5 ms·

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

by 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.
  - hnnewguy 12y ago
    >Don't look at the official numbers. They changed the method of calculating inflation to make it seem lower. Look at reality They change the method, then retroactively recalculate the values, because our basket of consumed goods changes over time. The way the CPI numbers are calculated are free for anyone to look at, and they closely match the Billion Price Project. There is no conspiracy. >The economic benefits that have been proposed as a result of this policy haven't appeared I'm not sure how you can say that. If you ask me, the policy has been successful, despite massive political pushback. Again, that's the tough part of economics; it's very hard to separate all the conflating effects of a specific policy.
red_hammer 12y ago
Deflation seem good (stuff I buy is cheaper!) but the problem is psychological. Say deflation is 10% one year. Everything you buy goes down in cost which is good. However, if you're on salary, then from your employers perspective you are now 10% overpaid (assuming you were previously paid the market wage). In years with inflation, businesses can give raises across the board, but rarely would a business cut all their employees pay by 10%. It would be bad for morale. Instead they lay off 10% of the workforce. People aren't willing to accept pay cuts in times of deflation as easily as a yearly pay increase.
- innguest 12y ago
  > It would be bad for morale [for a] business [to] cut all their employees pay by 10%. Pff, is that the issue? That's easy peasy, price people's salaries in terms of purchasing power. Or in terms of baskets of goods. Wow this is such an easy problem to solve. I could go on and on. I'm not even joking. Just use an indirection. Isn't that how we solve all problems in programming? It's certainly my favorite tool.

by m52go 12y ago

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.
- hnnewguy 12y ago
  >Don't look at the official numbers. They changed the method of calculating inflation to make it seem lower. Look at reality They change the method, then retroactively recalculate the values, because our basket of consumed goods changes over time. The way the CPI numbers are calculated are free for anyone to look at, and they closely match the Billion Price Project. There is no conspiracy. >The economic benefits that have been proposed as a result of this policy haven't appeared I'm not sure how you can say that. If you ask me, the policy has been successful, despite massive political pushback. Again, that's the tough part of economics; it's very hard to separate all the conflating effects of a specific policy.

red_hammer 12y ago

Deflation seem good (stuff I buy is cheaper!) but the problem is psychological. Say deflation is 10% one year. Everything you buy goes down in cost which is good. However, if you're on salary, then from your employers perspective you are now 10% overpaid (assuming you were previously paid the market wage). In years with inflation, businesses can give raises across the board, but rarely would a business cut all their employees pay by 10%. It would be bad for morale. Instead they lay off 10% of the workforce. People aren't willing to accept pay cuts in times of deflation as easily as a yearly pay increase.

innguest 12y ago
> It would be bad for morale [for a] business [to] cut all their employees pay by 10%. Pff, is that the issue? That's easy peasy, price people's salaries in terms of purchasing power. Or in terms of baskets of goods. Wow this is such an easy problem to solve. I could go on and on. I'm not even joking. Just use an indirection. Isn't that how we solve all problems in programming? It's certainly my favorite tool.