Nobel Winner Dares To Go There: "No Reason To Fear Deflation... Greece May Benefit From Gold Standard"

Tyler Durden's picture

"Historically, there is no reason to fear deflation," Nobel Laureate Thomas Sargent explains to Germany's Wiwo.de, "we all benefit from lower prices." Crucially, he continues, "countries with declining prices, such as Greece, must improve the competitiveness they have lost in recent years," requiring falling wages and rising productivity (and falling unit labor costs) which will lead to companies cutting prices, "this is not a dangerous deflation, but part of the necessary correction so that these countries are internationally competitive again." That central banks pursue an inflation rate of around 2%, Sargent blasts, is because they consider it their job to "make bad debt good debt," adding that inflation is "a major redistribution machine - reducing the real debt burden for the benefit of creditors and devaluing the assets of the creditors." A return to a gold standard,he concludes, to prevent governments and central banks from limitless money-printing "would not be foolish."

 

Thomas Sargent (via Wiwo.de) dares to go there (and is likely about to be stripped of his Nobel)...

"The countries with declining prices is troubled countries like Greece. They must make their price competitiveness, they have lost in recent years, again. This requires falling wages and rising productivity. As a result, unit labor costs go back, and the company may cut prices. This is not a dangerous deflation, but part of the necessary correction so that these countries are internationally competitive again, "Sargent said in an interview.

 

In addition, there are, according Sargent "historically no reason to fear deflation."

 

On the contrary: "We all benefit when technological progress lowers the prices, such as computers," said Sargent.

 

That central banks pursue an inflation rate of around two percent, according to Sargent is because they consider it their job to "make bad debt good debt". Of an inflation governments benefited with high debt.

 

Sargent: "Inflation is a major redistribution machine, which reduces the real debt burden for the benefit of creditors and devalued the assets of the creditors."
To prevent this, according to Sargent, the reintroduction of the gold standard would be possible, "I would not necessarily say that it would be the best solution, but it would not be foolish."

 

Until the First World War, had the gold standard, to prevent that governments and their central banks print money limitless. During this time the prices would indeed have fluctuated, but had compensated over the years.

and specific to Europe, Thorstein Polleit adds (via Wiwo.de),

"The ECB will continue to push the rate toward zero percent and then buy government bonds," Polleit said. Background of this development are falling consumer prices in the euro-crisis countries and the resulting fear of deflation.

 

At the same time Polleit warns against the consequences of the low interest rate policy. "You can defer the market-based adjustment of the credit boom of the past few years through lower interest rates and the printing of new money most, but not prevent," said Polleit. In the medium term there is no way to lead a massive correction, coupled with cuts and debt deflation.

Polleit's conclusion seems very apt givne the current melt-up:

"The longer you postpone this process, the more destructive is its effect."

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Flakmeister's picture

No denying that a lot of peoples living standards will falll...

Explain to us how you can have international gold standard given the horrific imbalances in the flow of oil?

Seriously, I am all ears...

alphamentalist's picture

You can't. Plus wars for oil would slow a notch to make room for wars for gold. The average Goldbug never games these things out. I care not what system of money we use as long as we adopt it with our eyes open to its inherent flaws and run the system responsibly (the opposite of what Ben shalom is doing).

Flakmeister's picture

Do you think that Ben somehow changed the game or did he just inherit a system geared to run that way and had really no choice in the matter?

LetThemEatRand's picture

Yes, the system is completely controlled by a few hundred families who own the Central Banks.  They operate on a fiat system because that is how they generate wealth.   It is very much like the average financial advisor.  They buy mutual funds for you, and for the privilege they skim a percentage of your total assets under management.  To central bankers, the entire world financial system constitutes assets under management, and they have the additional advantage that they can uniiterally decide to increase those assets by printing more money which buys them real property, goods and services, while we all fight for their paper.  They extract a percentage of the world's economic output for doing nothing other than operating the system of currencies in which it is measured.   So long as we permit these families to control the system, talk of a gold standard is utterly pointless.  It is not about economic policy.  It is about who controls the world.

Flakmeister's picture

Not to side the with the current bunch of sociopaths, but you do agree that "someone will run the world" no matter what (and lets not be naive)..

I think the real point is that an interanational gold standard cannot be made to work, unless, perhaps, you had only one "country" and one current account... And we don;t want to go there do we? 

