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>I find it hard to believe it's the scary monster mainstream economists make it out to be. It isn't really complicated. First, when the value of holding cash

>I find it hard to believe it's the scary monster mainstream economists make it out to be. It isn't really complicated. First, when the value of holding cash gives a positive return, then it changes investment allocations. People often argue that "I won't change my spending habits!" Well, if you were economically rational, you would. But let's be realistic, no one cares about you putting off buying a TV. The concern is for the global financial system as a whole, who suddenly have incentive to hold money rather than circulate it. Second, incomes are part of the deflation equation. It's one thing when technological progress allows for manufacturing processes to make items cheaper and we get cheaper computers. It's another when massive price deflation (ie oil) causes a sharp decrease in wages and mass unemployment. Third, debtors are harmed during deflation, as the absolute value of their debts increases. That means your average household gets into trouble. >That is NOT a good thing. Prove it. Seriously. If you can, I'm sure you've got a Nobel in your future. I'm not being facetious. Nobody really knows how this ends, good or bad. Unfortunately, Economics can't run experiments. You apply theory, make a best guess, implement the policy, and hope for the best.

m52go 12y ago
Everything you said is true, but I don't find the points terribly practical. 1) I seriously doubt investors will prefer to hold US dollars for meager deflation gains instead of investing in other financial assets projecting far greater return (stocks, bonds, real estate, etc). 2) Wages are sticky. Yes, 20 years of deflation would send wages down. I don't think a short period of deflation would do too much. 3) See my comment below. I printed an abridged version of it here: When I'm on a fixed income, I don't care much about the value of my money that's going toward paying down debts. I care about the value of the money I have left over. Say I earn $1000 a month. $600 goes to loans. $400 is left over to spend on food. With deflation, sure, that $600 is really worth more than otherwise. But it's a sunk cost to me. That $400 is what matters to me, as a consumer, and with deflation, it buys me more food. I appreciate your points, but I still think deflation fears are overblown. ------------------ EDIT: to comment on your last remark about proving the unfavorable effects of money-printing...I don't need to run tests. I have history. Money printing is the genesis of hyperinflation, a well-documented historical phenomenon. http://en.wikipedia.org/wiki/Hyperinflation http://en.wikipedia.org/wiki/Hyperinflation Printing paper money to monetize debts NEVER ends well. Show me a case in which it does, and I'll award you a paper Nobel Prize.
- hnnewguy 12y ago
  >I seriously doubt investors will prefer to hold US dollars Well, with all due respect, what you doubt doesn't really matter. We're watching it happen. Why would I buy bonds with a negative real yield when I can hold appreciating dollars risk free? Again, this concerns the system as a whole. Don't underestimate how important the V in MV = PT is. >Wages are sticky. Right. So people get fired to bring costs down, instead of everyone taking a little less. >When I'm on a fixed income, If you're on a fixed income with no debt, then you love deflation. Your dollars buy more goods. >Money printing is the genesis of hyperinflation Excess money printing is the genesis of hyperinflation. So, again, the problem is determining where that "excess" line is. One indicator of that is rising prices, which we don't see. Are you calling for hyperinflation? If so, when?
  - m52go 12y ago
    > Why would I buy bonds with a negative real yield when I can hold appreciating dollars risk free? You're right, so let me back up my position from a market-based perspective: security. That's why negative yields can exist in the first place. An appreciating dollar doesn't matter if the dollar can't be trusted. > So people get fired to bring costs down, instead of everyone taking a little less. Fair point. Like I said, this is a longer-term issue with deflation. Remember, the economy moves in 3-5 year cycles. Nothing lasts forever, neither inflation nor deflation. > If you're on a fixed income with no debt, then you love deflation. Even if you have debt, I argue you'd still love deflation, as illustrated in my last comment. > One indicator of that is rising prices, which we don't see. O RLY? Do you pay for food, energy, and...stuff, in general? Are prices going up, or are they going down? Gas is down for now, but it'll be right back up in no time. Don't look at the official numbers. They changed the method of calculating inflation to make it seem lower. Look at reality. And remember, this increase in prices is happening IN SPITE of gains in productivity (which is deflationary). Look, I agree "excessive" isn't easy to define on the topic of money-printing. As you said, there's no model to tell us what's right or wrong. But I don't know how it can be considered appropriate to create money out of thin air to fund the vast majority of your obligations (well over 50% of US debt is monetized). The economic benefits that have been proposed as a result of this policy haven't appeared. Yet they keep pushing forward with more and more. It just isn't right. That might sound like a weak statement, but take it as a statement grounded in the unflappable strength of morality.
