It's because inflation was kept in check by the consumer and the market wasn't manipulated.
If you had a true deflationary environment, and banks knew the government wouldn't bail them out, they would park their cash by loaning out for hard assets like real estate.
Man, the government is killing us with inflation. Remember how you could buy a 15oz bag of doritos for $1.69? That wasn't even a decade ago. According to the gov's official compounded inflation rate, that bag should only cost about $2.25 today. Instead it's $4.29 and down to 11oz. Look at the elderly on social security. They just got a 3.5% raise. Meanwhile since Obama became president their costs have spiked 30% across the board. Prices are crazy. Obama just defunded SS by 30% using inflation. By time the younger generation gets a check they will be able to buy a gallon of milk, and nothing else.
You are arguing that deflation will be a good thing because it will return price levels to those of the 1970's. Are you really that fucking stupid?
Assuming that you own anything....which I am assuming you do not.....deflation is like losing half of your bank account. Do you think that wages will not eventually equilibrate with prices and head downwards? Do you understand that as businesses grapple with deflation they will try to cut costs to deal with the lower prices of their products and the result will be massive unemployment? Do you think that is a good thing right now?
Go to wherever you graduated grade school....assuming that you did....and punch your third grade teacher in the face.
There is a median. Too much inflation is bad, too much deflation is bad. Inflated dollars have lower value than deflated. The problem with inflation is the money you make has less buying power, as the dollar devaluates costs go up. Costs have gone up, but wages have remained the same. The reality is the house you bought for $100k is actually worth $50k flat, but inflation has lowered the value of the dollar and increased the price. The problem with deflation is pretty much the same, except on the other end. Your dollar is worth more, so you can buy more with it. You can now buy an inflated $10 meal for $5. The problem now is the deflated dollar is lowering the cost of goods and wages are the same as before. The best scenario is to meet in the middle, which is what the fed tries to accomplish with changing interest rates. That's basic economics at least, the system gets ever more complex when you mix in GDP, global market values, etc. Regardless, deflation is only your enemy when you are selling, most of common man is more focused on buying.
Deflation decreases the velocity of money while inflation tends to increase it.
Deflation does increase the value of your dollar. But, if you held predeflationary debt, then you're screwed. Also, assuming a dynamic system, wages adjust with the more powerful dollar....and drop.
Read Bartlett's new book, The New American Economy. The first 50 pages do a fantastic job of reviewing the Great Depression and comparing it to the dilemmas that we now face.
We have teetered on the edge of a deflationary spiral....fueled by foreclosures....and pulling the plug on quantitative easing and fiscal spending could sufficiently lower the velocity and total money supply to the extent that we couldn't pull back from the brink again.
Our debt sucks, but withdrawing support too early is the error that all governments make when facing our issues.
I find it ironic that people here seem to be in favor of increasing inflation. That is what caused the housing market to crash, it was inflated. The inflation fueled the foreclosures, because the market prices were unsustainable. Inflation redistributes wealth in the opposite direction most people here are in favor of; higher prices means less accumulation of savings at the bottom and more accumulation of wealth at the top. When the market corrects itself, the top is even higher, because their money is worth more, the bottom is even lower because whatever liquid assets they have are worth less. Once again, inflation = things like houses and food costs more = harder on the 99% to live = easier on the 1% to make money; deflation = things like houses and food costs less = easier on the 99% to live = harder for the 1% to make money. Rising inflation will make it that much harder on the 99% during both the inflation and resulting deflation. There has to be a balanced, stable dollar for the 99% to maintain and build, which is what stabilizes the economy. The more inflation rises, the more rapidly deflation will occur. From historical data, the median is a low but positive inflation. The economy can handle longer periods of inflation, because businesses are able to make profits and consumers are able to retain work to afford slightly higher prices. When the inflation rises too high and corrects itself, it falls below its median, which results in a recession. Inflation eventually goes back up, resulting in a recovery, but if it doesn't stabilize the recovery will be interrupted. We can argue about this all we want, but the longer it takes the dollar to stabilize and stop making such large adjustments, the longer this recession/recovery will last and the more likely things will get a lot worst before they get better.
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
Look at the numbers, it's not hard to tell where recessions were and what caused them. The higher the number, the faster they fell and the longer the resulting recovery lasted. This time it was a few over inflated markets that caused the major problems.
who would continue to pay a mortgage on a home that lost its value? the bank took the risk, walk away from the loan and let the bank have its property back, its their problem.
