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Nobel Winner Dares To Go There: "No Reason To Fear Deflation... Greece May Benefit From Gold Standard"
"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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The principle works the same way as your wallet. If you spend more than you earn you go broke.
If a country imports more than it exports, eventually they go broke too.
A gold/ commodity backed currency forces you to live within your means. This constraint means more local production is encouraged and subsequently rewarded by market share.
Your $2.00 Chinese flip-flops become $5.00 made in USA flip-flops with the upside that your kid will be able to find an entry level job. Scarcer expensive oil will be used for profitable production instead of wasteful transport. This will happen anyway as the US will have to bear the true cost of energy instead of the petrodollar free ride.
Fekete goes through all this at length.
Good, so you tell the people "I have a plan, I want to crash the economy by at least 50% but it will all be ok, at least for some of you Trust me..."
Are you fucking serious?
Actually, I just had a epiphany, going on the gold standard might be best way to address global warming... C02 emissions would drop like a bomb as the world economy ground to a halt...
One last thing you maybe didn't figure, the money stock is not the problem, but rather abrupt changes in the stock cause shocks. So in the case of our oil exporter, if he sits on his stack of 3000 tons of gold he drives down prices of goods and services in other countries. As a hoarder he is rewarding prudent people (savers of gold) the world over. Prices could be measured by various metrics as they are now and people could have downward wage adjustments to reflect the rising power of their units of gold. That's a possibility. Only in a Keynesian world are we conditioned to think prices must rise relentlesly.
In every single transaction, both the value of the product and the value of the money vary. As you spend money, the remaining money you have becomes more valuable to you. You think more carefuly about how you are going to spend it.
As you hand your gold over, the value of what you have left increases. eventually you reach a point where you say, Y'know, I'd rather spend the money on an electric car, not on another barrel of oil. There would quite naturally have been over the last 40 years a huge level of investment in improving efficiency, alternative energy sources without requiring government subsidies.
Take Europe as an example, a typical vehicle is about twice as fuel efficient as one owned by an american. They do more with less.
Gold is self limiting. It says "no you can't". Which is of course the problem with it.
Well stated.
But the fiscal reality of "No you can't" flies in the face of "Yes we can!".
There are many good points made by various authors on this comment thread, but this, in my view, is the most trenchant. That it is also terse is a bonus, and earns css1971 a gold star.
+1 I agree. I would only add, however, that the relentless purchase of gold by central banks indicates to me that there is greater utility in owning gold than holding fiat - a measure of utility that can hardly said to be diminishing. Its "price" as per COMEX or London fix, is another matter.
Wonder if Nobel wants its prize back from Barry. Stupid fucks.
Nobel Laureates tell the truth, it is a sign that time is up for the old model.
Someone with a nobel prize and a brain in their head? Interesting.
One point though, the rapid switch from inflation to gold standard/deflation in a nation like the US would be very painful for awhile. Of course, the path we are in will be a slow long term pain with sharp pain later anyway. At least the short term swap will let things re-balance so we could build on something real.
@Flakmeister
thank you very much for the reply, that was a layer I had not taken into account.
\hattip
You're welcome...
return to the gold standard should only happen AFTER THE MOST DEBTS ARE WRITTEN OFF
How does that really change anything? The flow problem with oil breaks the system even before considering the balance of payments...
What's your solution? Is your premise is that some group has to get something for nothing, by being allowed to export inflation in perpetuity? The whole point of gold is to be neutral and not favour any nation. If a nation imports a lot of oil then they will have to balance the trade by exporting something else in exchange.
There is no flow problem with oil. If you consume relentlessly with your bullshit "service economy" then oil will no longer flow to you. Flow problem solved.
That was a cogent and concise rebuttal, Bombdog, and a response which I notice remains unanswered.
Well, unlike a lot of people here, I don't claim to have a solution...
In any event, it is quite likely that we are beyond the point of "solutions".....
Well, it is generally accepted that when one finds oneself in a hole, the first logical step to take is to stop digging.
Your every argument seeks to deny that fact.
"Oh Lord, please let me live long enough to NOT have to deal with financial reality!"
Out of curiousity, how old are you? Do you have children?
The solution seems obvious enough: If you can't afford the oil, then don't burn as much. You will not need to import as much if you don't burn as much.
