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Visual Inflation/Deflation For Dummies
While certainly not news to most people, the following visual guides from Mint on the two most critical monetary concepts should provide a vivid explanation to all those who are still confused as to why deflation is good for savers and for the middle class in general, and bad for the Fed, for banks, and for all those who are levered to their gills in toxic, non current debt. As for all those who still think that hyperinflation is a function of rising prices, there are other, more appropriate blogs for you.
Inflation:
Deflation:
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How about a visual aid covering masterbation? Robo, the floor is yours.
not quite a full on visual....more in the "can i get a hand" category.
http://www.youtube.com/watch?v=fbGkxcY7YFU
Too funny Lizzy.
Samwell - "What What (In the Butt)"
The same old deflation is bad myth again.
Here's one simple observation to bust it once for all: When iPhone 1st gen came out they were priced at 300$ each. Now Apple is selling the 4th and better gen (skip the signal-gate for now) at 200$ each. That's deflation by 1/3. OMG according to the deflation-phobiacs Apple is on the verge of collapse. What do we do? Let's call Federal Government to bail Apple out. Jesus, when will these deflation knuckle-heads ever learn?
Yeh to a point, with hi-tech & CE as with most manufacturers a product pricing roadmap is formulated at outset. Early IT adoptors are happy to pay a premium & put up with some hardware & software bugs. Which is why as a rule of thumb, never buy the latest icrap until at least 3 months after initial release. Once production & marketing have ramped up, distribution channels filled, initial sales budgets met, bugs ironed out, it is far easier for these guys to forecast component requirements and deal with their suppliers. Volume equates to economy of scale. So deflation per se, no but pretty much the same affect...
Maybe these guys should receive a huge bail-out - that way their product development team could launch a phone which does not need an elastic band to maintain a signal. LMAO.
Please consider the following: Should the buying habits of the imbeciles that stood on line all night to "get one on the first day" have their purchases even included in the cost sample. I say they should be thrown out of the population. This is not normal consumer behavior.
Will it blend?
http://www.willitblend.com/videos.aspx?type=unsafe&video=ipad
http://www.willitblend.com/videos.aspx?type=unsafe&video=iphone4
50 cal "durability test"
http://www.youtube.com/watch?v=FF4EEt6W9s8
Ha! Exactly. These fools buying re-bored product test pieces & commercial samples. HW version 1, SW version 8......
We are doomed. Some of the people on line for a "release date" iphone, ipad purchase were out of work and putting the purchase on a credit card.
Agreed. The visual on inflation has several fundamental flaws:
1). Inflation sweet spot is a myth. No inflation is good except where it indexes population growth. Zero population growth then zero inflation rate is optimum.
2). The deflationary death spiral is a myth because there is a natural floor which forces people to spend. People need to buy to maintain living standards.
3). Banks MUST be allowed to fail or moral hazard runs rampant (this is the situation we have now). Banks should be boring utilities like water companies.
YOU
HAVE
NO
CLUE
Deflation doesn't mean Iphones are getting cheaper, or "decreasing prices in a certain category of products"
Obviously "decreasing prices in a certain category of product" when the economy is growing and personal incomes are growing is a good thing for the buyers of that category of products.
Deflation means "decrease in the overall volume of money".
It usually has for consequence "decreasing prices of a representative basket of all products" (meaning some categories of products see decreasing prices, other see increasing prices, but overall, a representative basket of all categories of products sees decreasing prices).
Now that may seem like a good thing, decreasing price of a basket of all products. The problem is that deflation also causes the economy to decline, meaning personal incomes go down. And if personal incomes go down FASTER than decreasing prices, it is a bad thing for people.
To summarize:
. deflation does not mean "Iphones are getting cheaper".
. deflation means "the volume of money is decreasing, prices are decreasing but incomes are decreasing faster, so that everything becomes less affordable".
This is incorrect. Less money leading to cheaper goods leading to lower incomes can't result in less affordability; you're flipping cause and effect. It's like saying that the ipad's popularity will lead to its price being bid up too high and nobody will be able to afford it.
Wages are "sticky". Decreasing prices will lead to decreasing wages, but the wage decrease will lag the price increase in the same way that your raise doesn't catch up to inflation when things go the other direction.
This is the silver lining of deflation--yes jobs are more difficult to find, but instead of having your savings destroyed to reward irresponsible borrowers, your cost of living decreases faster than your pay cut.
Evidence that pay cuts don't lag deflation :
1. personal income, in real terms, is down compared to what it was in 2008
2. 10 million+ jobs losr. They had their pay cut to zero.
It's quite correct. When you confuse price inflation with monetary inflation, you end up not being able to see what's going on overall. The former is a by-product of the latter, and not vice versa.
Deflationists' ignorance is abyssmal.
Price of any goods should be set by supply and demand rather some phony central banker intervention.
Say a company's stock's fair price is 10$/share but gets hyped to 25. While everyone else stays out I, dlmaniac, buy into the hype at 25 with full margin only to see the hype pops and then the price dives. I then start to scream "bloody murder deflation".
