3 ms·

I've been trying to wrap my head around this myself as it does seem pretty counter intuitive (based on personal experience - 5% change in prices over the course

I've been trying to wrap my head around this myself as it does seem pretty counter intuitive (based on personal experience - 5% change in prices over the course of a year in either direction has no impact on my purchasing decisions). I think the key issue is that deflation makes borrowing a really bad idea (as each year you effectively owe 5% more) and much of our economy depends on consumer debt (cars, housing, college degrees) but I'm willing to accept that a programmer's mind isn't well suited for grokking economics.

chom_noamsky 12y ago
Well, common people don't even know how money is created and destroyed, so you wouldn't pick it up just from existing, like football. Even full-blown "economists" who aren't directly involved with finance and banking don't know how money is created and destroyed, and they form their most of their models and calculus without accounting for it. The closest you'll get to it in Econ 101 is the "money multiplier" which is just a one-dimensional calculation involving a bank's reserve rate. Subsequent Econ 101 models are formed around this one-dimensional parameter, and advanced economic models still make laughably naive accounting for the actual mechanics of money creation. And these court sycophants, the economists, they don't get called out on their pseudo-science, or the inapplicability of their conclusions due to the assumptions they made from the start, because we live in an economic system where the tail wags the dog. The powerful individuals who have ownership rights over economic assets, and large existing reserves of liquidity (money) -- when once power and wealth were supposed to be derived from production of economic utility -- they now have so much control of the money and the corporate ownership, that power and wealth are derived from existing power and wealth. Economic merit (good work on something that helps people) is no longer the thing that rewards people, it's the * * * Similarly, it is a dog-and-tail problem that's keeping you in the dark on why deflation is bad. It's not that deflation is a cause and bad things are the effect. It's that deflation is an effect of "bad" things in this money system. Inflation comes from money being loaned into existence faster than money is destroyed upon loan repayment (in the best case), or loan default (in the "worst" case). Inflation can mean that "the pie" is growing and people are feeling good on the medium- and long-term about their prospects for getting the piece of the pie that they want. Inflation can also mean that there's some broken source of money creation, and in the short term people feel the need to charge more for their goods and services in order to have the same piece of pie tomorrow as yesterday, and that's what court economists will model and pontificate about. But in the minds of the people at the high levels of government and status-quo power, this type of inflation is of less concern; it's a solved problem, relatively speaking at this point in history, and what they fear most is stagnating growth -- remember that inflation that comes from growth is what makes a population happy on the medium and long term. If macro-level growth stops, even for one year after one hundred, the risk of a cyclical destruction of existing money, assets, and debt is real. Money is created by issuance of new debt, and it is destroyed upon repayment of the principal (interest payments go into the accounts of the lender). When your pop loans you $1000, it's money he has and it's not destroyed when you repay him, but when a financial institution that is allowed to write new money on the ledgers in exchange for a debt, money which came out of no one's accounts, then principal repayments do not go into the bank's accounts. They are destroyed by the same ledger that created them. That's the thing that the winners in this system don't want you to know, that's what people who watch football don't know, and that's what King's Court Economists (economists who don't specialize in finance) don't account for when they model, predict, and generally pontificate to the public. If a loan is not repaid, then a financial institution is legally bound to use its own accounts to repay the principal. They consider this when they demand collateral/consideration for a loan. So, finally, here is your mistake: deflation is not a primary cause of bad things, it is an effect. When the macro economy stops