LetThemEatRand's picture

Absolutely, someone will run the world regardless of the system.  That is where I always reach fundamental disagreement with those who advocate a pure free market.  That model forgets what history teaches about guys with big guns taking over by force whether you like it or not if the people do not form their own government with bigger guns.    Whether there is some form of gold standard that would be workable in a world of 5 billion people is beyond my pay grade.   Bitcoin is a great example of how a currency system could work without physical backing.  It all has to do with who controls the currency and under what set of rules.    What I advocate is a system that is controlled by elected representatives who are accountable to the population rather than those who fund them (taking corporate and PAC money out of politics would be a great start).  In such a system where corruption is kept to a minimum by having real rules preventing it, I'm sure smart people could figure out a currency system that would not be designed to benefit a few at the top.

Anusocracy's picture

Nobody runs the world.

They just screw up the order that would occur naturally.

Like a child touching a spinning top.

LetThemEatRand's picture

"They just screw up the order that would occur naturally."

I think you hit the nail on the head of our fundamental disagreement.  Based on all of human history, what occurs naturally is that sociopaths who don't mind killing and torturing people gain power.  Most people who don't behave this way and who just want to go about their lives expect to be led by someone else and accept this as the natural order of things.   Many of those people end up working for the tyrants because it pays well and they are not tortured and killed.  Every now and then there is a revolution and a new group takes over.  When that group is the people who ban together and form their own rule (the exception in human history), it usually -- as now is occurring in the Western nations -- ends with the sociopaths regaining power while the sheep are led by their cute little noses (again) to the natural state of oligarch rule.  People who don't see this think a pure free market without elected government would work.

Indian_Goldsmith's picture

Do You people really know what you want?

Tall Tom's picture

Liberty and Freedom from Tyranny? Yes many know what it is that many want. Whether or not that is a possibility is the question which they must answer..

 

Personally i do not believe it possible. Therefore I have no faith whatsoever and have abandoned all hope. So Patrick Henry's alternative is that which I seek.

 

I resent the Sheep from not resisting the psychopaths. The rage which I feel towards the oppressed as well as the oppressor is intense. Since I value not my own life then what value is there to anyone else's?

 

How is that for an insight? 

 

There is no Political Solution. I despise the socialists, all of them, the psychopathic leaders as well as the blind followers, for their enslavement and my enslavement. You haven't any clue about how much I want to wreak havoc and destruction upon both oppressor and oppressed, as they deserve the Hell which they have created. They have not seen anything yet.

 

Now I will not act out on my rage. If volunteerism is optimal then how can I coerce others to adopt my views? That would be contradictory and inconsistent. It would be an irrational response. I value Logic and Rational Thinking. 

 

But there will be many whom do not share my values. There will be many whom will act out. A bloodbath will be the result, as has happened throughout Millenia of the Human Experience. A wise man once taught me that Terrorism is just a response to oppression; and; that if it is perceived or real matters not. He is correct in his definition. He was a Libertine masquarading as a Liberal.

 

But I do not really want to witness that. I most certainly do not want to participate. I have had a lot of diverse experiences and have been blessed with more opportunity than many.  I have lived a full life. So I pray for Patrick Henry's alternative solution hourly.

 

And I will find my peace in Eternal rest.

 

But what I want is not necessarily your path.

 

What you really need to be asking yourself is that if you know what it is that YOU REALLY WANT.

LetThemEatRand's picture

Humanity is imperfect.  Most people have little interest in politics, and even fewer have an interest in running the show.  Based upon history, the best we can do as a species is to try to keep the sociopathic wolves among us at bay while we do our best to get along.  It is ironic that many people (including you, apparently) detest humanity for keeping you down even though you did quite well personally by your account.  You blame others for your failures as well as their own, and take personal responsibility only for your successes while failing to account for any part of your detested society that helped you succeed.  Incidentally, Patrick Henry became a Federalist later in life.

Ignatius's picture

Simple rule:  Anyone who seeks power should be denied it.

Flakmeister's picture

By who? 

I mean seriously, you gonna wave your magic wand?

StychoKiller's picture

Enact a lottery wherein the loser(s) have to serve in the Govt.

Alea Iactaest's picture

@LTER re: oligarchs are the natural order of things

This is why Christians are taught to turn the other cheek. It is much easier, and much less messy, if people just go along with oligarch rule instead of fighting the system and getting whacked cause they're the nail that sticks up. Plus the sight of blood goes a long way in sparking those occasional revolutions. It emboldens the peasants. Hence both religion and opium are the opiate of the masses.