Lucky for me that Obama and Bernanke are my buddies. So they come out annoucing that "dlmaniac is too big to fail", "Shall we let dlmaniac suffer he'd spend much less on everything else then the other business will suffer as well. It's bad for overall economy." and all that routine garbage.
Obama and Bernanke then announces such anti-deflation stimulus package to rescue me: Government takes money away from everyone else and then use it to buy my stocks to put a floor at 21/share. "It's not that dlmaniac overpaid the stock. It's the rest of you guys refusing to join the party that caused the crash. So it's only reasonable that you guys pay your fair share." So say Obama and Bernanke.
Those who stay out could buy the stock at much lower and desirable price were there no such intervention. Now goverenment forces them instead to inject the money into my stock holdings. You usually spend the money when you are able to afford sth. With such anti-deflation stimulus package, you wind up spending money to make sure you are NOT ABLE TO AFFORD IT. How's that a stimulus for you?
I'm sure all deflationists on this forum is willing to shore up my stocks and send me their money (be my guest all the way). But please after that use your brain for once in your life will ya?
+1quadrillion
Everyone agrees that everyone was wrong in 2006-07 when GDP was fluffy and frothing upto the moon
Why does everyone in gov make it an obligation to inflate GDP to those levels with borrowed credit again
NINJAs made the mistake then and so the GOV has to make the same mistake again by borrowing more money that it does not have??????Insane
shouldn't everyone agree that 1999 levels as the actual GDP level and calculate inflation/deflation from that level
After all we are living a world of numbers
Just switch it and game it the right way!!
If a "deflationist" is someone who believes deflation of the massive credit bubble is going to be long and painful, I'm a "deflationist". I think those who say that deflation of the massive credit bubble is going to be a walk in the park, with increases in standard of living (things will get cheaper, great!) are completely mistaken.
If a "deflationist" is someone who believes Govt/Fed should by hook and by crook try to stop the deflation of the massive credit bubble, with TBTF and mortgage bail outs, neverending stimuluses. I'm not a "deflationist".
Govt/Fed can't stop deflation, it can only do so very temporarily and at even higher cost for the future.
So, please, don't confuse the two types of "deflationists".
There is something to what you say... and then again there is not because it would imply that we were in a deflationary anti-bubble (as defined by the article) because people were losing their manufacturing and tech jobs at the same time that we entered an inflationary housing and Wall Street bubble.
The entire consumer bubble economy was driven by cheaper goods made in China. It has been almost a 15 year phenominon. People were willing to part with their money and in fact willing to borrow money to buy consumer items because they perceived the price as inexpensive relative to what they were making as an income... however no matter how much they spent, it did NOT create more jobs here in the US. It only created jobs in China.
However, when we were transitioning making things here in the US to making things in China and then importing them and marking them up, the Fed and Wall Street propagandists called this (wait for it) "an increase in productivity".
My "one off" conclusion is that whether inflation or deflation it makes absolutely no difference. The only criteria is that it create jobs. In this way, one can argue that making things cheaper increases demand, which increases volume, which increases productivity and pays for the higher wages and more employees. Why is this argument not as good as the Keynesian/Fed argument?
Please explain this cryptic phrase "one off".
I get to junk lizzy!
dam lizzy. that tune is catchy and now i can't get it out of my feeble brain. hopefully i won't be unrealizingly singing it around work later. no way that could end well.
what an item for an ear worm....
Butters rocks it
http://www.southparkstudios.com/clips/165193
Been busy watching The Kids in the Hall and what being a Canadian is all about eh...
http://www.youtube.com/watch?v=LqQCyAQBgXY
Having lived and worked with Canadians for years, I can summarize what "being Canadian" is all about: desperately pretend and posture how different you are from Americans, even though you are essentially virtually exactly the same people.
I'm all for a visual stimulus.
Print, baby, print. We'll Spend our Way out of anything!
Now who in Washington would benefit from a sales pitch on Inflation...?
duhhhhh beyatches
Please forward this to Bernanke and Congress. But brighten up the colors first to assure their ADD addled minds won't wander too far.
I say eschew the visual aids, and proceed directly with a lobotomy.
I say there's not enough frontal nudity to attract the eyes of the regulators and policymakers
They say, "Try us."
Perpetuating the twin myths that (1) "general" price levels can even be measured and (2) that inflation is an increase.
Every business is constantly striving to increase its output per unit of capital and per unit of labor. How much land and how much labor did it take to produce a ton of wheat in 1850? How about today?
If the price of wheat today was exactly the same as it was in 1850 (I know it's not, but just for this example bear with me), does that mean that there has been no inflation??
Inflation is an increase in the money supply!
Since "money" today is virtually all credit, this means an increase in credit. Deflation is the opposite, a decrease in credit.