Do you deny that Americans use much more oil per capita than the other residents of Planet Earth? Do you think that's because Americans are producing more stuff? Or will you admit there's waste?
When (and if) the oil states get all the gold someone will come along and take it away from them along with their oil wells. This sort of thing has happened before. (It's a reason The Queen is so rich.) It's possible that the oil sheiks might spend some (or all) of that gold (and oil) to protect their hoards and little empires. If they do that, they won't have the gold to protect anymore. It's self limiting. Capische?
why not use a gold revaluation as a mechanism to write off debts?
How does that work? In whose interest would this be?
it would be in the best interests of heavily indebted countries with significant gold holdings, as well as in the interests of the administrators and beneficiaries of the next world order.
http://marketupdate.nl/en/gold-and-the-monetary-system-the-potential-us-...
there are a few scenarios that outline possibilities to implement (and it assumes that the key players are all on board):
http://www.banking.senate.gov/prel00/0427grm.htm
http://www.africa.upenn.edu/Urgent_Action/apic_11699.html
http://www.linktv.org/sitecontent/pages/01payingforrelief.pdf
http://www.one.org/c/international/issuebrief/1575/
i know these are mainly talking about HIPCs, but i don't see why a similar process couldn't be invoked for HIRC's.
then there's freegold:
http://fofoa.blogspot.com/2011/01/freegold-foundations.html
http://fofoa.blogspot.com/2011/01/reference-point-gold-update-1.html
The ONLY thing I agree with in that article is:
The fundamental basis of how we operate our civilization is force backed frauds, which have rapidly become globalized electronic "money" backed by atomic bombs. That is the REALITY, and any old-fashioned notions about returning to honest money based on the conservation of matter are way too ridiculous to take seriously in that context, EXCEPT for the ways that social habits operate through inertia, so that most people keep on thinking in the same ways, without thinking through what it means to ACTUALLY have global electronic fiat money frauds backed by weapons of mass destruction.
The evolutionary ecology of the human species has trapped itself into a terrible cul de sac. Each successful increment of history has enabled social systems to be built by the biggest bullies, being operated through those biggest bullies' bullshit social stories. Therefore, it is not an exaggeration that the world is currently being operated by THE MAXIMUM POSSIBLE DECEITS AND FRAUDS, while almost all of our advances in science and technology have ended up being channeled through the established social pyramid systems, which operate by having a relatively small group of the people who are the best at being dishonest and violent, controlling the vast majority who are kept ignorant and afraid. (Metaphorically, the current system is made up of people who play the roles of the Vicious Wolves, and their Domesticated Dogs, controlling the Zombie Sheeple, in ways which are protested by the Black Sheep amongst those Sheeple.)
Attempting to have an actually more scientific political economy OUGHT to operate within the concepts of human ecology. However, that means that the death controls must be central to all other controls. While there is no doubt that is theoretically correct (as well as quite overwhelmingly obvious as an objective fact about the real priorities demonstrated through history, as well as at present) the history of the human murder systems have selected those to be operated through the means of the maximum possible deceits about themselves. Upon that basis has the entire economy been constructed, which was why the current financial systems are based upon the maximum possible frauds.
To approach human activities more scientifically would require regarding them as energy systems, which requires radically transformed understanding of how there too the biggest bullies' bullshit view of the world has perverted our understanding of energy systems, by reversing the meaning of the entropy equations, by inserting an arbitrary minus sign into those equations, so that power and information would end up having positive values, rather than reveal relative negative values, which is what the mathematics itself indicates. That is the philosophical background for the deeper political problems that there ACTUALLY is a combined money/murder systems, and there MUST necessarily be.
The only real resolutions of human problems in the future are going to be different death control systems. That is extremely problematic because the history of thousands of years of warfare was built on the basis that its success was based on deceits. Therefore, the most important aspect of both the human ecology and political economy are the death controls, which ACTUALLY get operated through the maximum possible deceits, which was symbolically manifested by having a fundamentally fraudulent financial system, which is so inconceivably crazy and corrupt that it is hard to imagine a more fraudulent system than what exists now.
In that context, recommendations of going back to some kind of honest or sound money, based on gold, as an expression of the conservation of matter, are so totally pathetic as to be laughable. However, since the established systems are already built on top of runaway deceits and frauds, silly little notions like a return to gold standard are treated with some respect by some of the Black Sheep, who criticize the established systems, in which public governments enforce an almost totally privatized fiat "money" made out of nothing, as debts.
