Loading ...Rethinking Deflation .
I have never taken an Economics course in my life so please feel free to tell me I am full of ignorance BUT
Can somebody explain to me what is so BAD about Deflation ?
A generalized Decrease in Prices !
Is Bad ! ?
Central Banks (Keynesians) HATE Deflation…they fight tooth and nail to create its opposite …IN flation
A generalized increase in Prices !
They prefer A 2% PER YER INCREASE IN PRICES ..COMPOUNDED THATS LIKE 33% PER DECADE !
What is so Necessary about that >?
What about if …Because of new knowledge and new technology and improved Productivity…things we want and need
get cheaper…happens all the time in TVs and Computers and Phones and all that technology .
Why is that good …but prices of commodities / food and services and houses must go up all the time to keep us rolling !?
I have wondered this for a long time but never have I seen it discussed anywhere except for the cursory
“Well if Prices are going down all the time..everybody will wait to buy and jobs will suffer !!”
Huh ?
OK..Hit me !
http://globaleconomicanalysis.blogspot.ca/2015/01/deflation-bonanza-and-fools-mission-to.html
Excellent JJ
Thanks a lot…everybody read this link
The middle class tends to prosper under gradual deflation, if technological progress is the principal backdrop. And if they aren’t over extended in debt.
The banker and highly leveraged classes suffer under deflation. Borrowers face considerably more stress servicing their debts. Bankers face collateral value declines.
Deflation got a bad rap in the 19th century, due largely to several banking sector panics. One followed the sinking of a bullion ship, the other followed the SF quake (taking down insurers). These led to abrupt deflationary episodes. These can be problematic. This is where its important to distinguish solvency vs insolvency on the one hand, vs mere lack of liquidity (ie, mismatch in maturities between long term asset values and short term liabilities). The Fed was supposed to address JUST the latter. It is now engaged in the former (papering over insolvency).
Aha
Spoken like an Economist with a grasp on reality
Thanks Pedro
“IN flation —- A generalized increase in Prices !”
No. This is what central bankers WANT you to believe that inflation is.
That way, if you don’t ‘see it’ it must not be happening so what they are doing is NOT a problem.
Which was VERY convenient for them from the 1990s on as India, Brazil, Russia, and China etc entered the global trade regime.
Their labor rates held down our import costs and kept CPI low.
This held down your PERCEPTION of inflation (as CPI) all the while that REAL INFLATION was ramping to the moon.
That’s because REAL INFLATION is the expansion of money and CREDIT CREDIT and more CREDIT (=DEBT).
And especially … probably the correct definition … is money and credit RELATIVE to the availability of stuff.
That’s why asset prices go through the roof, as all that new credit has to flow somewhere.
And that’s why I maintain that this credit cycle began in the 1970s.
That’s because REAL INFLATION is the expansion of money and CREDIT CREDIT and more CREDIT (=DEBT).
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You have it correct Pedro and it all needs to be counted with the credit/debt supply being marked to market,instead of being hidden in “level 3 assets”