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Any comment in this thread that doesn't contain the words "liquidity trap" can safely be ignored. I know that a lot of HNers don't believe that economics is a

Any comment in this thread that doesn't contain the words "liquidity trap" can safely be ignored. I know that a lot of HNers don't believe that economics is a real science and would rather go with gut feelings or whatever Ron Paul says, but please take a few minutes to read the seminal paper on liquidity traps: http://www.brookings.edu/~/media/projects/bpea/1998%202/1998b_bpea_krugman_dominquez_rogoff.pdf http://www.brookings.edu/~/media/projects/bpea/1998%202/1998... You may not agree with it, but at least you can understand what the other side of the argument is. EDIT: Wow, this thread really brought out the goldbugs, bitcoin-ers, and the "FIAT MONEY!" crowds. Just need some mentions of Zimbabwe and wheelbarrows-full-of-Weimar-Republic-marks and I'll win this round of Economics Crackpot Bingo.

001sky 13y ago
I respectfully disagree. The purpose of inflation in this context is to "kill the debt", because the US cannot pay out $17T or even maintain interest payments, with "non-inflated" dollars. That is why all of this is just hand-waving and subversive, mis-directing PR. The reason Japan is such a bad example is precisely inflation. But its death-nell was asset inflation, not cpi. Housing stocks and Bank loans were massively overinflated and never allowed to correct. The notion that this "inflation" should have been corrected with "other inflation" is one of those laughable bits of rediculousness. Likewise, the US in a funk caused by Asset inflation. Fighting it with price inflation will be interesting. Take a look at the London property market. Do you think raising the price of consumer goods will help? Wont people just be encouraged to park their cash in property (ie, real goods?). Right now, they are trying to "make housing more affordable" by interest rate subsidies (inflationary). Doesn't seem to be making anything more affordable, though.
jayfuerstenberg 13y ago
I live in Japan and the Japanese government, under its Abenomics movement, decided on another round of QE and injected 20% more currency into the market earlier this year. I get that the yen is too strong and needs to weaken in order to protect the trade balance between itself and other countries. But the inflation eventually reached us consumers and every day items have gotten that much more expensive. Now my 10,000 yen only gets me ~8333 yen worth of stuff. If I could go back in time and not contribute the lost 1/6th of my savings in labor I might not be angry, but I can't. My salary isn't going up either and there is even talk of pay reduction due to a worsening economy. So to protect myself my choices seem to be: 1. Buy things up before the inflation reaches me as a consumer, passing the purchasing power theft on to the merchants. (possible, but I blow all my money away) 2. Convert that currency to something else that hedges against inflation (and retains its value over time) if I want to not spend it. I chose #2 in the form of gold. If you want to call me a goldbug, go ahead. I'm getting into REITs soon too so maybe you can come up with clever derogatory name for that as well. I'll try to help you win your bingo round.
- hudibras 13y ago
  The inflation rate in Japan since last year (the "Abenomics" effect) has only moved from -1% to 1%, not exactly a huge effect. http://www.tradingeconomics.com/japan/inflation-cpi http://www.tradingeconomics.com/japan/inflation-cpi Yet even this small amount of increased inflation (or technically, the expectations of future inflation) is the primary driver behind the recovering economy. The additional currency in the market is irrelevent and is the whole point of this exercise: it does very little or nothing in a liquidity trap. For what it's worth, I also live in Japan and I haven't seen anything like you have experienced regarding your purchasing power. My rent costs the same, my train and bus tickets are the same, can't tell any difference at the grocery, etc.

001sky 13y ago

I respectfully disagree. The purpose of inflation in this context is to "kill the debt", because the US cannot pay out $17T or even maintain interest payments, with "non-inflated" dollars. That is why all of this is just hand-waving and subversive, mis-directing PR. The reason Japan is such a bad example is precisely inflation. But its death-nell was asset inflation, not cpi. Housing stocks and Bank loans were massively overinflated and never allowed to correct. The notion that this "inflation" should have been corrected with "other inflation" is one of those laughable bits of rediculousness. Likewise, the US in a funk caused by Asset inflation. Fighting it with price inflation will be interesting. Take a look at the London property market. Do you think raising the price of consumer goods will help? Wont people just be encouraged to park their cash in property (ie, real goods?). Right now, they are trying to "make housing more affordable" by interest rate subsidies (inflationary). Doesn't seem to be making anything more affordable, though.

jayfuerstenberg 13y ago

I live in Japan and the Japanese government, under its Abenomics movement, decided on another round of QE and injected 20% more currency into the market earlier this year. I get that the yen is too strong and needs to weaken in order to protect the trade balance between itself and other countries. But the inflation eventually reached us consumers and every day items have gotten that much more expensive. Now my 10,000 yen only gets me ~8333 yen worth of stuff. If I could go back in time and not contribute the lost 1/6th of my savings in labor I might not be angry, but I can't. My salary isn't going up either and there is even talk of pay reduction due to a worsening economy. So to protect myself my choices seem to be: 1. Buy things up before the inflation reaches me as a consumer, passing the purchasing power theft on to the merchants. (possible, but I blow all my money away) 2. Convert that currency to something else that hedges against inflation (and retains its value over time) if I want to not spend it. I chose #2 in the form of gold. If you want to call me a goldbug, go ahead. I'm getting into REITs soon too so maybe you can come up with clever derogatory name for that as well. I'll try to help you win your bingo round.

hudibras 13y ago
The inflation rate in Japan since last year (the "Abenomics" effect) has only moved from -1% to 1%, not exactly a huge effect. http://www.tradingeconomics.com/japan/inflation-cpi http://www.tradingeconomics.com/japan/inflation-cpi Yet even this small amount of increased inflation (or technically, the expectations of future inflation) is the primary driver behind the recovering economy. The additional currency in the market is irrelevent and is the whole point of this exercise: it does very little or nothing in a liquidity trap. For what it's worth, I also live in Japan and I haven't seen anything like you have experienced regarding your purchasing power. My rent costs the same, my train and bus tickets are the same, can't tell any difference at the grocery, etc.