Unless one understands how and why the currently established systems are the result of history selecting for governments to become the biggest organized crime gangs, controlled by the best organized crime gangs, then one is not in any kind of position to recommend anything that makes sense as a real alternative system. Any alternatives must have alternative death controls as their keystone, or lynch pin to hold together all the rest of the creative alternatives into an overall workable system. The grand paradox that the human evolutionary experiment has gotten into is that the human energy systems were controlled by their most labile components, which were the people that were the best at being dishonest and backing that up with violence. That is why our civilization became a social pyramid system, manifesting the maximum possible deceits and frauds about what it is doing when it talks about itself.
Advances in sciences and technologies have pumped that social pyramid system up and up to become trillions of times more powerful and capable, at being dishonest and violent, to become, as I repeat: global electronic frauds, backed by atomic bombs. The only genuinely better solutions are better death controls, to back up better debt controls. However, since all of the established systems are being operated on the basis of the maximum possible deceits and frauds, and there are good reasons why that situation evolved to be in the first place, the inescapable problems that we actually face are almost infinitely worse now than ever before in human history.
In that context, anybody who proposes any solutions whatsoever that involve going backwards to some old-fashioned religion, or ideology, such as returning to a gold standard, or whatever, is irrelevant, and not even in the ball park of what the real problems actually have become. Theoretically, there is only one good path forwards, and that is to continue to go through a more and more profound series of intellectual scientific revolutions, which would become applicable to politics and militarism.
Anything else is merely useless diddling within the currently established political economy systems, while pretending that those are not almost totally based on the history of successful deceits and frauds, which FACT has become the greatest of our current problems. A few of the more slightly radical "Nobel Prize" winners in economics might mention tangentially some of these problems, but nobody who was successful within the current systems tends to be able and willing to go through the series of paradigm shifts which would be necessary to make economics be understood as an energy system, since doing that necessarily entails recognizing that the whole edifice of economics is based on the biggest bullies' bullshit about what they have been actually doing. Furthermore, no idealized alternative bullshit from any other kinds of established religions or ideologies is actually any better, but rather, often even theoretically worse.
The gold standard used to have a ring of truth in it, because it was more directly connected to the law of nature known as the conservation of matter. However, the special theory of relativity has literally exploded the concept of the conservation of matter, and in the process exploded the notion that there could be a return to a useful gold standard. The only thing that made the gold standard slightly better was it was slightly closer to the laws of nature, such as that it is not possible to make something out of nothing, nor to send something to nothing. The current monetary system cut itself off from that, in order to enable the maximum runaway financial frauds. However, there is no way to correct those runaway financial frauds now by returning to the gold standard, as a return to the conservation of matter, as somehow being more sound and honest money.
What we need is a better energy system standard for money. However, when one tries to do that, one then falls into the infinite tunnels of deceits that energy systems are controlled by their most labile components, which historically have been the most dishonest and violent people, operating along their line of least action resistance, which is the human flow along the path of least morality. Attempting to have a better monetary system in a world where there is electronics and atomic power should be done in a way which is consistent with those scientific understandings. However, the profound paradoxes that arise when we attempt to do that are that we then are better able to understand how and why our current systems became based on the maximum possible deceits and frauds, and therefore, almost everything that successful economists say is some kind of cheer leading for the biggest bullies' bullshit social stories.
One will not find many cheer leading for truly better death controls, but that is actually the only way that any of the other real human problems could be resolved any better than they are now. Welcome to the Bizarro Mirror World, Folks. Everything is about as proportionately backwards and distorted as it possibly could be, on level after level, where the lies are different at every one of those levels. Really, there is no way that human beings can go backwards now, and erase the advances made in science and technology, except if civilization so totally destroyed itself that those achievements were wiped out. Otherwise, the only way forwards is to continue to scientific project, by having an intellectual scientific revolution in the most basic aspects of the philosophy of science, which would be applicable to human ecology and political economy.
Of course, the ironic situation then manifests that since the world is already now almost totally dominated by the biggest bullies' bullshit social stories, and their controlled opposition also almost totally operates within the same frame of reference, of basic bullshit about everything, the necessary kinds of intellectual scientific revolutions which we most need seem practically impossible to happen inside of that context. After all, nothing is less popular than more radical truth, both amongst those who run the established systems, as well as amongst those who propose similar bullshit solutions that still operate within the same basic paradigms.
