Why is there no inflation?

Discussion in 'Economics' started by bonds, May 8, 2013.

  1. Skimming through the posts I haven't read the correct answer, which is:

    The effect of the FED increasing money supply is being mitigated by overall deleveraging in the economy after the debt bubble.

    For a good primer read the Bridgewater research section.
     
    #31     May 9, 2013
  2. achilles28

    achilles28

    Exactly....

    Most money in circulation is commercial bank credit. Debt is being paid back (destroyed) in the private sector. The FED is trying to offset this with monetization. And the Government, with deficit spending etc.
     
    #32     May 9, 2013
  3. ssrrkk

    ssrrkk

    don't think you are right here. if we stuck with your definition, then economies can never grow without inflation.
     
    #33     May 9, 2013
  4. vicirek

    vicirek

    Modern financial system largely avoids physical money printing and uses sophisticated debt instruments and derivatives instead. It occurs on global scale when portion of liabilities is being hidden and shuffled among central banks and big dealer banks internationally. It is similar to US banks shifting liabilities among themselves just before reporting dates and taking them back after that. It finally blew up because system can only take so much of stress.

    We are "paperless" society and the impact of growing liabilities is not immediately recognized. Velocity of money is slow because of various mechanisms that delay the effect of increased monetary base that does not match real economic output and savings rate.

    But the point is that it is still money printing in the environment of financial engineering and asset price manipulation using exactly the same money that was issued due to political pressure and not economic growth and savings that come with it.

    It would be much simpler to stick to technical and very rudimentary definitions of inflation that would measure growth of debt instruments (and money is in a sense just that) against growth of real assets and savings.

    The politicians would not like it for sure.
     
    #34     May 9, 2013
  5. sprstpd

    sprstpd

    What, because the packages got smaller? Sure they've been "coming in a bit" per oz.? I call bullsh*t.
     
    #35     May 9, 2013
  6. You may be right, however, I think that this is the same explanation I hear from economists. (The other common phrase is "it's a demand problem"). I will ask you the same question I always ask, please show me some charts of this private sector debt being paid back. Most go silent at this point but perhaps you have some examples of the deleveraging.

    I have not yet read the paper on the website to see what it says. But I will.
     
    #36     May 9, 2013
  7. If the money supply grows to accomadate trade and real growth in an economy there is, as a general rule, no deliterious effect. There are also times when a policy decision is appropriate that increases money supply since inflation (and its by products which can include rising prices) are less poisonous than the alternative of depression. I'm not suggesting modest inflation is always bad but I am suggesting that to measure it promarily by price is to use the by product as the metric.

    I wonder if I have introduced symantic differences into this thread that in the end may not be very important. I think we all believe that the current Fed posture (whether appropriate or not) will come at a high price over time.

     
    #37     May 9, 2013
  8. Dalio has been elequent on this subject (and many others) and is clearly one of the smartest of the bunch. The deleveraging is real, its massive and is a counterbalancing force against rising prices.

     
    #38     May 9, 2013
  9. achilles28

    achilles28

    Sure, I'll post a few...

    households

    [​IMG]

    banks

    [​IMG]

    banks (mortgages)

    [​IMG]
     
    #39     May 9, 2013
  10. WOW ... and WOW again. The last graph is no surprise; even the magnitude is well know but what I hadn't quite realized was that debt never went down at all in prior recessions. I believed it had simply retreated much more this time.

    It was always clear this recession was different but these two visuals begin to show just how different. It's not just magnitude it is also type.

     
    #40     May 9, 2013