Miffed Microbiologist's picture

It does appear those that desire power do so for their own self aggrandizement, never for the good of others. I do find it strange that people, even myself, don't immediately rout out the cancer when it is in the initial stages and easier to remove. May be it's the insidious nature of these people that can fool us long enough for them to get their power base in place to entrench themselves. Their willing toadies, parasites, lackeys and sycophants who follow them in legions seem to have quite the nose for their initial stench. One would have to be hyper vigilant to keep them at bay and they flourish knowing we can't be.

Miffed;-)

akak's picture

Miffed, it has also become quite evident to me over the years that the seeking of power, and the desire to exercise power over others, is an inherent sign of sociopathy, and is perhaps even the defining feature of sociopathy. 

If humanity is to progress in any manner at all, it seems to me that the relationship between power-seeking and sociopathy needs to become universally recognized, and we as a society need to learn how to recognize and treat (or otherwise deal with) sociopathy in its first manifestations in every individual infected by it.

The following book is a HIGHLY interesting, if chilling, exposition on this topic:

http://ponerology.com/

Miffed Microbiologist's picture

Thanks akak, this falls in an area of which I have much interest. Personally, I've had several encounters with sociopaths and have spent time figuring out what makes them tick so to save myself in the future. First of all, they do seem to be malignantly narcissistic. They have a self image of perfection. They are intolerant of criticism because a small degree of change is perceived to them as a self annihilation. They scapegoat others because they perceive themselves as faultless. They always disguise themselves in an aura of " goodness". They are intellectually devious, the most common reaction to them is confusion. They are always greedy. Because of their lack of empathy for others, they desire coercion and control of people.

In my experience, treatment is impossible. They "encyst" when their environment recognizes them for what they are and reemerge when conditions are more favorable. There is no cure, only protecting oneself and others from their damage. Your book recommendation sounds fascinating. Perhaps I can finally get some some scientific validation to my personal observations. Hopefully I don't piss off too many people here with my thoughts but I do have to admit, a few trolls here have a few of my aforementioned traits.

Miffed;-)

Anusocracy's picture

It's all a gift from the past.

Humans and monkeys share Machiavellian Intelligence

http://www.eurekalert.org/pub_releases/2007-10/uoc-ham102407.php

The Social Brain is the Psychopathic Spectrum Brain.

logicalman's picture

Government should be like jury duty.

Pick 500 people at random, off the street, and say - you're job is to run the country for 4 years, after which you wil advise the incoming, new 500, where you are up to, for the sake of continuity, for 6 more months. You will be paid the average wage and can be removed by the people if you ever mess up as badly as present politicians regularly do. You WILL BE ACCOUNTABLE TO THE LAW.

No revolving doors - no lobbying (AKA bribery) - no cronyism

Let's face it, 500 first graders would likely do a better job than the fuckers in charge at the moment.

Just a thought.

Flakmeister's picture

There is some merit to this idea,  but it does rely on upholding the law (i.e. the state) unless you think mob justice is amenable to running a a complex entity such as the United States. Who appoints those that are sworn to uphold the law?

Anusocracy's picture

What's with all this running stuff?

The Soviet Union was a "complex entity" "run" right into the ground.

Sure was nice of Putin to notice that the US is on the same path.

BigJim's picture

Like most people, you make the utopian mistake of believing the problem is the people in the system... rather than the system itself. That somehow, if we can just get honest people running our lives, somehow government will be ok.

The people have asked, and allowed, governments to extend in size and scope beyond any kind of rightful role they might have in our polities (protecting the citizenry from criminality) and have become criminality incarnate.

It doesn't matter who is running the show... unless they drastically reduce the size of it.

Flakmeister's picture

Running the show? There is always some one "runnning the show", or have you not noticed?

Unless of course you want to live at the level of hunter gatherer, even then there are  "Elders" and "Chiefs"...

How about subsistence level agriculture? You know, when no one has the ability amass a surplus with which to wage a "local" take over. Loyalty is cheaply bought (and sold)....

Have you read any real history?

BigJim's picture

Hey girlfriend, read my comment again, particularly with reference to the phrase:

The people have asked, and allowed, governments to extend in size and scope beyond any kind of rightful role they might have

and then consider how your statement

Running the show? There is always some one "runnning the show", or have you not noticed?

completely misses the point.. as usual.