Amen Bearster. People are always trying to rewrite history and change the meaning of words. There are a lot of things that cause prices to rise that aren't inflation. Having a limited supply of something and the price moving up isn't inflation - it's limited supply! Try looking up the definition of inflation back before 1913 and compare that to definitions over the last few decades. It's ridiculous how the definition has been distorted into the nonsense we read today.
This kind of misunderstanding leads economists, policy makers, and politicians to recommend and implement the stupidest ideas. Wow, and people really can't figure out why we can't get out of these boom and bust cycles? I wonder why...
Cue: "As an online financial discussion grows longer, the probability of a suggestion involving misunderstanding or lack of awareness by the power elite approaches 1."
It is the height of foolishness to believe the power-elite don't know what the fuck is going on. Yeah, only guys like B9K9, Mish, Denninger, Stoneleigh, et al have figured it out. LOL
Very nice - do you perchance read TAE? I would only quibble about your statement regarding "today". (Cue: The conceit of every generation is that their experiences are unique.) Stoneleigh has been drilling even further back in history, and has developed a fairly comprehensive theory regarding herding behavior.
She essentially states that, regardless of any particular era, whether it is 292BC, 1298AD or today, (a) private credit has always dominated total money aggregates; and (b) banks & governments have NEVER had any control over the creation/destruction of this private credit component. Rather, it is all simply a function of generational moods that swing between collective euphoria/optimism or depression/pessimism.
In a lot of ways, this dovetails with Tolstoy's theory of history in that major events transform ordinary men into heroes/villains, rather than men themselves shape/alter history. So, if certain policies worked at certain points in time, it wasn't the policies themselves, but rather, the times that defined/effected the outcome(s).
So, in essence the Fed has no real power over inflation/deflation (ie the creation of private credit) other than to attempt to trigger another euphoria/optimism cycle. Pure money creation simply won't do the trick because it is dwarfed by orders of magnitude by private credit. This in turn explains the constant jawboning and almost religious belief in an omnipotent Fed, as well as the green shoots propaganda and overt market manipulation.
Once you see the Fed is only another bit player on the stage of life, you need to step back and assess the big picture: is there anything out there at all that will stimulate another optimistic cycle (and hence private credit growth)? If not, then it would behoove one to listen to their own council and understand the ultimate culmination of a deflationary cycle.
In other words, Get.Out.Now.
TAE rocks.
If you are also interested in a more theoretical approach, check Basil Moore's Endogenous Money Theory
http://en.wikipedia.org/wiki/Endogenous_money_theory
And of course all the works by Hyman Minsky, notably this one available online:
http://www.levyinstitute.org/pubs/wp74.pdf
Exactly.
Deflation = decrease in credit
That's why when some people look at graphs of M2 or M3 to predict if we're in inflationary or deflationary mode, they are grossly mistaken.
M2 = $8.5 trillion (60% of GDP)
CREDIT = $52 trillion (370% of GDP)
For the moment CREDIT growth is hovering around 0% (when it used to be +10% in the bubblicious years). Private is deleveraging faster and faster, Public is leveraging faster and faster. Eventually Public will have to slow down and we'll enter full deflationary mode. Overcapacity, unemployment, bankrupcies will rise again, and they'll do so until that $52 trillion CREDIT bubble has come down to a level where it is collaterized acceptably to the surviving creditors, either through liquidations, restructuring or pay back. Probably around 200% of GDP, with a lower GDP than what we have now. So give or take a few trillions, there's around $25 trillion of credit money that is going to have to be purged from the system in the comming 10 to 20 years. Not a pretty picture.
Of course, maybe Bernanke is going to drop $25 trillion around the country with his helicopter to try to stop this (Krugman doesn't seem to think it will be a problem). But then we'll have to say goodbye to the dollar and get prepared for something rather "extra-ordinary".
Very clear and concise. Thank you.
if u want an even more vivid illustration of inflation and deflation, i will send pictures of my little rubbery friend Trixie in all stages of being blown up to full size.
oh hell, if i just let all the air out i can just mail her.
make sure you wipe her down real good first
will do, clayton.
just an fyi though... she must be one of those types that's pretty quiet until she gets to know you better.
i like it! now this shit I can share with my friends, who look at me like I'm speaking fucking cantonese when I start talking about the economy (by the way, they do not speak cantonese)...
and their best answers is always: but in the newspapers they said all was improving, and then look at you like you're just somebody trying to cause a panic.
The problem with average people is this:
When you say that there is a problem and for example you say the markets will go down. They actually expect it to go down the same day or at least the day after. If that isn't happening, you're lying.
And when you predict something that will happen within the next 12 or 24 months, they look at you like a rabbit looking into the lights of your car at night.
I've stopped explaining people these things. I'm even stopping to explain these things to my boss who is only interested in what happened today, what's for lunch tomorrow and if his secretary is wearing that famous mini skirt again.
I believe you will find this of practical use...
http://www.myinsults.com/index.php/popular-insults/55-chinese-cantonese-...
