6 ms·

And inflation doesn't, when new money primarily goes to the few closest to the mint? With deflation, you have to work harder to expand your share of the econom

And inflation doesn't, when new money primarily goes to the few closest to the mint? With deflation, you have to work harder to expand your share of the economy. Just holding doesn't contribute to the economy and thus means an already large held share is less likely to grow in value relative to the desired goods.

Mikeb85 11y ago
> With deflation, you have to work harder to expand your share of the economy. Just holding doesn't contribute to the economy and thus means an already large held share is less likely to grow in value relative to the desired goods. Deflation literally increases the value of already-held cash (when prices go down, cash becomes more valuable). Deflation literally encourages hoarding, this is probably the one single tenet of economics that no one disputes. > And inflation doesn't, when new money primarily goes to the few closest to the mint? Inflation decreases the value of cash, so it encourages spending. New money is issued when the central bank buys securities on the open market - usually from the government, sometimes from banks and businesses. Theoretically they can lend to whomever, but because of arbitrage (if the centra bank offers debt at 0.25%, interbank lending rate will fall/rise to that level, because if banks offered worse rates, lenders/borrowers would just go to the central bank) it winds up not mattering who they lend to. They don't just wheel piles of cash to the nearest bank for them to hoard and pay CEOs with... Anyhow, wiki article: https://en.wikipedia.org/wiki/Central_bank#Currency_issuance https://en.wikipedia.org/wiki/Central_bank#Currency_issuance And there's plenty of other material online.
- Natanael_L 11y ago
  And then everybody with a lot of money holds... And now what? Now the miniscule active share of the economy dictates the value of your holdings. You're thinking short term only. There's no deflation to be had with a shrinking economy. There's an equilibrium here, one that's past the point of hoarding for large players. If you can move the economy all by yourself, you do not want the risk of letting the economy moving on without you. Money sitting still does no good by itself. After all, what's the point of value you can't touch? There's no value in that... With inflation, you can grow your share of the economy from your position alone (increasing both value and "rank"). Deflation point allows your value to passively increase, not your share of the economy. And who is capable of performing arbitrage? Average Joe? Nope, inflation feeds people like on Wall Street since they get to spend the new money long before workers get their salary increases (after they feel effect of inflation on their expenses!).
  - Mikeb85 11y ago
    > There's no deflation to be had with a shrinking economy. Deflation almost always accompanies economic downturns. It's literally defined as a decrease in prices, which is caused by a lack of demand. A recession is literally a reduction in economic activity. They go together by definition. https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral Of course, that's a fairy simply definition, you can have inflation in a downturn when your currency devaluates, and the price of imported goods go up, which is a problem if you import too much. But the value of domestic assets is still going down, so measuring inflation/deflation does depend somewhat on what exactly you're measuring. > With inflation, you can grow your share of the economy from your position alone If you own assets you benefit from inflation. If you have cash, you lose from inflation. If you only have $1000, and the price of a business goes from $500-$1000 (inflation), you go from being able to buy 2, to only buying one. Cash loses. If the price deflates from $500-$100, you go from being able to buy 2 to buying 10. In the deflationary scenario, cash wins. If you already own a business, it's easier to guess which is better. You want the price to go up. > Nope, inflation feeds people like on Wall Street since they get to spend the new money long before workers get their salary increases (after they feel effect of inflation on their expenses!). You literally didn't read any information that I posted, did you? Central banks don't lend to banks to pay their bills or CEOs. They buy securities that are backed by real assets, and they generally prefer buying government bonds. > And who is capable of performing arbitrage? Average Joe? In this particular case, arbitrage is simply deciding who you're going to borrow from. If bank A offers a mortgage for 5%, and bank B for 6%, which loan are you going to take? This creates an incentive for both banks to lower their rate until a point where it's no longer profitable (ie. the rate that they're borrowing at). This is obviously a simplistic example, but should illustrate the point. On a macro scale, if the central bank offers loans at a certain rate, then other banks will match that rate, otherwise they lose business.
    - Natanael_L 11y ago
      > it's literally defined as a decrease in prices, which is caused by a lack of demand. Correlation ≠ causation. In particular when practically every occurrence of deflation + a bad economy followed a crash in an economy built on debt. Have you considered that just like withdrawal symptoms, it isn't necessarily deflation that's the bad thing? If you have government contracts and buy assets using effectively subsidized money, your assets and value both grow in absolute numbers. You're buying with fresh money before it has been matched by a price signal in the economy, only then raising the price. With deflation only value grows, and only for as long as the economy stays alive. How does printed money enter the economy if it isn't used to buy anything? And the printers don't buy from everybody equally. Value is shifted from the entire society to those closest to the printers. And people not in a position to chose between loans or take any loans at all? I.e. below middle class?