growing, or even threatens to stop growing and people start getting tight and conservative in their estimation of future prospects, the threat of a "death spiral" arises: people get tighter with their money, a few extra loans tank here there and everywhere, then people and institutions really get tighter with their money, having seen "the economy starting to get bad" locally, firsthand. All that needs to happen next is a critical mass of So then money becomes tight not only because people feel thrifty, but because money is literally being destroyed on every tanked loan. A lot of money gets destroyed on big loans, like real estate and business loans. The collateral and bankruptcy sales have to be priced in the present-day environment, and they tend to be for less than . This is the deflation that powerful institutions like government very much want to avoid, for obvious political and military reasons, and a majority of rich private individuals and institutions also want to avoid, just because it's harder in general to make money -- there will be big winners in the private sector during deflation (which IS a tanking economy, and nothing besides), but there will be even more losers in the rich elite private sector during deflation. We were basically at that point in 2008, and at that point at times previous in history, like just before gold stopped being a money equivalent and became just another asset you could buy with money in a money system that collapses when it stops expanding. 2008 was the start of a new era in tail-wags-the-dog financialization, where economists and people are encouraged to have any false beliefs they find reasonable and useful about how the economy works, so long as the system of debt, ownership, and debt-based money does not experience a deflationary death spiral. So our economic activity is dictated by certain constraints and priorities of government and private elite interests, who need to keep the status quo from collapsing. Eventually it will collapse, and the dollar-denominated assets of everyone, middle class or upper class, will experience "price discovery" down from a persistently-inflated level, will experience persistent difficulty obtaining liquidity (cash) in an environment where bankruptcies are too common, formerly-reliable cash flows such as surround retail businesses disappear, everyone who owes anything to anyone gets scared and defensive, and everyone who is owed anything by anyone gets gets scared and aggressive. Oh, it won't be the end of history. But it will probably kick off a new dark ages. Not a dark ages of technological regress, but of fascism, mass suffering, holocaust, propagandization, and Darwinistic brutality. We already have a hard time finding the money to give each other to keep all of us alive (food, medicine); the money simply will not be there for us to provide life to millions (billions?) of people who are dependent because they have no source of economic vitality in a deflationary environment. You see, money is just about the ultimate fetish in the minds of men, today. I mean that more like Freud used it than like 1-900's use it. It's so powerful in our minds that it controls us. Things like economic activity and production of utility are possible without it, but we have let money preclude that. Want to build a sustainable economy? You can't, unless there's going to be a dollar-denominated return on the investment, and the dollar system literally can't persist forever, because it can't grow forever. * * * Money comes only from debt. And the money supply rapidly collapses when it stops growing. And that's what no one talks about. And that's going to kill us in the long term, even if we could have lived a different history without debt-based money, and could have had a different future if we had moved away from it. * * * If you want to get some alternative education on these issues, you have to be really careful because there's more mythology, anti-semitism, tinfoilism, and noise than signal out there in people's minds, and thus on the internet. But I think this a decent one: Renaissance 2.0, by Damon Vrabel (2010) https://www.youtube.com/watch?v=48pQImAztgs https://www.youtube.com/watch?v=48pQImAztgs -mirrored video because original content producer pulled his videos and quit being an activist * * * Oh, and by the way, I'll say this now even though it doesn't come directly into play into anything I've said this far, nor the education video linked, but it needs to be said by someone who is reasonable, rational, educated, and very hurt: 9/11 was an inside job.