Cantonese is revered for its colorful profanity and there are more than a few phrases that can be readily applied in discussing modern economics and finance.
The most important thing for a White Ghost to know is never tell a Chinese girl she is sek si.
I have learned to speak a number of languages over the years, from Japanese to Arabic to Burmese, a tribal language or two, and some of the romance languages. I take a perverse pride in my ability to swear, which I always believed Arabic did best. Beautiful sounds, rich descriptions, lots of passion. Then I read a long list of Cantonese swears, and had a Hong Kong friend translate some of the more lascivious phrases.
I was left with the conclusion that Cantonese is in a world of its own.
The government is doing everything to keep a lid on inflation.
The biggest trick now is that Banks MUST keep higher "cash" reserves just in case things "get bad again".
Those cash reserves can be bonds...
So the government is forcing banks to buy up the bonds, and keep money from the streets.
RESULT: no oversupply in the short run of money on the streets = no inflation for the first 2 to 3 years.
The problem is that there is real inflation out there. Grocery prices up perhaps 20% YOY; big portion of a budget. Supposedly offset by decline in real estate. Big disconnect there; one really hasnothing to do with the other.
That is due to companies such as Goldman Sachs bidding up grain prices the way that they did with $146 oil a couple of years back. It is really a method of extortion, given an infinite supply of temporary fiat that they do not actually have to deliver.
In the case with oil, they caused the bankruptcy of SemGroup which had hedged the oil in the pipelines with shorts. Goldman having infinite money and SemGroup not having infinite money, Goldman just kept bidding it up until SemGroup had their margin called ... and had to declare bankruptcy. Then almost immediately after the margin call and bankruptcy declaration, the price quickly dropped.
Today with the grain, Goldman has done the same thing. However, while the outcome this time might affect farmers and companies that have hedged the harvest, the larger effect is that Goldman has caused the cost of food to go up and the estimates are now that due to Goldman's actions across the world, instead of 30,000 people (mostly children) starving to death every day, 50,000 people are starving to death every day. I am sure that this does not concern them as they are dumping several hundred gallons of fuel into their yatchs.
It would be so much more efficient if they just used the starving as fuel to begin with.
People, the new green economy.
I can't wait for the hyper-inflation version.
since I am too stupid to figure out how to embed pics in this motherfucker, I will just say it:
"Mushroom Cloud"
I'm obliged - http://www.youtube.com/watch?v=UMRo5XCKddQ
By the way, you are not the only idiot who cannot embed pics.
Being able to post pics does not preclude one from being an idiot.
Edit: i did not mean you, I was simply stating the logic
Only contributors can embed images, the rest of us have to link images.
Ah ha, thanks a lot, fuu.
I will now stop trying to embed this - http://www.treasureislandsweets.co.uk/acatalog/double_dip.jpg
Let me help you.
Thanks, CD. You can't go wrong with a Double Dip Swizzelstick.
Costanza got in a real jam with the double dip.
http://www.youtube.com/watch?v=YWuSi00CcNk
I never knew
Now that you do, WB, I will look forward to one of your great creations!
WB7
This is why I occasionally post some of your great work. Because IMHO the ZH community really does need to be introduced to you. Tyler has since picked up on your desktop themes.
It was all going well until that giant leap in the last frame from "massive government spending" to "this creates jobs and incomes", "this creates security", etc.
Oh and earlier on when they lumped in wage & price controls with the gold standard as ways to fight inflation. Of all the socialist hellholes that have implemented wage and price controls, is there one where it's worked? Pretty sure you just end up with empty shelves and the entire economy underground.
Wage & price controls are what central banks are all about
Bingo.
Setting the interest rate is the ultimate price control.
Government can easily beat deflation by taxing the rich and putting the cash back into the econemey. If the rich aren't going to spend it, the government will do it for them.
What comes after biflation? A how-to-survive-after-the-system-crashes guide?
triflation, as Ben 'tri'es anything to keep the ponzi scheme going.
I keep hearing masterflation is next.
Regardless if it's inflation or deflation, the people who develop the policy repsponses to it are in the grip of retardation.
All this subterfuge and manipulation, just to keep 20 or so large banks out of reorganization. Are we mad or what?
It's a friggin' CondomNation, without a lube pack.
I would like to see additional analysis on why deflation is bad. Look at Apple. They are in a deflationary market. Thye offer a product and they must cut price after 6 months and then offer a new product. Apple is not laying off workers. I think the premis a company makes less profit and lays off workers is flawed. I would thinnk a company would look to boost sales or offer an improved product in order to comand a greater selling price. Im not in the deflation is bad boat. I know it is a popular theme but would like to see some actual numbers. One doesn have to look far to get inflation data (last 100 years). Deflation only occured in one or two years in the 50's right?
Deflation is bad because prices are decreasing but incomes are decreasing faster, so that things are becoming less affordable.
Things are getting cheaper, but you have less money to buy things, so that they actually seem more expensive.
