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Keeping money supply the same in the face of a growing economy leads to deflation. Deflation is the economy killer as it makes it extremely difficult to get a l

Keeping money supply the same in the face of a growing economy leads to deflation. Deflation is the economy killer as it makes it extremely difficult to get a loan so investment grinds to a standstill. What exactly should the fed have done in the decade following 07 when the economy was growing and prices were stable?

roenxi 2y ago
> Deflation is the economy killer as it makes it extremely difficult to get a loan so investment grinds to a standstill. (1) If any economy ever has been killed by deflation, you should include it on the the Wikipedia page for deflation. The list of economies that experience deflation [0] is almost a whos-who of places I'd be happy to live - it is often a precursor to economic success. I don't argue that it is a good thing, but inflation is actually a way to kill an economy because it can get completely out of hand and regularly does. Deflation isn't and doesn't. (2) It doesn't make it any harder to get a loan. When making a loan, you estimate the real return (say 2%) and adjust for inflation/deflation. So if there is 1% inflation you loan at 3% and if there is 1% deflation you loan at 1%. Deflation does put a floor on what people will loan money for. The argument that this is a bad thing is very questionable indeed - why we should want people borrowing investing in low-return activities when they could be not-borrowing and resources could be going into high-return activities is a mystery to me. Lending money doesn't make real-world resources appear out of nowhere. And again, lending can be good or bad so I'm not arguing against it in the abstract. But encouraging lending in marginal and risky gambits is stupid, it causes regular collapses and seems to me to be be making society relatively poorer. People don't save enough as a starting point, end up broke in their retirement all too often. They shouldn't be punished for putting money aside on top of that. > What exactly should the fed have done in the decade following 07 when the economy was growing and prices were stable? The election is behind us, people can stop with this silliness. The US economy is obviously not growing. Countries don't put a Trump in charge twice when economies are growing. Global hegemons don't get overtaken by China when the economy is growing. The US has very visibly not been growing strongly for the last decade, it has been papering over cracks with money printing. Maybe that is fine, growth has to end sooner or later. [0] https://en.wikipedia.org/wiki/Deflation#Historical_examples https://en.wikipedia.org/wiki/Deflation#Historical_examples
- HDThoreaun 2y ago
  Not at a computer due to thanksgiving so unfortunately can’t get in depth here but as far as deflation being horrible look at the 20 years after the civil war. Deflation is very rare due to everyone realizing how awful it is. 1% loans do not work because loans cost money to give out(pay the banker salary) and some default which also costs money. It is better to not loan at all than to loan at 1% because of that. Exceptions are bonds from massive institutions but small business is absolutely fucked.
  - roenxi 2y ago
    > look at the 20 years after the civil war That time period was the best performance of any economy in history up to that point and has been largely unsurpassed in "Wow!" factor until the miracle that is modern China. The post civil war era was when the US established the foundations of the economy that became globally preeminent for a century. If that is the economy being killed, maybe we should kill more economies. This sort of thing drives me crazy. I ask for examples of deflation being a bad thing and I get "well there was the time the US became a global economic colossus, that was pretty bad". Fun youtube video for reference: https://www.youtube.com/watch?v=kFl4YdvDE_8 https://www.youtube.com/watch?v=kFl4YdvDE_8 > 1% loans do not work because loans cost money to give out(pay the banker salary) and some default which also costs money. 1) You missed the argument. The argument is that if a loan doesn't make economic sense then it is stupid to adjust the entire monetary system to encourage people to do stupid things. 2) The argument is just wrong. I'd lend money at 1% if I was making a real return.
    - HDThoreaun 2y ago
      But you wouldn’t make a return because some loans default and the person you pay to screen debtors costs than you make. At the end of the day your business would have less money than it started with. The us became an economic colossus before the civil war and in the early 20th century. 1873-1893 was absolutely horrible for Americans.
      - 2y ago
immibis 2y ago
There is no evidence that deflation is bad for economies. There is evidence that collapsing economies may deflate, which is different.

roenxi 2y ago

> Deflation is the economy killer as it makes it extremely difficult to get a loan so investment grinds to a standstill. (1) If any economy ever has been killed by deflation, you should include it on the the Wikipedia page for deflation. The list of economies that experience deflation [0] is almost a whos-who of places I'd be happy to live - it is often a precursor to economic success. I don't argue that it is a good thing, but inflation is actually a way to kill an economy because it can get completely out of hand and regularly does. Deflation isn't and doesn't. (2) It doesn't make it any harder to get a loan. When making a loan, you estimate the real return (say 2%) and adjust for inflation/deflation. So if there is 1% inflation you loan at 3% and if there is 1% deflation you loan at 1%. Deflation does put a floor on what people will loan money for. The argument that this is a bad thing is very questionable indeed - why we should want people borrowing investing in low-return activities when they could be not-borrowing and resources could be going into high-return activities is a mystery to me. Lending money doesn't make real-world resources appear out of nowhere. And again, lending can be good or bad so I'm not arguing against it in the abstract. But encouraging lending in marginal and risky gambits is stupid, it causes regular collapses and seems to me to be be making society relatively poorer. People don't save enough as a starting point, end up broke in their retirement all too often. They shouldn't be punished for putting money aside on top of that. > What exactly should the fed have done in the decade following 07 when the economy was growing and prices were stable? The election is behind us, people can stop with this silliness. The US economy is obviously not growing. Countries don't put a Trump in charge twice when economies are growing. Global hegemons don't get overtaken by China when the economy is growing. The US has very visibly not been growing strongly for the last decade, it has been papering over cracks with money printing. Maybe that is fine, growth has to end sooner or later. [0] https://en.wikipedia.org/wiki/Deflation#Historical_examples https://en.wikipedia.org/wiki/Deflation#Historical_examples

HDThoreaun 2y ago
Not at a computer due to thanksgiving so unfortunately can’t get in depth here but as far as deflation being horrible look at the 20 years after the civil war. Deflation is very rare due to everyone realizing how awful it is. 1% loans do not work because loans cost money to give out(pay the banker salary) and some default which also costs money. It is better to not loan at all than to loan at 1% because of that. Exceptions are bonds from massive institutions but small business is absolutely fucked.
- roenxi 2y ago
  > look at the 20 years after the civil war That time period was the best performance of any economy in history up to that point and has been largely unsurpassed in "Wow!" factor until the miracle that is modern China. The post civil war era was when the US established the foundations of the economy that became globally preeminent for a century. If that is the economy being killed, maybe we should kill more economies. This sort of thing drives me crazy. I ask for examples of deflation being a bad thing and I get "well there was the time the US became a global economic colossus, that was pretty bad". Fun youtube video for reference: https://www.youtube.com/watch?v=kFl4YdvDE_8 https://www.youtube.com/watch?v=kFl4YdvDE_8 > 1% loans do not work because loans cost money to give out(pay the banker salary) and some default which also costs money. 1) You missed the argument. The argument is that if a loan doesn't make economic sense then it is stupid to adjust the entire monetary system to encourage people to do stupid things. 2) The argument is just wrong. I'd lend money at 1% if I was making a real return.
  - HDThoreaun 2y ago
    But you wouldn’t make a return because some loans default and the person you pay to screen debtors costs than you make. At the end of the day your business would have less money than it started with. The us became an economic colossus before the civil war and in the early 20th century. 1873-1893 was absolutely horrible for Americans.
    - 2y ago

immibis 2y ago

There is no evidence that deflation is bad for economies. There is evidence that collapsing economies may deflate, which is different.