Tell me something - is a government that spends 10% of GDP 'running the show' as much as one that spends 50%?

Flakmeister's picture

Lets see..

A snide condescending remark about my gender, followed by a classic case of moving the goal posts combined with a strawman...

Pretty clear who the troll is...

Go find another tree to bark up...

BTW, you wouldn;t last 10 minutes outside of the echo chamber...

BigJim's picture

No movement of goalposts, no strawmen... except on your part. Repeatedly.

I imagine you think you're a pretty good debater. Has it occurred to you that the real reason you leave your real-time interlocutors flummoxed is because of your incessant non-sequitors? It's virtually impossible to argue with someone who doesn't know they're wrong.... despite them having their 'arguments' repeatedly refuted.

Flakmeister's picture

Look, understand the difference betweeen theory and reality, i.e. practice. If you studied PDE's you would know it is all about the boundary conditions. 

One last time:

Show me that the trade between the great powers was greater than that with their colonies, i.e. where surplus from the colonies could not finance any short fall from inter-power trade and I will consider myself refuted... But you can't because it didn't, gold reserves tripled over that time (extraced mainly from the colonies!)

The deck was unintentionally stacked to made an international gold standard work for ~50 years back then, and the conditions are never going to be repeated again...

The stock of gold is now incapable of supporting the flow of oil.. The ratio of gold to oil has been pretty constant before and after Nixon closed the window despite dramatic increases in the price of each... Think of it this way, the wealth that is represented by an oz of gold can be created from ~15 barrels of oil.. Are you going to fix this ratio by fiat?

So if you want to see the economy collapse as all the gold slowly but surely ends up in the hands of the Petrostates, you know all those nice fellows in Russia, Saudi Arabia and Iran, go ahead, tie the world economy to a gold standard... 

-----

If you want to argue that if no independent soveriegn nations exist, then I agree it is likely a gold standard could emerge. I suppose that surviving a nuclear war or somthing similar would create the requisite conditions. 

Or you could have a massive one world gubbmint and gold flows would be redistributed....

But then, it would not be an international gold standard...

I repeat, gold is a wonderful MOE at the local level, it fails at the international level if the world economy is unbalanced...

--------------

Don't bother replying, either you get it or you dont....

BigJim's picture

Despite all evidence to the contrary, I am going to act like you are debating in good faith. I should also add that I am not a proponent of the gold standard per se, so this is purely academic.

So let's break this down, one step at a time.

Do you agree that if gold were 'priced' (temporarily, just for the sake of argument) at, say, something ridiculous, say $100,000 an ounce, then your 'problem' vanishes?

Flakmeister's picture

You clearly do not get it.... I don;t care about dollars, I do not need to mention dollars at all...

So, just who is going to allow you wave your magic wand to do that? Many commodities priced in gold have pretty stable prices going back many years even to when dollars were convertible. You gonna change that by a factor of 50, just because? Is this really the level of intellectual thought by gold bugs here? I am absolutely appalled...

So if you are a not a proponent of a gold standard, why the fuck are you arguing this unless you are a troll or dumb as a post? Because you clearly have no fucking idea what you are talking about vis a vis reality when you say shit like you just did....

BigJim's picture

Sigh. Let me repeat:

So let's break this down, one step at a time.

Do you agree that if gold were 'priced' (temporarily, just for the sake of argument) at, say, something ridiculous, say $100,000 an ounce, then your 'problem' vanishes?

Please try answering the actual question. Please also note that here, for the sake of argument, we are talking about USD at roughly its present purchasing power; ie a situation where gold is $100,000, but other commodities trade at prices similar to today's.

Flakmeister's picture

And you just waved a magic wand that has no bearing to reality or history...

I suppose you could do it at gun point, is that what you are proposing?

What is the mechanism by which gold increases in value by a factor of 50 relative to commodities except by you saying it does? 

Sorry, I will not grant you that premise...

 

BigJim's picture

Sigh. Let me repeat:

    So let's break this down, one step at a time.

    Do you agree that if gold were 'priced' (temporarily, just for the sake of argument) at, say, something ridiculous, say $100,000 an ounce, then your 'problem' vanishes?

Please try answering the actual question. Please also note that here, for the sake of argument, we are talking about USD at roughly its present purchasing power; ie a situation where gold is $100,000, but other commodities trade at prices similar to today's.

