so your buddy is a baller yet you are flying economy and staying at a holiday inn. hacksaw
i think i discussed this topic before. inflation/deflation is really just a formula where you are comparing the amount of goods vs the amount of money. deflation does not necesarily have to be bad.
if people are more productive, and the supply of money is kept constant then you will experience deflation that is good since shit is cheaper because people are productive.
if people have the same amount of goods, and the supply of money falls. shit is cheaper still which is good, but its cheaper for the wrong reasons. why would the supply of money fall? money is mostly credit, when credit falls , prices will drop. so even though prices drop and thats really good, why it drops is really bad. this is why deflation is really bad. cuz for the most part, people’s productivity is pretty constant, the supply of money or credit on the other hand is volatilite as fuck.
hyper inflation is bad because price discovery becomes harder. i read an article a long time ago that compared inflation as a hot summer, and deflation as a cold winter. and the reason why people get inflation is because people would much rather have a hot summer! lol but in all seriousness, we get inflation because people like to borrow a lot of money. you borrow money in order to get stuff quicker far more than you are capable, with the hopes that productivity will eventually make up for what you borrowed.
you can also get inflation if people are less productive. but again productivity is more of a constant and is less of a likely scenario.
https://www.youtube.com/watch?v=PHe0bXAIuk0
ray dalio can prolly explain it better. watch vid
usually what happens, is i calculate what i would have spent, and give him that. and he spends on whatever he wants. we decided this is the fair way to go about it.
lol for example this guy spent 18k when we were in vegas for 1 weekend. so yea he is a baller. like he paid 10k for bottles for 1 night which should have been split between 7 ppl. i threw 70 bucks which was entrance fee.
This is over simplified. Nobody said all deflation is bad, although measured inflation does encourage more investment. However, deflationary spirals are very bad. Since economies work in cycles, if you run a deflationary monetary policy you are nearly assured of eventually finding yourself in a deflationary spiral a-la the Great Depression where monetary tools do not work and you find yourself in a nearly unarrested drop in both activity and prices. So what people are fearing isn’t deflation, it’s leaving the door open to deflation at the wrong time in the cycle. Similarly, the situation in the second part of your bullet where people are more productive and money is constant is more analogous to Japan’s lost era of stagflation which killed growth. The thing is that inflation is much more controllable via monetary policy than deflation and leaving the door open to deflation can create high amounts of consumer uncertainty and also limit investment and the use of debt since it is expensive to carry in real terms.
Powell was asked a similar question and his response was the 2% target is the global standard so that central banks have the capacity to lower interest rates during recessions. The 2% is considered a “Goldilocks” rate of maintaining purchasing power, while allowing for interest rate reductions if needed.
That answer doesn’t tie with general consensus reasoning. For starters the Fed would then have a rates target as opposed to an inflation target. Don’t take it from me: https://www.federalreserve.gov/faqs/economy_14400.htm
Why does the Federal Reserve aim for 2 percent inflation over time?
The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve’s mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public’s ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling–a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term.
fed is like investor relations. they tell you everything is stable and they are doing everything they can to keep things stable. but honestly they are there to market our bonds to the world so that everyone begs us to take their money at the lowest rates possible.
THE US IS RISK FREE BABY!
You may be right on published reasoning but it was his explanation yesterday (listen below).
Start at 1:50:45
Yeah I’m just saying that explanation, for whatever reason he chose to state it was generally incorrect vs common reasoning.
c’mon man - that’s a terrible analogy, i’d call any period of hyperinflation just as bad, if not worse, than the great depression. That said, the roaring 20s was a period of deflationary times and considered one of the best periods of US history. I’m going to say it again, inflation should be a far bigger concern than deflation for inflation can cause economic hardship where deflation is simply the product of such.
you’re right about my take on monetary policy - mainly bc i dont believe in it and would like to see it abolished.
i’ll explain how CPI doesn’t mean shhit and how supply / demand & monetary policies go hand in hand in one simple example. Say you are saving for a house in a metro area. you are putting away money in tips and plan to buy in 1 year. 1 year from now you are in worse shape than you were a year earlier.
what i am saying, and this is what i am trying to impress upon everyone, is you all should build these tin foil hats bc aliens are reading your thoughts. Jokes aside, destroy the fed.