With that, on paper it seems the same thing happens with inflation. wages increase slower than the increasing prices of goods. The FED has chosen inflation as its poison, I suspect since it shores up its position of power since they are the gate keeper.
When inflation is higher than the income growth, that's what's called a recession (GDP is growing in nominal terms, but decreasing in real terms).
Hope fully you can also have inflation lower than the income growth.
Now with deflation it's the same thing, technically you can have a positive deflation (ie prices are declining faster than incomes are declining). This kind of situation happened often in the 19th century.
But in our credit driven economy, when a deflation is caused by a bursting of a mega credit bubble like we are having now, that kind of deflation is not of the gentle type and is the main cause of depressions.
Funny thing about that: Gold will track either scenario.
This is again incorrect. Wages are sticky: raises lag inflation, but pay cuts lag deflation.
Real cost of living goes down under deflation; it's the consolation prize for less hiring.
Inflation has no consolation prize because your raise doesn't cover your cost of living, AND your savings are destroyed to bail out deadbeat debtors.
What do you mean pay cuts lag deflation? Personal income is down compared to what it was in 2008. I guess you also forget about the 10 million jobs lost, they had their pay cut to zero didn't they.
Layoffs are not wage deflation. In fact for many places they are two very separate choices. For example, in places where government unions have a stranglehold on everything, they often hold wages far above market equilibrium and ultimately get themselves fired (or their entire company/town goes under and everyone gets canned).
one important aspect to all this, its all about the perspective of the banks.
Inflation – good because:
1. more money floating around overall, banks keep a % of all money in circulation, so the overall take is greater in absolute terms (an economic system drag or friction for the rest of us)
2. prices rise in inflationary environments, owned assets record gain (and banks own it all, i.e. less than 1/3rd of the houses in USA owned outright)
deflation – bad: like above, just reverse
Is hyper-DEflation possible?
Not unless you run out of linen, cotton, ink or printing presses
Theoricially, it is. But every thing shuts down and nobody would know because the lights are out.
Deflation = contraction of credit, then hyperdeflation = rapid contraction of credit. Massive bank failures come to mind ... serial defaults, FDIC swamped, no digging out of that one.
But with deflation ... you go to zero (sorta like absolute zero) with inflation you go to infinity and beyond. (In theory.)
PS I cannot believe some square head junked you.
@goldmiddle
Sure, it's called death by starvation.
Leaves out how the gov loves inflation, and the people would be better with stability to slightly deflationary. For example lets say a person is making 100k a year. If there mighty deflation lets say his wages drop to 10k but still has 100k in purchasing power. Well his tax burden is far less and he keeps more of what he makes because of progressive income tax. Now let of say mighty deflation and 100k goes to 1 million but with a purchasing power of 100k. His tax burden will be far higher and he will lose purchasing power. I've said it before and I'll say it again, the tax code is built to take advantage of inflation.
Also the idea that people will not buy a good and instead wait is bunk. Who here has waited to buy a TV because there will be a better cheaper one? If one really did do that then they probably are watching the same TV they had from the 70s. Tech items prove that in a system where costs constantly go down people will still go in and buy a good.
+1. I have speculated that when ever the latest cars, electronics, etc come out. Early adopter buy them. Lots wait. But eventually we buy. As far as food and water? One can only wait so long before buying!!
You tax analogy is not just theory. Look up alternative minimum tax and that illustrates the point exactly.
+1000
Thats 'inflation for dummies'? Well I must be full-on retarded then. Inflation is an increase in the money supply. Deflation is a loss of confidence in the currency. Both at world record highs, so what do we need flow charts for?
"Deflation is a loss of confidence in the currecy" I would like to learn more about this. It seems like the opposite is true. Deflation will increase your purchasing power with a given currency. I would think loss of confidence would drive inflation since you would need to wheelbarrow more money to the seller in order to entice him to accept your currency for the item. Like I said, I would like to know more.
Its probably all 'new economics' now, but when I took economics courses a-way back yonder, inflation and deflation had nothing do do with prices of anything. Simply was a measure of backed currency correlated to its 'backing' and the confidence in that currency. Of course today currency is simply something to print mountains of to drive bubbles so what the hell all definitions are off I guess.
Inflation/deflation for dummies:
http://fofoa.blogspot.com/
This is why it's important that banks do not fail. For better or worse, the US has a credit based economy which is driven by banks and borrowers. There it is, the basis of and the rationale for government and Fed policy in a nutshell. Hey Dumbasses...The US economy used to be based on making stuff! You know, back when we actually had some semblance of an economy.
Oooooh, "biflation" sounds kind of kinky. The videos of that could keep the SEC watchdogs (lapdogs) busy for years.
The first 150 years of the American economy saw a growing economy with generally falling prices. Then came the birth of the Fed.
The bank of England has been the central bank of the United Kingdom since 1694. The UK too saw a shitload of growth in the 19th century. That was called "the industrial revolution".
This is one way to win the Central Bank Comic Book War.