msandford 12y ago
Show me the strictly paper money system which has lived 1000 years (or even 100!) and I'll stop believing that having the ability to debase a currency isn't a train wreck in slow motion. And when I say "strict" I mean it, so paper currencies which used to be convertable to gold or silver or whatever only start counting once convertability stopped. Nothing in economics short of trivial tautologies can be proved or else economics would be just like physics and we'd understand it all already.
- j_baker 12y ago
  > Show me the strictly paper money system which has lived 1000 years (or even 100!) http://en.wikipedia.org/wiki/Fiat_money http://en.wikipedia.org/wiki/Fiat_money "The first use of fiat money was recorded in China around 1000 AD. Since then, it has been used continuously by various countries, concurrently with commodity currencies." > ...or else economics would be just like physics and we'd understand it all already. So you think physicists understand all about physics? I've got a bridge to sell you...
  - msandford 12y ago
    > "The first use of fiat money was recorded in China around 1000 AD. Since then, it has been used continuously by various countries, concurrently with commodity currencies." Okay, so which country is that and from/to which dates? I see a generalized statement that it's been done but no specifics. You'll forgive me I hope if I'd like a little more information than "well this wikipedia article says..." Let me clarify further that I'm not talking about paper money in general, but a particular paper money system. In other words, just because people have been trading paper for a thousand years doesn't mean it's been the same paper and that you could have successfully stored that value all the way from "back then" up until the current day, strictly in paper. Gold does that to some degree, though the exchange rate of gold to goods has varied pretty substantially historically. To my knowledge there's no paper which has held value for anywhere near as long. Does my question make sense? Maybe the UK unhinged the Pound from silver in 1205 AD and it's been non-convertible since but it's held value so that would qualify (I know it's not true but it's an example). > So you think physicists understand all about physics? I've got a bridge to sell you... We understand physics well enough that we can build GPS which necessitates and understanding of relativity or else airplanes would be miles off of their autopilot at the end of a trans-oceanic flight. But I'd love to be wrong, it'd be great if we knew things about economics to that level of precision. Life would be so much easier because then we could just DO THE RIGHT THING instead of arguing about it ENDLESSLY. As an engineer that holds tremendous appeal since the majority of the stuff I do has a spectrum of right answers and perhaps a few optimal answers and a spectrum of wrong answers. I feel the level of maturity of economics is late stone age or early bronze age re: engineering. We've got some ideas about how things work and can even bend a few to our will but there's no precision calculation, just experts making gut calls.
toasted 12y ago
> Nobody really knows how this ends, good or bad. Efficient market theory is based on the fact that when you leave people to their own devices, they tend to do a far better job and be better off than if you try to help them. Basically everyone agrees on that. So why do we accept efficient market theory for basically everything, yet when it comes to currency someone has decided that we need elaborate schemes of variable government decreed micromanagement in order for things to work? In terms of keeping things simple and letting the market decide, the perfect currency would be global, unable to be printed or manipulated, of a fixed amount, so that external interference is impossible, and people knew exactly what they were dealing with at all times. The closest we have is gold (and maybe bitcoin).
- hnnewguy 12y ago
  >yet when it comes to currency someone has decided that we need elaborate schemes Money is a commodity, and the demand for it changes over time. Do you really believe that we should have the same "amount" in circulation as we did 200 years ago? >unable to be printed or manipulated Think of money as a concept. It's a means to perform financial transactions, nothing more. My ability to perform such transactions shouldn't be constrained because we haven't "cut down enough trees make paper", or "dug enough metal out of the ground" or "solved enough mathematical puzzles".
  - toasted 12y ago
    Take land - demand for it changes over time, the exact same amount is in circulation as there was 200 years ago, the value goes up as population increases and it becomes more scarce, why can't money be the same?
    - hnnewguy 12y ago
      >Take land - demand for it changes over time, the exact same amount is in circulation as there was 200 years ago, the value goes up as population increases and it becomes more scarce Why is that a good system? Why should people who happened to be here before our time have an inherent economic advantage by owning land? Wouldn't the world be a better place if we could cheaply create all the land we wanted?