[Removed]
Yes, but your name is on that contract as well.
U aren't too far off.
Deflation hurts the borrower....you have to repay old inflated debts with dollars that are worth more if you just walked away (assuming you could). This is what happened to the farmers, traditional borrowers, during the great depression. Crop prices collapsed and they couldn't make the mortgage.
Inflation, on the other hand, hurts the lender. Therefore, banks and those with high net worth, hate inflation.
However, and JMK pointed out, it is very difficult for wages and other inputs to reach a new equilibrium during deflationary episodes....and high unemployment is the result.
When the functional money supply collapses, as it did in 2009, the only response is massive infusions of fiscal and monetary stimulus. More importantly, unless hyperinflation results, a modest level of inflation means that you are doing the right thing. It is simply for corporations and individuals to adjust to modest inflation than deflation.
Those with underwater mortgages understand this well. They are paying, effectively, and much higher interest rate on the inflated (previous) price of their home using dollars that would be worth a great deal more if they just walked away.
I'm watching LSU Alabama, so this is rambling, but hopefully it makes a little sense.
But, what this all sets up is a battle between the banks/high net worth entities and the common Joe borrower.
The Fed has pumped more liquidity into the system than ever in it's history.....yet, prices of commodities and staples have barely risen. This is because the effective money supply keeps taking hits due to foreclosures, underwater mortgages, and unemployment. Fiscal policy (the government spending) must be maintained or the balance will tip towards deflation and the velocity of money turnover and, hence, the money supply will shrink further.
But, Republicans represent the banks and high net worth individuals and they are standing firmly in the way of what needs to occur.....coordinated governmental and Fed actions to increase the functional money supply.
The threshold for such stimulus should be that level that drives demand by borrowers but doesn't devalue bank holdings to the point of insolvency.
The overall goal is to maximize, in nominal dollars, the value of the nation's output and to reduce unemployment (the scourge of deflation).
The revaluing of labor and of underwater mortgages will occur most efficiently by an inflationary policy.......rather than a foreclosure/unemployment one.
I hope this is comprehensible, because this is the most important thing that I've posted on this board (not saying much). The key point, and the reason that I started this thread, was to highlight WHY the Republicans have been badmouthing the Fed and resisting any more fiscal stimulus. Maybe it now makes more sense.
I think you've got it nailed, and I remain baffled at the fact we have a populist movement crying for a tight monetary policy ! I don't think these folks read much history or really understand what they're talking about.
In 1932, FDR had not adapted to the situation and initially thought that the way to lift us out of depression was to balance the budget. That is the teabaggers of today. They have it backwards.....but, this time, they are being led by very sinister men who only worry about preserving their incredible wealth at the expense of our country's future.
"sinister" implies more intelligence than I think they have. I think we have a bunch of amateurs who think they know how to fix everything. AynRand/RonPaul scares the crap out of me. There's a reason we pulled the Sec of Treasury and Comptroller of the Currency off the Fed's board as one of the first lessons learned in the depression... to ISOLATE them from political influence. Now every one thinks the Fed is their enemy, should be under political control, and should be "transparent" ( "I'd like to announce we think BofA is in trouble, so we're helping them, but don't worry, they're OK!" )
The people behind Americans for Prosperity and each of these state groups are extremely smart.....their ideals guide the teabaggers and those ideals have been shaped by a few billionaires and ideologues planning this strategy for years.
everything is easier when funded by billionaires. I bet I could do a lot in shaping things if I could spend thousands of dollars on event hosting and advertising and even more money funding politicians to support my cause.
There are some good people in the tea party, I just don't like the PIC (people in charge)
The entire teabag experience is an exercise in paradoxes.
Half are on medicare, but don't want government sponsored health care.
Most are lower middle class and will net more from the government than they will ever put in......yet, they want to lower taxes. It's like ordering everything on the menu and then refusing to pay.
Most supported the disaster in Iraq, where 1.4 trillion was spent, but opposed Obama helping NATO bring down Kadafi (for an expense of about 100 million).
Many are evangelical Christians who see no reason to help the poor.
Many are shouters who don't realize that what they need to do is listen.
Teabaggers would be a joke except for the very smart people who are using them.
I'd like the tea party more if most of them didn't depend so heavily on Fox News and Glenn Beck.