I guess it's obvious whoever created this chart is in the midst of the trees and cannot see the forest. Inflation is by nature speculative. Debt in our case sovereign debt, treasury bonds, are issued and the amount that exceeds private available capital is monetized, that represents the expansion of the monetary base and it's engine is the Federal Reserve. They are betting that the future will be "big enough" to service the debt with interest. All these bets pile up in the sovereign's balance sheet and denoted as public debt, which is never paid off or rarely paid down.
It visually represents the fudge factor between how big the future is assumed to be by the economy at large and how big the economy actually is in relation to past speculation. Ultimately it becomes obvious to everyone concerned that the future will never be big enough to liquidate the debt through organic growth in the real economy and then the fun begins.
This is a great illustrative guide to the Keynesian theory of inflation, which was decisively proved to be a bunch of goddamned bullshit by Milton Friedman (who showed it didn't match history) and Paul Volcker (who showed it by doing the exact opposite of everything the Keynesians recommended). The idea that the Fed can spur off the economy was known to be a bunch of goddamned bullshit by Eugen Boehm-Bawerk in the late 19th century, and has been proven to be a bunch of goddamned bullshit by Alan Greenspan and Ben Bernanke.
The great Keynesian liquidity trap has never happened once, ever, in the history of the world. At some point, prices fall so far that savers would rather have consumer goods than cash. I know if my savings were enough to buy fifteen cars, I'd buy a car. So much for the deflation graphic.
I believe this is one of the root causes of deflation. It will be deflation after everyone is laid off and lose their homes, autos and etc. Loan default on a massive scale!
This is Econ 101 stuff. Not mentally challenging or in depth.
I can never tell, on ZH, when somebody is being facetious, or is just stupid. Can you clarify?
I can never tell, on ZH, when somebody is being facetious, or is just stupid. Can you clarify?
It's always good for a refresh and argue.
Deflation is the destruction of money supply. Less supply (of money) makes it more valuable (stuff is cheaper).
I guess you didn't read the title of the article?
Visual Inflation/Deflation For Dummies
there will come a time in the next few years when real estate prices revert past mean. when this happens, it is likely to be accompanied by higher mortgage rates. this will be the best time to make a cash purchase real estate investment in your lifetime.
were doomed.. dooooooooomed
I think we are still doomed Runlevel.
You know, at this point, I could really give a damn either way about inflation or deflation. I just want the government to get out of my fucking way and let me work for a living without trying to shake me down or toss me in jail.
A-Men bro..
http://www.vido1.com/AVY50Sa1mWI1UboVlWpBTP_bankers-song-we-didn-t-see-it-in
.
............!
To all those who completed this MBA program, you can download and print your diploma below ...
http://www.lesjones.com/www/images/posts/wecsog-diploma.jpg
So we have a nice explanation of a system designed from the ground up to make winning losing and the only way to win is lose or not play.
What a load of statist propaganda.
Who created this?
Some fed economist?
austrian makes the sense.
we were put on a planet with a fixed amount of money, made in a star.
man has tried to convince man that this is not true.
savings leads to capital formation, and with sound money this leads to constant deflation. which leads to more savings and more capital formation.
inflation makes the nonsense.
The title of the post is all wrong. It should be: "Inflation, BY Dummies".
"A little inflation is good, but too much or too little is bad."
Good fucking grief. It makes me want to pack up and move to Galt's Gulch tomorrow.
+1000
NOW THAT'S A TITLE THAT TELLS THE STORY WITH A FEW WORDS ONLY ;)
I agree with you, GoldSilverDoc ---- this statement is complete Keynesian bullshit.
In other words, "A little surreptitious theft by central bankers, and decline in one's savings and standard of living, is good." Pray tell, WHY?
Inflation is theft, pure and simple. There is no amount of "good" theft!
+1000
most of it was Keynesian apologist bs imo.
However, some okay flowcharts.
more like deflation for dumbasses. if deflation is so likely to spiral, how does the computer/electronics business manage to not only survive but thrive, despite the real prices of its products continuously and rapidly falling?
Tyler, you got a bug in your captcha, it asks questions with negative three digit answers then gets unhappy about the answer's "four digits".
Captcha is a quirky feature loved by all at ZH..
Captcha is a quirky feature loved by all at ZH..
Ever hear of a place called China? They (for the time being) eat inflation and export deflation
I cant wait for the infographic that tells me whether hyperinflation or deflation will help free me from crushing student loan debt since I sure as shit won't see a pay increase any time soon.
wrong definition...inflation as defined in the title page is a non-sequitur....the problem is currency debasement and manipulation....whether that debasement results in general price rises or selective prices rises is a point of only secondary interest....and such definitions are used by the moron and the evil ones to claim that there is no inflation and hence no problem with the currency....
i tell you a great truth: there are cataclysmic problems with the currency which will continue to unfold until it is destroyed whether that definition of inflation is used or not....
Ehmmm, wasn't deflation the destruction of money and inflation its opposite??