One step at a time, Flak. Do you agree that if gold were priced at $100,000 per ounce your 'problem' vanishes... yes or no?

Flakmeister's picture

Cleave to your fantasies all you want but they ain't coming true...

akak's picture

You are really quite a coward and an asshole, all rolled into one neat arrogant package.

I laugh at you Flak.

Flakmeister's picture

You're so sexy when you froth at the mouth and gnash your teeth...

Lulz....

BigJim's picture

One step at a time, Flak. Do you agree that if gold were priced at $100,000 per ounce your 'problem' vanishes... yes or no?

Flakmeister's picture

As a rule, rhetorical questions are best left unanswered. Make your case on how that scenario arises.  I also suggest you look up the term reductio ad absudum, to see how it is used in logic and proofs.

Finally, are you suggesting that the value of Au will be redefined as such by the State? 

This thread is now too narrow to have any discussion, I suggest you drop it...

 

BigJim's picture

One step at a time.

I'm not asking you here to accept that gold is 'worth', or will be revalued, at $100,000 per ounce.

I'm asking whether your problem disappears if gold was worth $100,000 an ounce.

YES OR NO?

Flakmeister's picture

Just like with AGW, you are complete denial of reality...

BigJim's picture

At the top of this thread you stated: The stock of gold is now incapable of supporting the flow of oil.

The necessary corollary to this is that if gold is priced high enough, then there would be enough stock of gold to support the flow of oil.

I'm asking you whether $100,000 an ounce is high enough.

YES OR NO?

 

Miffed Microbiologist's picture

Damn,

I was waiting for a reply with bated breath. Ever teased but never satisfied.

Miffed;-)

Flakmeister's picture

I have a proof of this preposition, however, the margin is too narrow to contain it...

Miffed Microbiologist's picture

Oh come on! Refer it to another post on the next page or just post it and people can hit the reply to read it more easily. Otherwise this is prick teasing.

Miffed;-)

BigJim's picture

The margin is perfectly wide enough for a simple 'Yes' or 'No', Flak.

So I repeat: is $100,000 an ounce high enough to get rid of your problem vis-a-vis gold and oil?

Flakmeister's picture

Why don't you run off and instead of me doing the work, you figure it out, Write a nice detailed post explaining how you think it would work. the onus is your to show your idea works...

In other words: Don't be so fucking lazy...

------

You still haven't addressed this:

Are you gonna point a gun at anyone who doesn't want to part with goods for your declared price in inflated gold? 

BTW, it is easy to make shit up in Pretend Land, but we don't live in Pretend Land. You seem to spend a lot time there, between this and AGW, I would say you have a hard time grasping real data and practicalities....

BigJim's picture

The margin is perfectly wide enough for a simple 'Yes' or 'No', Flak... in fact, that would take up vastly less room than your repeated evasions.

In the past you have shown that you are either incapable or unwilling to answer refutations that involve multiple steps in one post. So we're going to do it one step at a time.

 Why don't you run off and instead of me doing the work, you figure it out,

LOL, it was YOUR assertion, not mine.

C'mon Flak, the internet is forever. And everyone can and will see (until Al Gore disinvents the intertubes) that Flakmeister is an intellectual coward... and unable to fight her corner.

So I repeat: is $100,000 an ounce high enough to get rid of your problem vis-a-vis gold and oil?

YES or NO?

Flakmeister's picture

If you cannot figure it out for yourself. you don't deserve to know...

BTW, the answer is still no for more subtle reasons. However, since you like to live in Pretendland, you will never grasp why...

Try digesting this for a starter:

http://econ.la.psu.edu/~bickes/goldstd.pdf

There are many similiar analyses that basically say the same thing...

---

You are truly intellectually lazy...

BigJim's picture

Ah! Now we're getting somewhere!

So, it's 'no' at $100,000 an ounce, is it?

How about $500,000 an ounce?

YES or NO?

And no, I'm not being 'intellectually lazy' here - though I take my hat off to a typical bit of Flak sophistry - I'm trying to get you to admit that at some price level, there is enough gold vs oil. Once we establish that (and it IS a corollary to all your previous assertions) we have to establish at what price level there is enough.

So:

How about $500,000 an ounce? Does that get rid of your problem?

YES or NO?

Miffed Microbiologist's picture

Oh come on Flak. Take him down! His jugular is exposed plunge th knife in. You can do it. I'm waving your pennant high up in the bleachers. YOU GO GIRL!

Miffed;-)