I knew someone would bring Von Mises into this thread. I agree with the original poster a very slight form of deflation is good. Look at computer prices you can get a great model for under $1k. Where 10 years ago the top of the line cost more than $3k. Are people really pissed off over that? 1-3% deflation is good and the gold standard is what this country should be working towards. Eric
I should go ahead an warn everyone since I'm moderating the economics forum. All my economic classes in college were what most would call mainstream but I gut my teeth early on Mises's, Human Action http://www.amazon.com/exec/obidos/t...103-8790488-7578217?v=glance&s=books&n=507846 as well the works of Rothbard, Kirzner, Hoppe, Hayek, etc. That is to say, I have a very "Austrian School" free market view if you will view of how the economy does or atleast should work and there for you will likely find me often approaching issues from that free-market/libertarian/anarcho-capitalist (call it what you want) point of view.
(Avalanche didn't say that, rather he was quoting an article) I disagree with the notion that that markets can handily overcome the Fed's disposition to inflate. At the very worst, they can print more money and pay off some government debt, right? And there ain't sh!t the banks can do to make that non-inflationary.
BTW: Deflation is no longer a worry, see my other thread: http://www.elitetrader.com/vb/showthread.php?s=&threadid=22450 The Fed is still tightening. Look for better than expected econ news (`cept for inflation) until the markets figure this out. And they might already have.
Who the hell helps you people put your shoes on - 'cause not one of you is smart enough to do it on your own! Deflation is not price discounts or reductions. It is the decreasing value of goods, services, and assets, for God's sake. This is not brought about by a retailer's desire to slash price to move merchandise. Nor A home owner's desire for a quick sale. hence a reduced price. Nor even consumer's sudden urge not to purchase. Deflation comes about when you run out of buyers for your goods, services, or assets. Thus, the value for such things plummets. What might bring this about? Many things, but it boils down to, a simplification if you will, a lack of confidence. How much is your house worth? 150K? 500K? Bullshit, it's worth what I or someone else will pay you for it, or lend against it, and not one penny more. How much are you and your services worth? $50 an hour, $500? Bullshit. What ever I or someone else will pay you for them and not a penny more. If my building, my equipment, my inventory, and my raw materials are all declining in value, how much are you going to get in wages from me? Answer, as little as possible. And almost surely I can find some desperate slob to do your job for less then you stupidly think you are worth. Now what? You are the desperate one. So you offer out at even less then some other poor slob is getting. None of this amounts to discounts, price cutting, or increased productivity. It amounts to panic! It wipes out wealth, shakes confidence, and causes what? The economic term is "depression", but that is also the human condition it brings. That, my moronic friends, is what deflation is. Please don't be so stupid to mistake a 50% off everything on this rack sign as deflation. Again, I implore management to shut this forum down before some other clown posts here!
JQP Wrong again. I posted Lew's column because he writes in a style that is easier for us non-economic types to read and understand. If you want to get technical, Deflation is not decreasing value of goods or falling prices. It is MONETARY CONTRACTION. What you are refering to are the effects of deflation, however as are most economic issues you can't just put things in black and white, hence the economic jokes about, them never agreeing, saying "on the other hand", etc. all the time. Prices for the most part fall becuase of economic progress, however yes they can also fall from a lack of demand. However falling prices as you suggest do not cause long term hardship. Prices are the adjustment mechanism that make exchanges possible. Yeah if you thought your house was going to sell for a million and now your only getting 900K you can chalk it up to deflationary forces instead of the fact that you overpaid, but the fact is...falling prices do what? They stimulate DEMAND. Its all part of the cycle. You seem to think that money is wealth, but money is just a medium of exchange. The value of the dollar fluctuates just like the value of everything else does. A rapid increase in deflation or inflation is going to cause problems, nobody will debate that, but the orgional question that promted this thread was TGregg's question concerning "mild deflation", and that is what prompted my post. So, to sum up....mild inflation, deflation not really a problem for people/the economy, because both debtors and creditors can plan for it. i.e. there is a large degree of stability. A "50% off sale" out of no where, yeah that would be a problem, it would be a disaster! But come on man, Lew's article was just using that as a lead in, as a way to jolt the reader into actually thinking, "Wait a second why are lower prices necessarily a bad thing?". Actually, There are really only one group as a whole that I can think of that will buy goods or more of something at a higher price than a lower price. Technical traders who hate a stock breaking down at 40, but a few weeks later love the stock breaking above resistance at way 52. Not buying 40, but if the price is marked up enough, the buyers come back and pay more for some technical reason even though it is hard to belive that the fudamentals have changed. But then that's why they are called Technical Traders I guess. :0 If you want to throw around words like "moronic" why not start with that irony. As far as your quote "Again, I implore management to shut this forum down before some other clown posts here." Come on everybody knows "You'll never go broke underestimating the intelligence of the John Q. Public". Or was it the American Public. Stick around JQP you might just learn something. I hope too.