You only have half the puzzle the other half is stable money with more products chasing after the money, = lower prices, anyone gov bank or counterfeiter that gets to create money out of thin air gets something for nothing and steals productivity.
Money and wealth are not the same thing and inflation is almost always a theft, maybe the one time it was not was California gold rush when an ounce of gold got you a meal, but that was short lived and after the gold was mined and into the economy prices leveled out.
Any time you can create money out of nothing to get services or products someone will, when you get it on a mass scale you get what we have forced labor, investing and theft to keep the ponzi scam going.
If we called money a commodity oil or fuel and traded on btu's or equivalent and all of a sudden solar or fusion or any natural gas or clean coal came about and added a couple extra quadrillion btu's to the mix the original fuel would go down in price and we might have a hugh inflation in btu prices(meaning energy would be cheaper and we could use more for a lower price so that if you wanted to live the same life style you would have to work less had to get it) but it still came from production not out of thin air and then would stabilize again and we would all be richer and have to work less because of market forces based on production.
Same thing if it was corn or eggs or what ever that was real money it is just a medium of exchange that has a final use and if productivity in it goes up all are better off sooner or later it is only when it is fake money that we get wiped out.
Sorry absolutely not a writer but the basic premise is correct and all the bullshit about inflation and deflation just keeps the nonproductive in jobs and gives the gov a reason to exist to keep us dimwits safe.
Yup ... agree with you 100%. One of the main problems is that people do not yet understand that creating money does not create wealth, but it moves it around and always to the people or entities that have the ability to create money out of thin air and away from those who cannot.
There is a huge difference between money and value. Creating money dilutes value. Creating money out of thin air and then using it to buy natural resources or finished goods is simply stealing value from the selling country/entity because the fiat creating country/entity has no way to repay the supplier with comparable value... only a fiat IOU.
Another one of this stupids "A little inflation is good...".
When will this nonsense end and Zerohedge will get back to quality articles that make me come back?
You went somewhere? Sorry didn't notice.
Where ya been for the last 3 weeks? We missed you.
OK, a little confused here...
How does giving banks free money to bid up the price of copper, wheat, oil, other commodities and stocks increase jobs?
All it seems to do is increase the cost of living (inflate the cost), but does nothing to employ people. Because people can afford to buy less because they are paying more for the essentials, this would seem to decrease discretionary spending and decrease job creation.
... or am I being incredibly dense?
Exchanging fiat currency for tangle goods is like having a reverse gold standard. All commodities are always needed, fairly liquid and paper wealth, bonds, stocks aren't.
dollar takes another hit ...
Yuan Trading Against Russian Ruble Said to Start Within Weeks in Shanghai
http://www.bloomberg.com/news/2010-09-08/china-russia-push-yuan-ruble-trading-to-diminish-dominance-of-u-s-dollar.html
"Consumers have little reason to spend and make big purchases if they know the price will always be lower"
Well, that explains why no one ever buys big-ticket electronics like computers and big screen TVs. The price always goes down. Makes so much sense, doesn't it!
There are lies, damn lies, and "deflationary spirals". When was the last time this happened (don't say the great depression, because that was a keynesian experiment gone bad)?
Read Nadeem's stuff. The man nailed the whole liquidity rally and is one of the few bears that can see forest from trees.
http://www.marketoracle.co.uk/Article22199.html
funny, they fail to mention the ultimate outcome of this idiocy: pure state-run economy, Autocracy complete with all of its poverty, misery, and injustice
s/b "Inflation for fucktards, by fuckwads"
With your criticism, all you idiots are literally missing this rally! Bunch of bozos...
Inflation is theft by dilution. Why is deflation bad? It is not bad, except for those who ard addicted to borrowing perpertually. It means their game of perpetually sucking wealth from everyone else through perpetual debt, perpetual inflation and taxation of "income" that is solely the change in value of an asset by inflation of the money. That is why government acts like Dracula shown a silver cross. Even a hint of deflation strikes mortal fear in the hearts of supporters of big and Bigger government because they know, deep down inside, that the game is up.
Inflation, when coupled with open ended borrowing, open ended budget deficits, and an income tax on inflatied capital assets, will lead to economic serfdom as surely as the sun will rise tomorrow morning. We must stop government from going down this road or we will have squandered the liberty our parents passed on to us.
These people need to study Austrian business cycle theory. Inflation is always bad, period.
WTF?! INFLATION IS GOOD?
Ask any fixed income retiree how GOOD they feel about the incessant theft of the purchasing power of their savings through dilution.
When has a "Targeted Inflation Rate" policy become accepted as good, when it can only deliver loss of purchasing power through dilution?
How can any discussion on inflation be complete without recognizing that currencies are credit notes, which should be measured by their redeemable value, but don't have any.
Inflation is an increase in the supply of credit notes, linked to divisible capital as savings redeemable against them. Surplus notes deliberately created by an issuer, against capital they hold for redemption, decreases the value of every previous note and hence a decrease in confidence in them.