I give you this RM.
You may be excessively verbose but you are the epitome of consistency.
Yes, shovelhead, and the way that more than 99% of other people respond is consistent too, in that they simply deliberately ignore the points that I make. Nobody ever proves that I am wrong that we ACTUALLY have built a global system of electronic fiat money frauds, backed by governments with weapons of mass destruction. Instead, they continue to deliberately ignore that REALITY. Therefore, I consistently attempt to point out the real situation, while the overwhelming vast majority of people get on with their lives by continuing to deliberately ignore those facts, so that they can continue to believe in the bullshit that they like to believe in, which is typified by the people who recommend that we go back to a gold standard basis of money, because they believe that will solve our problems.
In the Canadian political context, where I operate,
http://www.marijuanaparty.ca/article.php3?id_article=215
I have perfected that social situation to a kind of high art form. Ironically, after I proved that I was right in a court case, and proved that the government had been lying, the way that the government responded was by changing the election laws, so that their previous lies mostly became true. There is a general principle of "consistency" from Le Chatelier's principle in chemistry, to Romer's rule in evolution: people tend to adapt the minimum that they have to, in order to stay the same. That is WHY paradigm shifts in perception were described by Thomas Kuhn as being SCIENTIFIC REVOLUTIONS.
RM, I don't ignore what you say, I just get bored.
Try bullet-points.
Central banks print money for the same reason counterfeiters counterfeit.
The rest is just a fancy justification, they claim inflation is good because it beneifts them.
Deflation and a gold standard woukd indeed help Greece as long as she converted all her debt to drachmas and also wrote some debt off.The reason I say this is because the deflation in wages experienced so far has in effect destroyed its banks due to the fact that people are unable to service loans while the plunging value of the banks" securities (i.e. house prices) further guts bank equity.
Unless there is at least a partial reset in debt levels, the gold standard cannot gain traction anywhere near as effectively.
By the way, I suspect Greece would have a rather slim chance of getting its gold back from foreign central banks.
They can store it at US gvt inc. like ze zermans. They have about the same chance of ever seeing it again.
Lol,
Guess the Germans should have read the fine print about how depositors are actually creditors of the bank in question.
"Would you like that gold in a mix of $100's and $20's?"
goldbugs
"Historically, there is no reason to fear deflation," Nobel Laureate Thomas Sargent explains, "we all benefit from lower prices."
Can't believe a "Nobel" laureate said something that irresponsible. When real deflation happens, capitalism begins to eat itself and we have political and system disruption that often leads to war. Political systems destabilize. Inflation is bad but deflation disrupts how the system operates.
deflation is real progress measured in labor productivity not money numbers productivity. deflation is bad for banks and good for savers.
You give no reasons for making such an assertion.
Fact is that the IT industry has gone thru price deflation for decades and is as healthy today as it ever was. Probably even more so given that the poor performers who are unable to reduce manufacturing costs simply evaporate and are replaced by others who can.
I can see no good reason why similar price deflation would not be good for other industries too as it drives R&D, innovation and efficiency. To think otherwise is to view economics thru a Keynesian prism and we know what that's lead the world into: the biggest debt bubble in history.
Please remember that every $10 a person does not spend on buying product X due to a price reduction, is $10 he has to spend on some other product or service.
As another commenter wrote, deflation is good for savers and gives them more buying power. Savers should be the lifeblood of any successful economy.
The only people who don't benefit from deflation are those who have large debts because it means they have to actually pay down their debts instead of inflating them away. That is why governments hate deflation and love inflation. And it explains why they have peddled the big lie for years that deflation is bad. It is not.
But I do not see that as a valid reason for asserting that deflation is bad. No way.
Just because I don't spend $10 on product Z due to whatever, does NOT mean I will, as a necessary consequence, spend that $10 on something else.
My article on deflation:
http://www.mises.org/daily/6459/Whats-So-Scary-About-Deflation
Don't buy into this "deflation is bad" argument.
One of the most exciting articles on zerohedge!!
Are you not entertained!
Persons (investment banks, bankers, et. al.) who hold financial (debt) instruments would certainly be harmed with deflation since the nominal values of their "assets" would fall. Persons holding tangible unencumbered assets should do just fine. Let's give deflation a chance; nothing else seems to be working.