6 ms·

> There has never had been such a thing a deflationary spiral, though.

by vrotaru 16y ago

quanticle 16y ago
Yes there has. The Great Depression was a deflationary spiral. Bank failures caused people to hoard currency. This hoarding led to decreased investment and economic activity. The decrease in economic activity led people to lose jobs, which caused them to hoard even more money. In addition, the decrease in the money supply greatly increased the value of debts. You were getting paid less, but the your mortgage payment remained the same. This ended up being a crushing burden even for those who managed to keep their jobs.
- mike_esspe 16y ago
  Great Depression was in the epoch of fiat money and most likely was a result of inflating money supply during 1920s (http://en.wikipedia.org/wiki/Causes_of_the_Great_Depression#Austrian http://en.wikipedia.org/wiki/Causes_of_the_Great_Depression#...). Do you know about a deflationary spiral when gold was the money? (Almost all the history before 20th century).
  - nerfhammer 16y ago
    The US dollar was backed by gold until 1933. The deflationary contraction occurred between 1929 and 1933. So, there you go.
    - vrotaru 16y ago
      > The deflationary contraction occurred between 1929 and 1933. Sorry, but are you serious? For starters: "By keeping industrial wages too high, Hoover sharply depressed employment beyond where it otherwise would have been, and that act drove down the overall gross national product," Ohanian said. "His policy was the single most important event in precipitating the Great Depression." http://newsroom.ucla.edu/portal/ucla/pandering-to-labor-caused-great-91447.aspx http://newsroom.ucla.edu/portal/ucla/pandering-to-labor-caus...
      - nerfhammer 16y ago
        .... you think there was inflation between 1929 and 1933?
        vrotaru 16y ago
        I think there was no deflationary spiral between the dates you mentioned. And... since GD lasted a lot longer than that how is that relevant?
        nerfhammer 16y ago
        1929-1933 was the steepest deflation in US history.
        vrotaru 16y ago
        No, the 1920-21 was.
        nerfhammer 16y ago
        If you're counting peak annual rate rather than total deflation then part of 1920-1921 was worse than 1929-1933, but if we're talking about momentary deflation then neither was the worst deflation in US history. see http://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svg http://en.wikipedia.org/wiki/File:US_Historical_Inflation_An...
        vrotaru 16y ago
        Thanks. I was speaking about annual rate. BTW, a very instructional chart. Can I rant a bit? Thanks again. It'll be about deflationary blips and deflationary spirals. Have you ever noticed that the definition of a deflationary spiral self-contradictory? You know how it goes, people hoard money in order to spend them later, but when that later comes they do not spend them but continue to hoard even more in order to spend them later-later. Then later-later-later. Then... Well, the endgame is that everybody dies and zombies take over the earth. (Zombies are immune to hoarding, it seems) Do people really act like this? Because if at any step of such an iteration the people will start spending (and the low prices and increases money balances will provide for an excellent temptation) then the vicious circle is broken, the spiral is no more, and we are contemplating here a deflationary blip. Or event if blip doesn't sound reputable enough. Looks to me like a totally legit process. Exactly what the Walras Auctioneer will do in his search for a price equilibrium.
    - mike_esspe 16y ago
      There was fractional reserve banking (http://en.wikipedia.org/wiki/Fractional-reserve_banking http://en.wikipedia.org/wiki/Fractional-reserve_banking). Banks could lent more dollars, than they had in reserves. Money supply (M2) was expanding with great rate till the 1928.
      - nerfhammer 16y ago
        Let me tell you about the dragon in my garage.
- vrotaru 16y ago
  > The Great Depression was a deflationary spiral. No, it wasn't. > Bank failures... Are a big topic, actually, but this one had nothing to do with a deflationary spiral. Hint: A one time deflationary event is not the same as deflationary spiral. Previous deflationary event of similar magnitude happened 1920-1921. The "Forgotten Depression", so to speak. Of course the FR (fractional reserve) banks are inherently instable and that's a feature of the system. If you want the ability to inflate the money supply at bankers' will and whim, don't act surprised when it (the money supply) collapses to more a sustainable level. > .. caused people to hoard currency. Source? Genuinely curious. > This hoarding led to decreased investment and economic activity. There was decreased investment and economic activity. But because of hoarding? It's too self-serving argument as such. There were at least 3 other major causes as well, and I can name them. > the decrease in the money supply greatly increased the value of debts Sure. So it means that the creditors are wealthier and can afford themselves to spend and invest more. Not what I'd call an economic horror. Anyway, the most vivid evocation of horrors of a deflationary event is not a example of a deflationary spiral, and that's exactly what I was asking for. Sure, if for whatever reasons the amount of money in an economy decreases then the prices had to adjust and it can be painful but.. what are options? But what this has to do with a deflationary spiral?

