No cure for deflation? You’re telling me you can’t think of any option to inflate asset prices? Ease lending standards, increase the money supply, govt spending … practically anything that results in more $$ in the hands of the consumer. C’mon guys, i know we are supposed to be analyst but let’s take a moment just to think instead of just relying on google output.
I’m certainly not reading all these so i’ll take your approach and select the very top and base all my findings on that. Economist here i come - because economist are known very well for flaw free theories.
That’s the problem, once you hit the deflationary spiral none of those things work. It’s been tried, that’s why it essentially took WWII to end the great depression. The problem is that if you hit a spiral people are running down inventories, asset values are falling and this causes cascading defaults. Nobody will borrow at any rate because people are already seeing debt burdens climb and demand is going the other way. It far outstrips money supply. I mean Japan (not in a spiral) has been unable to generate inflation despite massive levels of QE and hyper low rates, all they got for it are a huge debt burden.
the zimbabweans cured their hyperinflation by just using the usd. lol so if every hyperinflation happens. just switch to another currency like bitcoin!!!
So if we are clear, you are saying that these actions (i.e. easing lending & QE like standards) were implemented during the great depression?
Why is it that asset prices can be blamed on D/S and not deflation? Has anyone considered the root cause of the great depression which they reference over and over again - including that shtty economist article that i regret reading? Has there been no periods of absolute economic bliss (i.e. the roaring twenties) in which deflation was present?
I’ll skip the first question bc i want to hear you response, but as for the others…
Answering my own second and third question, the root cause of the great depression was speculation in agriculture that took over a decade to materialize resulting finally in a stock market crash. American farmers sense a need to feed europe during WW1 and dramatically increased their investments through borrowing. As european farmers went back to work post WW1 - and before you jump to the conclusion that it would of hit first, you must think of casuality rates (i.e. that 9 year old isnt going to produce much crop yields, and that development priority was probably given to the cities) - continuing, they went back to work and america had a glut of produce and no need for the extra investment. Extra supply and less demand usually leads to a depreciated price. That said, the early years of the 20s experience growth while experiencing deflation too - in fact you will see this more often that you’ll read.
So going back to my original, and only point, all things considered and when considering the greater population, we should be more worrisome over inflation vs deflation.
Easing lending standards was present as was fiscal expansion (Keynesian approach / TVA) during the great depression, neither really helped. The easing lending standards (which you say are simple to implement) wind up being ineffective because the debt burden is climbing triggering defaults. So banks are seeing their capitalization challenged and while you’re lowering standards defaults are work ing against you on the individual bank level (they’re tightening). At the same time people and businesses have no desire to borrow anyway because demand is falling (from the defaults, because assets are a declining value investment and because people are shrinking inventories because inventories are devaluing) so while you’re ramping up money supply, the velocity is contracting at a rate that is difficult to match through the public sector alone.
Right about asset prices can slip due to S/D but the point of inflation is that in small amounts it gives you a buffer to try to prevent the deflationary ball from rolling away from you (and to cut rates) in a recession. It’s basically defense against a nearly impossible to correct cycle (Japan still fighting it almost 30 years later) whereas with a strong central bank, inflation is easily combated with rate hikes to the point that hyper inflation isn’t considered a risk.
If you think about it in supply demand terms, the problem is that for the whole of the economy, debt burdens are rising as are the real cost of servicing them while demand is collapsing so everyone is lowering prices to chase fewer goods to service higher debt levels. You need to sell more widgets at a now lower price to pay off your greater debt burden while customers are simultaneously able to spend less. The two sides are simply moving apart.
haha kudos BS, using semantics, re: was present, to weasel your way out of the situation, this gave me a good chuckle. I suppose there is no need belaboring the point if this is where we are at. its 4:00 anyway, i have some work to do next week - raincheck this for next friday?
Nero - i fing love selma. Ultimate “buffer” for me would be salma and penolope cruz.
Chuckle if it makes you feel better. I’m right on this and you offered nothing back. “In the spring of 1931, the Federal Reserve began to expand the monetary base, but the expansion was insufficient to offset the deflationary effects of the banking crises. In the spring of 1932, after Congress provided the Federal Reserve with the necessary authority, the Federal Reserve expanded the monetary base aggressively. The policy appeared effective initially, but after a few months the Federal Reserve changed course. A series of political and international shocks hit the economy, and the contraction resumed. Overall, the Fed’s efforts to end the deflation and resuscitate the financial system, while well intentioned and based on the best available information, appear to have been too little and too late.”
^Dude in your own article it states that during the height of the crisis, the Fed increased rates and decreased the money supply… Furthermore, in your excerpt, the author clearly states that the Fed’s actions of increasing the monetary based appeared effective but the Fed changed their practices…
But in 1928–32, the Federal Reserve did not act to provide liquidity to banks suffering runs. In fact, its policy contributed to the banking crisis by permitting a sudden contraction of the money supply. During the Roaring Twenties, the central bank had set as its primary goal “price stability”, in part because the governor of the New York Federal Reserve, Benjamin Strong, was a disciple of Irving Fisher, a tremendously popular economist who popularized stable prices as a monetary goal. It had kept the number of dollars at such an amount that prices of goods in society appeared stable. In 1928, Strong died, and with his death this policy ended, to be replaced with a real billsdoctrinerequiring that all currency or securities have material goods backing them. This policy permitted the US money supply to fall by over a third from 1929 to 1933.[10]
What I am trying to impress upon you is the coveted example of the Great Depression as a means to be scared of deflation is wrongly classified when considering all facets involved. To say deflation is incurable and to quote the Great Depression would be to say that inflation is incurable if during the early 80s Volcker drastically decreased rates while increasing the money supply.
BS has clearly been indoctrinated with such an ambiguous concept but to everyone else i urge you to challenge the status quo and ponder the question which evil is truly lesser.
See, there you go getting all confused again. Sure you can prevent deflation with an expanding monetary supply. Lol, Duh! That’s been my whole point of why we need a steady inflation target.
As you can see (inflation data below), a quick lapse in policy allowed deflation to take hold and once it is in place it is nearly impossible to eradicate. It was the hike tha triggered the deflation, not that failed to stop it (they then eased supply but it was too little too late). The deflation occured '30-33 and '38-39 AFTER the periods where the Fed failed to have an adequately expansionary (read: inflationary) money supply. Hence we reformed the Fed, learned from mistakes (Bernanke: “We won’t do it again.”) and we have a 2.0% target expressly recommended for that reason by the Fed as a buffer. It’s not rocket surgery, but I guess that’s all relative.
So what you’re saying is we should just inflate inflate inflate to prevent the dreaded deflation - which you now say we can counter but before said there is no answer for. Idk man I think you may be the confused one.
As i’ve mentioned time and time again, I’m a man of the people and looking out for their best interest. For the vast majority of Americans this generally accepted inflation rate should rather be considered thievery.
Lol I said it can be prevented not cured, repeatedly and clearly since the onset, hence the need for a 2% target rate. If it wasn’t preventable why would I be arguing for a policy on the grounds of preventing it So, that basically sums up your grasp of the debate.
“For the vast majority of Americans this generally accepted inflation rate should rather be considered thievery.”
Right. That makes total sense since 62% of Americans have less than $1,000 in cash savings (and 21% don’t even have a savings account) but the average household carries $137,000 in debt. Move over Bernanke, there’s new sheriff in town!
So, that basically sums up your grasp of the debate.