Because world currencies are redeemable for nothing of value, they are worth nothing. Without the banks having any intention of returning to depositors the value of the money they saved and entrusted, then inflation can be described as theft.
That is their game. They make their living by stealing your savings.
All of these articles debating in/deflation are either disingenuous or misguided at best.
A blunt way to look at the problem.
You can have deflating hard assets and still have inflation in consumables.
By deflating (and writing off) assets in debt you increase consumer free cash flow. Which would help drive demand. If house prices dropped and income stayed flat they become more affordable, which would drive purchases and demand for services and durable goods.
Meanwhile keeping consumables (via commodities) inflated.
Inflation that destroys purchsing power ultimately means less demand for things which decreases output and job growth.
biflation bitches
I keep hearing masterflation is next.
Sorry. I had a posting error.
Consider that all of those goods which are purchased with the intent of hedging against inflation should now face a currency devaluation. Those goods are not likely to rise in price, though the purchasing power was just cut. (with one exception, as a rule, gold)
Secondly, central banks do not set interest rates like people believe. If that was the case, Bernanke setting interest rates @1% so many moons ago would have stopped the decline in rates. Didn't happen. People would much rather cling to the notion that the Fed manipulates rates, while rates are in decline just about everywhere.
There is also a factual error to the easy-to-understand for-dummies explanation of inflation/deflation is that negative interest rates happen in the throes of deflation:
Ex: http://www.flickr.com/photos/11747277@N07/4846479116/sizes/l/in/photostr...
Rates can continue into the negative for a substantial period, meaning further and further along the yield curve. Rates need only go below 0.5% for the NPV of any endeavour to completely lose its value against advances/declines in prices. (Such as is happening with the U.S.2-year note.)
The inflationists have had their way for 30 years, decimating the dollar, and responsible, prudent savers. Let's have a few years of good old deflation to balance things out, eh? Lower prices are good. All those COLA clauses and CPI escalators in leases, employment contracts, union agreements, are ruining the dollar by giving the sheeple a false sense that they have more. The number in their bank account may be higher, but they don't have more. If someone says they want inflation, they are really saying they want to further trash the US dollar.
The clever graphic was made by the typical inflation-biased govt party liner.
ch my god. they are fucking you systematically and you can't
decide whether you are being screwed when they insert or withdraw
their dildo dollar. (stimulus!). credit..... aka power of the "sovereign"...
just kidding.
the people have debt, there is no money, all paper is a legal debt that
may or may not be enforceable; all metal is ornamentation and atavistic. the only
value is sound, mostly a woman's voice, as "all" men have become slaves
to ignorance. nearly. hell calls
.
http://www.youtube.com/watch?v=g3hBYTkI-sE&feature=related
fur j.p..................
That's a fascinating thesis. Do you have anything to back up that wild and blind assertion?
nothing other than this.
.
yes, gold has unique physical properties that appeal, on many
levels from the gut to the mind's eye, to human beings. and yes
it is a unique element for all the reasons contained, it embodies,
in our environment. does not corrode, is malleable almost infinitely,
conducts electricity nearly perfectly etc. . beautiful reflective properties.
and other "redundant", pjb qualities.
but.... these are of value to a civilization that no longer exists.
we have gone digital and the pixel, virtual, that "appears" as gold
effects the mind just as well? aNd .. the concept of possession and storage
of anything is becoming/ is .. increasingly being associated with
armed conflict. defense, armed. or , are you, is one, ready to kill
another for their right to posses and secure a shiny metal that once
played such an important part for a social elite and it's public
artistic display of it's status. ? my point being it is just an historic
currency, like fiat and will not solve the problems of civilization
for 7 billion people. it may be instrumental as a store of value in the
coming slaughter of millions but it will not solve our "civilization"
problem.
metals were / are? instrumental as a priory elements for industrialization.
look at the efforts in copyright law. person-less entities claiming rights
on genetic material. ? here we are fucked. un real. beyond metals.
and so we are back to enforcement of law as the value, aka fascism,
that will take whatever the law allows, even genetic code.
there are other things developing beyond metals, the elements, of the
industrial revolution. and not to mention, people don't look at shiny things
and get all excited much anymore. they like t.v., fast food and commercials
for capella, the university on line and cramer, the all important moron.
but..
i am fucking blind. ?
ps. i love wild and blind assertion. i see it as the origin of thinking
and potential insight. thanks for the inquiry.
pps. everything is a scam in a deflationary environment just as in an
inflationary one. inflationary environments are "good" because stealing
is only noticeable around the fractional reserve edges where in deflation
stealing is obvious to everyone everywhere, this is why it is detested
nearly universally.
..
the real value today of gold is it's symbolic meaning, not it's functional
value and people do not comprehend this symbolic meaning or appreciate
it's artistic usefulness or historic importance. they need to eat and be
in an environment that fluctuates between 50 and 100 degrees fahrenheit.
Oh, I get it. You can't eat gold. Why didn't you just say so.