3 ms·

> It hurts everyone as the economy shrinks and there's less cash to go around. Only until prices fall enough that people start spending again and hiring picks

> It hurts everyone as the economy shrinks and there's less cash to go around. Only until prices fall enough that people start spending again and hiring picks up again. The idea of an evenly rotating economy where everything is great all the time has been thoroughly disproven over 100 years ago. To try and manage the economy to be so is a fool's errand. Debt has grown ever-so-slightly faster than income for the last 40-50 years and that means future purchases have been pulled to the present for the last 40-50 years. If history is a guide (and I believe that it is) one of two things will happen: 1. People will start to pay down their debt and this will unfortunately result in hardship as debt-fueled growth stops 2. The banks will print more money and the party never stops until the party blows up in an enormous currency crisis I can't tell you which will happen, but every time we print more money we grow the systemic risk of total blowup. People who argue that we should be doing more to prevent climate change while simultaneously cheering money-printing need to take a good look at their belief systems.

ap22213 12y ago
So, you're saying that you want another Great Depression? That's generally not considered as a positive period of time.
Nursie 12y ago
>>Only until prices fall enough that people start spending again and hiring picks up again. But why would I bother investing capital to hire people to make stuff if I've got guaranteed returns just by sitting on cash?
- msandford 12y ago
  Deflation is only a scary thing because people have adapted to inflation, and that has shaped the last 100 years or so of financial history in this country. It used to be that prices went up, then down, then back up again, then back down again, etc on a time-scale of a couple of years. Maybe spanning a range of 4x or so. Because everyone knew that's how things went, they arranged their affairs to cope and things weren't amazing, but a year or two of deflation didn't destroy the world. What we have now are huge asset bubbles that are popping and people at the Fed are trying to reflate and/or at least slow the collapse down. The problem isn't that deflation might happen; it's that there were years and years of asset prices going to more and more unreasonable levels that no sane person would pay. How do you clean the slate and get asset prices back to levels that might make sense from a fundamentals perspective instead of a risk-on, risk-off perspective? The only thing I can think of is to let them fall to levels where people would be willing to buy them again. It's either that or a 20 year inflationary slog to slowly reprice them in real terms. In other words, at 4% inflation over 20 years if a price doesn't change in nominal terms it'll lose 55% of its value in real terms. That roughly approximates it dropping in value 50% in say 6 months nominally, because in 6 months nominal terms are unlikely to diverge from real terms by more than a few percent. Which would you rather have? 20 year of Japan or the Great Depression, or a fairly swift realignment of the economy to the new realities? Either way the assets have to get repriced once everyone realized that they were priced horribly, horribly incorrectly.

ap22213 12y ago

So, you're saying that you want another Great Depression? That's generally not considered as a positive period of time.

Nursie 12y ago

>>Only until prices fall enough that people start spending again and hiring picks up again. But why would I bother investing capital to hire people to make stuff if I've got guaranteed returns just by sitting on cash?

msandford 12y ago
Deflation is only a scary thing because people have adapted to inflation, and that has shaped the last 100 years or so of financial history in this country. It used to be that prices went up, then down, then back up again, then back down again, etc on a time-scale of a couple of years. Maybe spanning a range of 4x or so. Because everyone knew that's how things went, they arranged their affairs to cope and things weren't amazing, but a year or two of deflation didn't destroy the world. What we have now are huge asset bubbles that are popping and people at the Fed are trying to reflate and/or at least slow the collapse down. The problem isn't that deflation might happen; it's that there were years and years of asset prices going to more and more unreasonable levels that no sane person would pay. How do you clean the slate and get asset prices back to levels that might make sense from a fundamentals perspective instead of a risk-on, risk-off perspective? The only thing I can think of is to let them fall to levels where people would be willing to buy them again. It's either that or a 20 year inflationary slog to slowly reprice them in real terms. In other words, at 4% inflation over 20 years if a price doesn't change in nominal terms it'll lose 55% of its value in real terms. That roughly approximates it dropping in value 50% in say 6 months nominally, because in 6 months nominal terms are unlikely to diverge from real terms by more than a few percent. Which would you rather have? 20 year of Japan or the Great Depression, or a fairly swift realignment of the economy to the new realities? Either way the assets have to get repriced once everyone realized that they were priced horribly, horribly incorrectly.