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When you buy a bond, you are making a loan. You have agreed to hand over a bunch of money today and in return you get scheduled payments from the lendee. The q

When you buy a bond, you are making a loan. You have agreed to hand over a bunch of money today and in return you get scheduled payments from the lendee. The quarterly or biannual or yearly payments are set in a specific currency. If you recall the stories told about Germany after WW1, they jacked up their inflation because their repayment (pmts were to France, I believe) amounts were set in Deutsche Marks. Because the German gov't could print marks, they could raise inflation arbitrarily. Inflating the volume of deutsche marks in circulation makes each individual deutsche mark less valuable. So in the late 20s or early 30s, the German got had cut themselves a sweet deal handing worthless deutsche marks over to the French and the german people would buy loaves of bread with wheelbarrows of Deutsche marks, according to the tales. Inflation is not only the result of printing extra money. If workers become more valuable, their salaries rise and they have extra money to spend, the merchants they trade with can raise prices as well, etc. So from a naive, freshman macroeconomics view (ie mine), increased trade, increased demand drives inflation in the currency. By that same token, decreased economic activity, laid off workers etc drives deflation. In that scenario, money is worth more and more because many people don't have it. That's when someone on the street in the Great Depression trades a pound of apples for a nickel, when currency is scarce and valuable. So betting on deflation can be tantamount to betting the U.S. economy at large will tighten up and times will be rough. It is my understanding of the Telegraph headline that many traders bet on an economic downturn that never got as bad as they had hoped for.

meatysnapper 11y ago
My finance buddies have been waiting for the bomb to blow up for a decade. It's really a game of musical chairs. The less pessimistic view of this (which my aged father holds) is that the saving grace of the US is while we have problems, China + Japan + Europe have awful demographics and we're stealing many of their best youngsters. And our popular culture is amazing- nobody else is even close. Unfortunately, this means we probably won't address our problems in a timely manner. A Chinese meltdown makes the US a more attractive place to put money.
- bgilroy26 11y ago
  >A Chinese meltdown makes the US a more attractive place to put money. You're totally right.The slowdown in emerging markets relative to their strength in the wake of the financial crisis could be the lion's share of the dollar's strength. The fact that we haven't had a government shutdown in a while could be playing a big part. This stuff is so complicated.
pjc50 11y ago
I thought the reparations were paid in gold?
AnimalMuppet 11y ago
> Inflation is not only the result of printing extra money. If workers become more valuable, their salaries rise and they have extra money to spend, the merchants they trade with can raise prices as well, etc. I don't think this part is quite right. The workers become more valuable when they produce more. (This is different from the workers command more dollars because their wages went up because the cost of living went up.) If the workers are producing more, they can also buy more, and both supply and demand go up, and people are better off, regardless of whether they are seeing the same number of dollars, more, or fewer. (If they produce more but wages do not go up, there's more stuff for sale but only the same number of dollars chasing it, so prices go down. The workers are still better off, because they can buy more stuff with the same number of dollars.) So increases in productivity are not inflationary. They tend to be deflationary, because they drive the cost of goods down.
- bwanab 11y ago
  He said nothing about productivity. Workers can become more valuable by virtue of worker shortages that lead to higher wages and thus lower productivity which leads to higher prices for goods.
  - AnimalMuppet 11y ago
    Worker shortages lead to higher wages. OK, I buy that. I also see that here's no raised productivity. But how is productivity lowered? Unless by "lowered" you mean "lowered compared to the hypothetical situation where we had more workers". But the way you said "worker shortages that lead to higher wages and thus lower productivity", you sound like you mean that the higher wages cause lower productivity, and I can't see how that cause-and-effect is supposed to work.
    - xbmcuser 11y ago
      Workers won't put in the same effort if they know that the employer has no replacement so the worker productivity will go down.

meatysnapper 11y ago

My finance buddies have been waiting for the bomb to blow up for a decade. It's really a game of musical chairs. The less pessimistic view of this (which my aged father holds) is that the saving grace of the US is while we have problems, China + Japan + Europe have awful demographics and we're stealing many of their best youngsters. And our popular culture is amazing- nobody else is even close. Unfortunately, this means we probably won't address our problems in a timely manner. A Chinese meltdown makes the US a more attractive place to put money.

bgilroy26 11y ago
>A Chinese meltdown makes the US a more attractive place to put money. You're totally right.The slowdown in emerging markets relative to their strength in the wake of the financial crisis could be the lion's share of the dollar's strength. The fact that we haven't had a government shutdown in a while could be playing a big part. This stuff is so complicated.

pjc50 11y ago

I thought the reparations were paid in gold?

AnimalMuppet 11y ago

> Inflation is not only the result of printing extra money. If workers become more valuable, their salaries rise and they have extra money to spend, the merchants they trade with can raise prices as well, etc. I don't think this part is quite right. The workers become more valuable when they produce more. (This is different from the workers command more dollars because their wages went up because the cost of living went up.) If the workers are producing more, they can also buy more, and both supply and demand go up, and people are better off, regardless of whether they are seeing the same number of dollars, more, or fewer. (If they produce more but wages do not go up, there's more stuff for sale but only the same number of dollars chasing it, so prices go down. The workers are still better off, because they can buy more stuff with the same number of dollars.) So increases in productivity are not inflationary. They tend to be deflationary, because they drive the cost of goods down.

bwanab 11y ago
He said nothing about productivity. Workers can become more valuable by virtue of worker shortages that lead to higher wages and thus lower productivity which leads to higher prices for goods.
- AnimalMuppet 11y ago
  Worker shortages lead to higher wages. OK, I buy that. I also see that here's no raised productivity. But how is productivity lowered? Unless by "lowered" you mean "lowered compared to the hypothetical situation where we had more workers". But the way you said "worker shortages that lead to higher wages and thus lower productivity", you sound like you mean that the higher wages cause lower productivity, and I can't see how that cause-and-effect is supposed to work.
  - xbmcuser 11y ago
    Workers won't put in the same effort if they know that the employer has no replacement so the worker productivity will go down.