> There has never had been such a thing a deflationary spiral, though.

by vrotaru 16y ago

> There has never had been such a thing a deflationary spiral, though.

Yes there has. The Great Depression was a deflationary spiral. Bank failures caused people to hoard currency. This hoarding led to decreased investment and economic activity. The decrease in economic activity led people to lose jobs, which caused them to hoard even more money. In addition, the decrease in the money supply greatly increased the value of debts. You were getting paid less, but the your mortgage payment remained the same. This ended up being a crushing burden even for those who managed to keep their jobs.

mike_esspe 16y ago
Great Depression was in the epoch of fiat money and most likely was a result of inflating money supply during 1920s (http://en.wikipedia.org/wiki/Causes_of_the_Great_Depression#Austrian http://en.wikipedia.org/wiki/Causes_of_the_Great_Depression#...). Do you know about a deflationary spiral when gold was the money? (Almost all the history before 20th century).
- nerfhammer 16y ago
  The US dollar was backed by gold until 1933. The deflationary contraction occurred between 1929 and 1933. So, there you go.
  - vrotaru 16y ago
    > The deflationary contraction occurred between 1929 and 1933. Sorry, but are you serious? For starters: "By keeping industrial wages too high, Hoover sharply depressed employment beyond where it otherwise would have been, and that act drove down the overall gross national product," Ohanian said. "His policy was the single most important event in precipitating the Great Depression." http://newsroom.ucla.edu/portal/ucla/pandering-to-labor-caused-great-91447.aspx http://newsroom.ucla.edu/portal/ucla/pandering-to-labor-caus...
    - nerfhammer 16y ago
      .... you think there was inflation between 1929 and 1933?
      - vrotaru 16y ago
        I think there was no deflationary spiral between the dates you mentioned. And... since GD lasted a lot longer than that how is that relevant?
        nerfhammer 16y ago
        1929-1933 was the steepest deflation in US history.
        vrotaru 16y ago
        No, the 1920-21 was.
        nerfhammer 16y ago
        If you're counting peak annual rate rather than total deflation then part of 1920-1921 was worse than 1929-1933, but if we're talking about momentary deflation then neither was the worst deflation in US history. see http://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svg http://en.wikipedia.org/wiki/File:US_Historical_Inflation_An...
        vrotaru 16y ago
        Thanks. I was speaking about annual rate. BTW, a very instructional chart. Can I rant a bit? Thanks again. It'll be about deflationary blips and deflationary spirals. Have you ever noticed that the definition of a deflationary spiral self-contradictory? You know how it goes, people hoard money in order to spend them later, but when that later comes they do not spend them but continue to hoard even more in order to spend them later-later. Then later-later-later. Then... Well, the endgame is that everybody dies and zombies take over the earth. (Zombies are immune to hoarding, it seems) Do people really act like this? Because if at any step of such an iteration the people will start spending (and the low prices and increases money balances will provide for an excellent temptation) then the vicious circle is broken, the spiral is no more, and we are contemplating here a deflationary blip. Or event if blip doesn't sound reputable enough. Looks to me like a totally legit process. Exactly what the Walras Auctioneer will do in his search for a price equilibrium.
  - mike_esspe 16y ago
    There was fractional reserve banking (http://en.wikipedia.org/wiki/Fractional-reserve_banking http://en.wikipedia.org/wiki/Fractional-reserve_banking). Banks could lent more dollars, than they had in reserves. Money supply (M2) was expanding with great rate till the 1928.
    - nerfhammer 16y ago
      Let me tell you about the dragon in my garage.
vrotaru 16y ago
> The Great Depression was a deflationary spiral. No, it wasn't. > Bank failures... Are a big topic, actually, but this one had nothing to do with a deflationary spiral. Hint: A one time deflationary event is not the same as deflationary spiral. Previous deflationary event of similar magnitude happened 1920-1921. The "Forgotten Depression", so to speak. Of course the FR (fractional reserve) banks are inherently instable and that's a feature of the system. If you want the ability to inflate the money supply at bankers' will and whim, don't act surprised when it (the money supply) collapses to more a sustainable level. > .. caused people to hoard currency. Source? Genuinely curious. > This hoarding led to decreased investment and economic activity. There was decreased investment and economic activity. But because of hoarding? It's too self-serving argument as such. There were at least 3 other major causes as well, and I can name them. > the decrease in the money supply greatly increased the value of debts Sure. So it means that the creditors are wealthier and can afford themselves to spend and invest more. Not what I'd call an economic horror. Anyway, the most vivid evocation of horrors of a deflationary event is not a example of a deflationary spiral, and that's exactly what I was asking for. Sure, if for whatever reasons the amount of money in an economy decreases then the prices had to adjust and it can be painful but.. what are options? But what this has to do with a deflationary spiral?