bigugly said:
JohnRoberts said:
(there is no such thing as a little deflation, it feeds on itself and quickly gets out of control). A slightly growing money supply (and marginal reserve banking) promotes economic growth, which supports government deficit spending. This is why everybody targets low inflation, not zero inflation.
A small quibble: Not all deflation is bad. If the average prices of goods is falling because of improved production due to technological improvements, newly found resources, productivity increases then
price deflation is a good thing.
Monetary deflation like the kind the Federal Reserve created after the crash in 1929 is the bad kind and as you pointed out can and often leads to a downward spiral.
Here are some good articles which can explain it better than I can.
http://www.fee.org/the_freeman/detail/deflation-the-good-the-bad-and-the-ugly#axzz2MOLneh2D
http://www.fee.org/the_freeman/detail/the-dreaded-d-word#axzz2MOLneh2D
http://www.fee.org/the_freeman/detail/the-history-of-deflation#axzz2MOLneh2D
http://www.fee.org/library/detail/is-deflation-a-threat-to-our-economy#axzz2MOLneh2D
Thanks for the distinction/amplification... In many areas we have enjoyed a real benefit of price contraction thanks to advances in productivity (thanks to computers) and globalization/free-trade where we can buy goods for a fraction of what we paid in earlier times. This productivity based price contraction generally improves our quality of life, unless we personally lose our job to more aggressive global competition. While computers are a relatively recent innovation compare the real price of a TV set today to a few decades ago. Even ignoring that modern TVs are bigger and better.
Asset value deflation is insidious when it rewards the actor for delaying business activity until a later date in anticipation of cheaper future prices. Bernanke is famously an expert on depression era policy so he is single mindedly trying to avoid repeating old mistakes. Unfortunately economics is a squishy science (Science?) so intelligent people can study the same history and draw opposite conclusions, including our recent history.
The arm waving that is going on right now in DC predicting a dooms-day scenario for reducing the rate of growth of our deficit spending is hard to stomach, for anyone paying attention. How many years of this nonsense do we tolerate before we concede it didn't work? yes, reducing government spending (borrowed money) will have a small measurable impact on the economy but this is not real, sustainable economic activity so IMO shouldn't even be counted.
We got into the bad habit of using deficit government spending to modulate the economy to smooth the depth of contraction during normal business cycles. It is the nature of economic growth under marginal reserve banking to be slightly under damped, so growth over-shoots and contracts, before returning to growth. Under capitalism these periods of contraction are actually virtuous as it clears out the less competitive dead wood, resulting in a stronger remaining economy.
Government, in their effort to "help us" pumped short term stimulus into the economy to reduce the pain for the few during these cyclical business contractions. This is in effect the government propping up weak competitors and thwarting the self-cleaning oven that is capitalism. But this preventing capitalism from delivering it's full benefit is not the worst damage. The problem is government believes it's own BS, so if a little economic stimulus can modulate the economy in the margin, more stimulus should deliver more economic growth. The basic misunderstanding is that this is not sustainable economic activity, it is short term window dressing to make the 95% who had jobs feel good and spend freely.
If this borrow and spend was sustainable, all we would have to do, is give everybody a government funded job. But as I have often said, the government does not have their own wealth, they can only spend our wealth, or money they borrow against our wealth.
I worry now that the public who barely pays attention, and barely understands what is going on when they do, will fall for the renewed call for even more spending. Even if we believed that stimulus worked, we have been in an under-performing economy for years now, not months, like stimulus in the past was effective for. Our long term malaise is IMO caused by bad policy, an anti-business environment. If we keep doing what we are doing, we will keep getting what we are getting.
If our leaders can continue to assemble a coalition who are happy with receiving free sh__ from government paid for with deficit spending, we will continue down this rabbit hole until the world's lenders say no mas and stop lending us the fuel to burn our own future.
It is a simple matter of being adult and suffering a little real pain now, to prevent more later. When did we become a nation of takers with such poor judgement? I know, slowly and over time. The republicans are not free of blame, they are just the more adult of the two choices we now have. We need to address structural issues limiting economic growth (tax reform, entitlement growth, etc).
I worry now about how the current sequester is being spun to a susceptible public. Bob Woodward a formerly respected liberal reporter (who made his bones outing Nixon), is now getting kicked under the bus for reporting the facts surrounding how the sequester came about. It was just another of the many mechanisms used to kick difficult spending cut decisions into the future. It was designed to be so politically unacceptable to both sides that they would never allow it go into effect at that future date, but guess what, times change and now it became the only way to get any small cut in government growth. Not a real spending cut, but a small reduction in growth.
I do not feel lucky. The spinner in chief has denied all ownership of this sequester he promoted to get past another election cycle without facing reality. Now they are setting up this (small) forced cut, to take all blame for the under-performing economy that has been running on fumes for years.
And the beat goes on...
Of course I would love to be wrong,,, but we would have recovered by now if I was.
JR