You’re missing the point, deflationary spirals are not the product, they are a self reinforcing closed loop system that drives itself lower. There aren’t any real clear remedies for it whereas we now know the tools for dealing with hyper inflation which is why you never see it in a contemporary major central bank managed economy. It’s actually a great analogy regarding nuclear vs conventional war and the roaring 20’s led directly into the great depression which saw starvation on incredible levels and was only arrested by WWII. If you enter a deflationary cycle there is no central bank remedy whereas elevated inflation is relatively straight forward to address.
Regarding example about housing. Again, you’re conflating localized supply and demand with broad based inflation. See my specific example about subindices. To say inflation is “shiit” because one product in a specific area with an S/D imbalance is due to money supply is dumb. Like saying gasoline price spikes after the refineries went down means CPI is wrong, lol. Jeeesus. Homes also collapsed in value in 2009, lets build the entire CPI debate around that.
Your entire weak argument really just comes down to some op-ed inflation makes money worth less, TIPS won’t offset localized inflation in specific categories and lets ignore the benefits of price stability, risks of deflationary cycles and incentivized saving.
I’m eagerly awaiting the next treatise on “we should stop teaching evolution because why aren’t there man apes walking around.”
To take your home argument a step further lets expand it to include a mortgage. You have a 30 year mortgage at 75% LTV. Your home declines in value for 10 straight years at 3% a year because deflation is good. Because the good ol’ Fed was abolished and apparently home values = CPI you are now underwater on your home. So glad the Fed stopped stealing from our accounts. The best part is because it’s not managed any more nobody knows which way it’s going.
You could argue well then have it be exactly flat. And the issue is that the only way to have price stability is through managing rates and monetary supply. Both tools have been shown to break down when you enter a deflationary cycle, hence the 2% buffer.
This is the best comment you’ve ever posted. Have an upvote.
the bottom line is that fractional reserve banking is incompatible with deflation. deflation creates bank failures which creates more bank failures. in today’s world, with unmeasurable counterparty relationships, one bank failure can result in the failure of 1000 banks, thus why so many are too-big-to-fail.
inflationary policy is not perfect. inflation hides a lot of the bad actors over time as it suppresses crises (due to limiting bank failures) much better than deflation but the act of suppressing the crises saves a lot of unnecessary heartache at the household level.
Does anybody else remember when BS was exposed as having multiple accounts? Then he took an Affleck-like break as a cooling period? Now he’s back on here, preaching from on high like industry people are flocking to hear his every word…
this is prolly a more right vid.
https://www.youtube.com/watch?v=3gOHvDP_vCs&list=RD3gOHvDP_vCs&index=1
no question deflation is the worst thing that can happen. hyperinflation the issue is price discovery. loss of value in paper mache money, which is what your fiat money is really worth. borrowers win! cuz they will pay you that paper mache and laugh at your face. which is why the us should really consider this route since it cant seem to balance the budget
with deflation everyone gets killed except useful (high income) people and people with bonds as they are paid the elevated rate (assuming ppl do not default). the rich will suffer because asset prices will drop. the weak and normal businesses wil stop. people lose their jobs, even the ones that are somewhat capable. total output drops. its a shit storm. but eventually someone will buy up the cheap assets, cuz everything always gets better. those who purchase during the deflationary period will make an absolute killing.
Borrowing money is great! it allows you to have what you cannot afford, and forces you to be productive!
^ damn you mr. potter. the building and loan is not for sale.
deflation + UBI ftw
Agreeing with Nerdy again, twice in one week can’t be healthy. You really have to look at it from a perspective including debt balances which typically dwarf cash balances. If deflation accelerates in a weak cycle (which it typically would) that would result in rising real debt balances as asset values are falling driving up defaults. More defaults = less demand = more cost cutting to maintain sales to cover debt = more deflation = more expensive debt balances = more defaults = less demand. That’s the deflationary spiral. You just really don’t want to find yourself in a recession with monetary movements driving up your debt burden.