Mikeb85 11y ago

> With deflation, you have to work harder to expand your share of the economy. Just holding doesn't contribute to the economy and thus means an already large held share is less likely to grow in value relative to the desired goods. Deflation literally increases the value of already-held cash (when prices go down, cash becomes more valuable). Deflation literally encourages hoarding, this is probably the one single tenet of economics that no one disputes. > And inflation doesn't, when new money primarily goes to the few closest to the mint? Inflation decreases the value of cash, so it encourages spending. New money is issued when the central bank buys securities on the open market - usually from the government, sometimes from banks and businesses. Theoretically they can lend to whomever, but because of arbitrage (if the centra bank offers debt at 0.25%, interbank lending rate will fall/rise to that level, because if banks offered worse rates, lenders/borrowers would just go to the central bank) it winds up not mattering who they lend to. They don't just wheel piles of cash to the nearest bank for them to hoard and pay CEOs with... Anyhow, wiki article: https://en.wikipedia.org/wiki/Central_bank#Currency_issuance https://en.wikipedia.org/wiki/Central_bank#Currency_issuance And there's plenty of other material online.

Natanael_L 11y ago
And then everybody with a lot of money holds... And now what? Now the miniscule active share of the economy dictates the value of your holdings. You're thinking short term only. There's no deflation to be had with a shrinking economy. There's an equilibrium here, one that's past the point of hoarding for large players. If you can move the economy all by yourself, you do not want the risk of letting the economy moving on without you. Money sitting still does no good by itself. After all, what's the point of value you can't touch? There's no value in that... With inflation, you can grow your share of the economy from your position alone (increasing both value and "rank"). Deflation point allows your value to passively increase, not your share of the economy. And who is capable of performing arbitrage? Average Joe? Nope, inflation feeds people like on Wall Street since they get to spend the new money long before workers get their salary increases (after they feel effect of inflation on their expenses!).
- Mikeb85 11y ago
  > There's no deflation to be had with a shrinking economy. Deflation almost always accompanies economic downturns. It's literally defined as a decrease in prices, which is caused by a lack of demand. A recession is literally a reduction in economic activity. They go together by definition. https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral Of course, that's a fairy simply definition, you can have inflation in a downturn when your currency devaluates, and the price of imported goods go up, which is a problem if you import too much. But the value of domestic assets is still going down, so measuring inflation/deflation does depend somewhat on what exactly you're measuring. > With inflation, you can grow your share of the economy from your position alone If you own assets you benefit from inflation. If you have cash, you lose from inflation. If you only have $1000, and the price of a business goes from $500-$1000 (inflation), you go from being able to buy 2, to only buying one. Cash loses. If the price deflates from $500-$100, you go from being able to buy 2 to buying 10. In the deflationary scenario, cash wins. If you already own a business, it's easier to guess which is better. You want the price to go up. > Nope, inflation feeds people like on Wall Street since they get to spend the new money long before workers get their salary increases (after they feel effect of inflation on their expenses!). You literally didn't read any information that I posted, did you? Central banks don't lend to banks to pay their bills or CEOs. They buy securities that are backed by real assets, and they generally prefer buying government bonds. > And who is capable of performing arbitrage? Average Joe? In this particular case, arbitrage is simply deciding who you're going to borrow from. If bank A offers a mortgage for 5%, and bank B for 6%, which loan are you going to take? This creates an incentive for both banks to lower their rate until a point where it's no longer profitable (ie. the rate that they're borrowing at). This is obviously a simplistic example, but should illustrate the point. On a macro scale, if the central bank offers loans at a certain rate, then other banks will match that rate, otherwise they lose business.
  - Natanael_L 11y ago
    > it's literally defined as a decrease in prices, which is caused by a lack of demand. Correlation ≠ causation. In particular when practically every occurrence of deflation + a bad economy followed a crash in an economy built on debt. Have you considered that just like withdrawal symptoms, it isn't necessarily deflation that's the bad thing? If you have government contracts and buy assets using effectively subsidized money, your assets and value both grow in absolute numbers. You're buying with fresh money before it has been matched by a price signal in the economy, only then raising the price. With deflation only value grows, and only for as long as the economy stays alive. How does printed money enter the economy if it isn't used to buy anything? And the printers don't buy from everybody equally. Value is shifted from the entire society to those closest to the printers. And people not in a position to chose between loans or take any loans at all? I.e. below middle class?