chom_noamsky 12y ago

Well, common people don't even know how money is created and destroyed, so you wouldn't pick it up just from existing, like football. Even full-blown "economists" who aren't directly involved with finance and banking don't know how money is created and destroyed, and they form their most of their models and calculus without accounting for it. The closest you'll get to it in Econ 101 is the "money multiplier" which is just a one-dimensional calculation involving a bank's reserve rate. Subsequent Econ 101 models are formed around this one-dimensional parameter, and advanced economic models still make laughably naive accounting for the actual mechanics of money creation. And these court sycophants, the economists, they don't get called out on their pseudo-science, or the inapplicability of their conclusions due to the assumptions they made from the start, because we live in an economic system where the tail wags the dog. The powerful individuals who have ownership rights over economic assets, and large existing reserves of liquidity (money) -- when once power and wealth were supposed to be derived from production of economic utility -- they now have so much control of the money and the corporate ownership, that power and wealth are derived from existing power and wealth. Economic merit (good work on something that helps people) is no longer the thing that rewards people, it's the * * * Similarly, it is a dog-and-tail problem that's keeping you in the dark on why deflation is bad. It's not that deflation is a cause and bad things are the effect. It's that deflation is an effect of "bad" things in this money system. Inflation comes from money being loaned into existence faster than money is destroyed upon loan repayment (in the best case), or loan default (in the "worst" case). Inflation can mean that "the pie" is growing and people are feeling good on the medium- and long-term about their prospects for getting the piece of the pie that they want. Inflation can also mean that there's some broken source of money creation, and in the short term people feel the need to charge more for their goods and services in order to have the same piece of pie tomorrow as yesterday, and that's what court economists will model and pontificate about. But in the minds of the people at the high levels of government and status-quo power, this type of inflation is of less concern; it's a solved problem, relatively speaking at this point in history, and what they fear most is stagnating growth -- remember that inflation that comes from growth is what makes a population happy on the medium and long term. If macro-level growth stops, even for one year after one hundred, the risk of a cyclical destruction of existing money, assets, and debt is real. Money is created by issuance of new debt, and it is destroyed upon repayment of the principal (interest payments go into the accounts of the lender). When your pop loans you $1000, it's money he has and it's not destroyed when you repay him, but when a financial institution that is allowed to write new money on the ledgers in exchange for a debt, money which came out of no one's accounts, then principal repayments do not go into the bank's accounts. They are destroyed by the same ledger that created them. That's the thing that the winners in this system don't want you to know, that's what people who watch football don't know, and that's what King's Court Economists (economists who don't specialize in finance) don't account for when they model, predict, and generally pontificate to the public. If a loan is not repaid, then a financial institution is legally bound to use its own accounts to repay the principal. They consider this when they demand collateral/consideration for a loan. So, finally, here is your mistake: deflation is not a primary cause of bad things, it is an effect. When the macro economy stops growing, or even threatens to stop growing and people start getting tight and conservative in their estimation of future prospects, the threat of a "death spiral" arises: people get tighter with their money, a few extra loans tank here there and everywhere, then people and institutions really get tighter with their money, having seen "the economy starting to get bad" locally, firsthand. All that needs to happen next is a critical mass of So then money becomes tight not only because people feel thrifty, but because money is literally being destroyed on every tanked loan. A lot of money gets destroyed on big loans, like real estate and business loans. The collateral and bankruptcy sales have to be priced in the present-day environment, and they tend to be for less than . This is the deflation that powerful institutions like government very much want to avoid, for obvious political and military reasons, and a majority of rich private individuals and institutions also want to avoid, just because it's harder in general to make money -- there will be big winners in the private sector during deflation (which IS a tanking economy, and nothing besides), but there will be even more losers in the rich elite private sector during deflation. We were basically at that point in 2008, and at that point at times previous in history, like just before gold stopped being a money equivalent and became just another asset you could buy with money in a money system that collapses when it stops expanding. 2008 was the start of a new era in tail-wags-the-dog financialization, where economists and people are encouraged to have any false beliefs they find reasonable and useful about how the economy works, so long as the system of debt, ownership, and debt-based money does not experience a deflationary death spiral. So our economic activity is dictated by certain constraints and priorities of government and private elite interests, who need to keep the status quo from collapsing. Eventually it will collapse, and the dollar-denominated assets of everyone, middle class or upper class, will experience "price discovery" down from a persistently-inflated level, will experience persistent difficulty obtaining liquidity (cash) in an environment where bankruptcies are too common, formerly-reliable cash flows such as surround retail businesses disappear, everyone who owes anything to anyone gets scared and defensive, and everyone who is owed anything by anyone gets gets scared and aggressive. Oh, it won't be the end of history. But it will probably kick off a new dark ages. Not a dark ages of technological regress, but of fascism, mass suffering, holocaust, propagandization, and Darwinistic brutality. We already have a hard time finding the money to give each other to keep all of us alive (food, medicine); the money simply will not be there for us to provide life to millions (billions?) of people who are dependent because they have no source of economic vitality in a deflationary environment. You see, money is just about the ultimate fetish in the minds of men, today. I mean that more like Freud used it than like 1-900's use it. It's so powerful in our minds that it controls us. Things like economic activity and production of utility are possible without it, but we have let money preclude that. Want to build a sustainable economy? You can't, unless there's going to be a dollar-denominated return on the investment, and the dollar system literally can't persist forever, because it can't grow forever. * * * Money comes only from debt. And the money supply rapidly collapses when it stops growing. And that's what no one talks about. And that's going to kill us in the long term, even if we could have lived a different history without debt-based money, and could have had a different future if we had moved away from it. * * * If you want to get some alternative education on these issues, you have to be really careful because there's more mythology, anti-semitism, tinfoilism, and noise than signal out there in people's minds, and thus on the internet. But I think this a decent one: Renaissance 2.0, by Damon Vrabel (2010) https://www.youtube.com/watch?v=48pQImAztgs https://www.youtube.com/watch?v=48pQImAztgs -mirrored video because original content producer pulled his videos and quit being an activist * * * Oh, and by the way, I'll say this now even though it doesn't come directly into play into anything I've said this far, nor the education video linked, but it needs to be said by someone who is reasonable, rational, educated, and very hurt: 9/11 was an inside job.