m52go 12y ago

Everything you said is true, but I don't find the points terribly practical. 1) I seriously doubt investors will prefer to hold US dollars for meager deflation gains instead of investing in other financial assets projecting far greater return (stocks, bonds, real estate, etc). 2) Wages are sticky. Yes, 20 years of deflation would send wages down. I don't think a short period of deflation would do too much. 3) See my comment below. I printed an abridged version of it here: When I'm on a fixed income, I don't care much about the value of my money that's going toward paying down debts. I care about the value of the money I have left over. Say I earn $1000 a month. $600 goes to loans. $400 is left over to spend on food. With deflation, sure, that $600 is really worth more than otherwise. But it's a sunk cost to me. That $400 is what matters to me, as a consumer, and with deflation, it buys me more food. I appreciate your points, but I still think deflation fears are overblown. ------------------ EDIT: to comment on your last remark about proving the unfavorable effects of money-printing...I don't need to run tests. I have history. Money printing is the genesis of hyperinflation, a well-documented historical phenomenon. http://en.wikipedia.org/wiki/Hyperinflation http://en.wikipedia.org/wiki/Hyperinflation Printing paper money to monetize debts NEVER ends well. Show me a case in which it does, and I'll award you a paper Nobel Prize.

hnnewguy 12y ago
>I seriously doubt investors will prefer to hold US dollars Well, with all due respect, what you doubt doesn't really matter. We're watching it happen. Why would I buy bonds with a negative real yield when I can hold appreciating dollars risk free? Again, this concerns the system as a whole. Don't underestimate how important the V in MV = PT is. >Wages are sticky. Right. So people get fired to bring costs down, instead of everyone taking a little less. >When I'm on a fixed income, If you're on a fixed income with no debt, then you love deflation. Your dollars buy more goods. >Money printing is the genesis of hyperinflation Excess money printing is the genesis of hyperinflation. So, again, the problem is determining where that "excess" line is. One indicator of that is rising prices, which we don't see. Are you calling for hyperinflation? If so, when?
- m52go 12y ago
  > Why would I buy bonds with a negative real yield when I can hold appreciating dollars risk free? You're right, so let me back up my position from a market-based perspective: security. That's why negative yields can exist in the first place. An appreciating dollar doesn't matter if the dollar can't be trusted. > So people get fired to bring costs down, instead of everyone taking a little less. Fair point. Like I said, this is a longer-term issue with deflation. Remember, the economy moves in 3-5 year cycles. Nothing lasts forever, neither inflation nor deflation. > If you're on a fixed income with no debt, then you love deflation. Even if you have debt, I argue you'd still love deflation, as illustrated in my last comment. > One indicator of that is rising prices, which we don't see. O RLY? Do you pay for food, energy, and...stuff, in general? Are prices going up, or are they going down? Gas is down for now, but it'll be right back up in no time. Don't look at the official numbers. They changed the method of calculating inflation to make it seem lower. Look at reality. And remember, this increase in prices is happening IN SPITE of gains in productivity (which is deflationary). Look, I agree "excessive" isn't easy to define on the topic of money-printing. As you said, there's no model to tell us what's right or wrong. But I don't know how it can be considered appropriate to create money out of thin air to fund the vast majority of your obligations (well over 50% of US debt is monetized). The economic benefits that have been proposed as a result of this policy haven't appeared. Yet they keep pushing forward with more and more. It just isn't right. That might sound like a weak statement, but take it as a statement grounded in the unflappable strength of morality.