None of this amounts to discounts, price cutting, or increased productivity. It amounts to panic! It wipes out wealth, shakes confidence, and causes what? The economic term is "depression", but that is also the human condition it brings. I'm using the historical reference to depression, rather than its human manifestation. Preceding the crash in 1929 margin credit was being extended to anyone who wanted to buy stocks. As prices began to bid higher and higher the Wall Street bears began to sell their shares and borrow shares to sell 'short'. Many people began to get margin calls requesting further funds for their accounts. As this was not forthcoming, positions were liquidated. As more positions were liquidated banks were forced to call loans. Those people not able to pay were forced into insolvency. Meanwhile, people holding dollars decided their money was safer as gold and they began going to banks and exchanging their dollars for gold coins. As bank reserves were depleted banks were forced to close. The result was the Crash of 1929 and then the Depression.
The discussion in this thread may be easier if we can agree on the terms of reference for things like what "deflation" is. Although I strongly believe my definition is correct, I can't impose it on anyone; but that's another story. Deflation is the overall contraction in money supply and availability of debt (often referred to as credit). Price changes are symptoms of inflation / deflation, and not definitions of those terms. As I may have said earlier, but it bears repeating, deflation was not a problem pre 1910s, before money supply growth outstripped GDP growth, before the Federal Reserve was created. Given the irresponsible behavior of Governments and central banks over the past 90 or so years, we have a problem. Excess growth in money supply has led to excessive growth in outstanding debt. In the unlikely event of deflation, we will have a vicious circle of debt deflation, and a depression. Most people think the US Dollar is indestructable, but when it goes into freefall (insert your own definition here), people will start to worry about currencies with more responsible central banks (insert your favorite example here). The only currencies to survive all this for hundreds and thousands of years are gold and silver.
Most people think the US Dollar is indestructable, but when it goes into freefall (insert your own definition here), people will start to worry about currencies with more responsible central banks (insert your favorite example here). The only currencies to survive all this for hundreds and thousands of years are gold and silver. [/B][/QUOTE] Exactly and here is a great article about how the dollar is losing it's luster. http://mises.org/fullstory.asp?control=1348 It talks about no other currency really replacing the US $ as the reserve currency but the whole time I was reading it I kept thinking "Why not gold?" Gold is at the very beginning of a secular bull market I have/am buying the actual bullion and loading up on gold stocks on any serious dips.
An answer, but not a good one. Portability is a part of it. It is difficult to use gold for transactions because of its weight. Speaking of catastrophe using the term John Q. used "panic" is what led to the Great Depression. That depression was the result of a speculative bubble. The problems facing the world today are more pressing because they are not driven by excessive speculation, but by the erosion of the resource pool used to generate growth (or expansion) and economic security. So, from my point of view a flight to quality, like gold, will not protect us from the crunch coming in years ahead. As John Q. said, the value of things is determined by negotiation. A change in thinking about what underpins the world we live in needs to occur on a large scale. Even though the population growth rate is decreasing, globally, the population is growing because there is now a much larger pool of human capital reproducing "like rabbits". So, no matter what store of value used to conserve purchasing power, that purchasing power will continue to bleed away as the consumption base grows and resources are depleted.