msandford 12y ago

Show me the strictly paper money system which has lived 1000 years (or even 100!) and I'll stop believing that having the ability to debase a currency isn't a train wreck in slow motion. And when I say "strict" I mean it, so paper currencies which used to be convertable to gold or silver or whatever only start counting once convertability stopped. Nothing in economics short of trivial tautologies can be proved or else economics would be just like physics and we'd understand it all already.

j_baker 12y ago
> Show me the strictly paper money system which has lived 1000 years (or even 100!) http://en.wikipedia.org/wiki/Fiat_money http://en.wikipedia.org/wiki/Fiat_money "The first use of fiat money was recorded in China around 1000 AD. Since then, it has been used continuously by various countries, concurrently with commodity currencies." > ...or else economics would be just like physics and we'd understand it all already. So you think physicists understand all about physics? I've got a bridge to sell you...
- msandford 12y ago
  > "The first use of fiat money was recorded in China around 1000 AD. Since then, it has been used continuously by various countries, concurrently with commodity currencies." Okay, so which country is that and from/to which dates? I see a generalized statement that it's been done but no specifics. You'll forgive me I hope if I'd like a little more information than "well this wikipedia article says..." Let me clarify further that I'm not talking about paper money in general, but a particular paper money system. In other words, just because people have been trading paper for a thousand years doesn't mean it's been the same paper and that you could have successfully stored that value all the way from "back then" up until the current day, strictly in paper. Gold does that to some degree, though the exchange rate of gold to goods has varied pretty substantially historically. To my knowledge there's no paper which has held value for anywhere near as long. Does my question make sense? Maybe the UK unhinged the Pound from silver in 1205 AD and it's been non-convertible since but it's held value so that would qualify (I know it's not true but it's an example). > So you think physicists understand all about physics? I've got a bridge to sell you... We understand physics well enough that we can build GPS which necessitates and understanding of relativity or else airplanes would be miles off of their autopilot at the end of a trans-oceanic flight. But I'd love to be wrong, it'd be great if we knew things about economics to that level of precision. Life would be so much easier because then we could just DO THE RIGHT THING instead of arguing about it ENDLESSLY. As an engineer that holds tremendous appeal since the majority of the stuff I do has a spectrum of right answers and perhaps a few optimal answers and a spectrum of wrong answers. I feel the level of maturity of economics is late stone age or early bronze age re: engineering. We've got some ideas about how things work and can even bend a few to our will but there's no precision calculation, just experts making gut calls.

toasted 12y ago

> Nobody really knows how this ends, good or bad. Efficient market theory is based on the fact that when you leave people to their own devices, they tend to do a far better job and be better off than if you try to help them. Basically everyone agrees on that. So why do we accept efficient market theory for basically everything, yet when it comes to currency someone has decided that we need elaborate schemes of variable government decreed micromanagement in order for things to work? In terms of keeping things simple and letting the market decide, the perfect currency would be global, unable to be printed or manipulated, of a fixed amount, so that external interference is impossible, and people knew exactly what they were dealing with at all times. The closest we have is gold (and maybe bitcoin).

hnnewguy 12y ago
>yet when it comes to currency someone has decided that we need elaborate schemes Money is a commodity, and the demand for it changes over time. Do you really believe that we should have the same "amount" in circulation as we did 200 years ago? >unable to be printed or manipulated Think of money as a concept. It's a means to perform financial transactions, nothing more. My ability to perform such transactions shouldn't be constrained because we haven't "cut down enough trees make paper", or "dug enough metal out of the ground" or "solved enough mathematical puzzles".
- toasted 12y ago
  Take land - demand for it changes over time, the exact same amount is in circulation as there was 200 years ago, the value goes up as population increases and it becomes more scarce, why can't money be the same?
  - hnnewguy 12y ago
    >Take land - demand for it changes over time, the exact same amount is in circulation as there was 200 years ago, the value goes up as population increases and it becomes more scarce Why is that a good system? Why should people who happened to be here before our time have an inherent economic advantage by owning land? Wouldn't the world be a better place if we could cheaply create all the land we wanted?