Does debt deflation plus monetary inflation equal goldilocks?

[Starving Steve]

Re: Does debt deflation plus monetary inflation equal goldilocks?

I am new here, so please forgive. I am mighty confused by the different thoughts expressed. Does anyone have a suggestion as to what a person is to do in this financial environment -- i.e., where, if anywhere, one can/should put investment money? Thanks.

How do you invest when the govn't is punishing savers, punishing investors, punishing the elderly, and punishing those who produce something of real value? This is the crux of the problem: How do you invest when you get hammered by the Fed and their insane supply-side economics policies?

We have to get rid of Bernankee and Paulson, as soon as possible. For now, don't invest in anything but gold.

[cmraynew]

Re: Does debt deflation plus monetary inflation equal goldilocks?

I am new here, so please forgive. I am mighty confused by the different thoughts expressed. Does anyone have a suggestion as to what a person is to do in this financial environment -- i.e., where, if anywhere, one can/should put investment money? Thanks.

Find a way to get a job from one of the favored children of the bailout.

[Starving Steve]

Re: Does debt deflation plus monetary inflation equal goldilocks?

It's a distinct possibility.

It's also quite possible that this gives Obama an execuse to spend 700B on public works projects without causing inflation.

No doubt dozens of iTulipers will chime in saying how this all leads to hyperinflation.

Most of the arguments I disagree with, though. Metalman is the only one that I think had a good counterpoint, though, and that is the illusion of value will be broken, thus leading to hyperinflation.

That's not a bad argument.

Another good argument (mine) is that Obama needs inflation in the price of oil in order to create incentive for people to migrate to a different form of energy.

Another argument might be that you really can't control this sort of thing like it were some sort of simple dial. You push and and you push and you push to maintain the goldilocks and then suddenly - everything snaps from too much overt government influence.

Still, Japan seemed to dance on the razors edge for quite awhile. If we go through what japan did, that's not so bad. They maxed out at 6% unemployment, I think.

Since when is it not inflationary to let tens of millions of people starve?

At least when the govn't creates jobs for people, the people can produce things of real value.

We are sooooooooo damn brainwashed by Republican economics. Never forget that it was THE PEOPLE and NOT THE FEDERAL RESERVE BANK NOR THE CORPORATIONS NOR WALL STREET who put their labour together and built the Golden Gate Bridge and the SF Bay Bridge. Never forget that is was the people who built the dams for the Tennessee Valley Authority; the people who built Hoover Dam, the people who built Grande Coule Dam, the people who re-forested the national forests, the people who built the thousands of small bridges all across America, the people who built flood-control canals, the people who built many of the country's county hospitals, and the people who built many of the country's public schools and universities.

The story of the Works Progress Administration (the WPA) has been all but covered-up and deleted from the history books. This story needs to be told once again.

[grizam303]

Re: Does debt deflation plus monetary inflation equal goldilocks?

Thanks for the explanation.

However, the Fed move to "inject" (god I hate that word now) trillions into the system somehow

You can use "bennycopter" instead of "inject"; people have fabricated more atrocious verbs.

That's what it is all about. Have you borrowed money? Don't pay it back.

I bet you could also earn quite a return doing that. Did you go to Yale?

[LargoWinch]

Re: Does debt deflation plus monetary inflation equal goldilocks?

How do you invest when the govn't is punishing savers, punishing investors, punishing the elderly, and punishing those who produce something of real value? This is the crux of the problem: How do you invest when you get hammered by the Fed and their insane supply-side economics policies?

We have to get rid of Bernankee and Paulson, as soon as possible. For now, don't invest in anything but gold.

S Steve; I think one will not do to shabby with Crude Oil as well...

[marvenger]

Re: Does debt deflation plus monetary inflation equal goldilocks?

I was intitially against the literal printing of money, but now I think I understand how the money system works a bit better, its basically a racket by the big banks to control the money issuance through the fed and they let the government in on the scam by letting them borrow whatever they like without having to raise taxes. So by the government printing money and spending it they'll be able to direct demand to some productive means and not have to add to the debt burden of the system that is choking it to death. Government has to be careful to control money supply and make sure what they spend is on productive investment to avoid inflation.

Sapiens recent post helped me understand this. http://www.itulip.com/forums/showthread.php?t=6564

[tsetsefly]

Re: Does debt deflation plus monetary inflation equal goldilocks?

Since when is it not inflationary to let tens of millions of people starve?

At least when the govn't creates jobs for people, the people can produce things of real value.

We are sooooooooo damn brainwashed by Republican economics. Never forget that it was THE PEOPLE and NOT THE FEDERAL RESERVE BANK NOR THE CORPORATIONS NOR WALL STREET who put their labour together and built the Golden Gate Bridge and the SF Bay Bridge. Never forget that is was the people who built the dams for the Tennessee Valley Authority; the people who built Hoover Dam, the people who built Grande Coule Dam, the people who re-forested the national forests, the people who built the thousands of small bridges all across America, the people who built flood-control canals, the people who built many of the country's county hospitals, and the people who built many of the country's public schools and universities.

The story of the Works Progress Administration (the WPA) has been all but covered-up and deleted from the history books. This story needs to be told once again.

Look at the Weimar republic inflation, the people had jobs, the problem was their money was worthless...

Government cant "create" jobs because it does not produuce anything, all it can do is redistribute wealth, print money or borrow(using the american public as collateral), but it is wrong to assume that government "creates" jobs.

The WPA and other new deal programs where a disaster, that is why the New Deal did not work and much of it was struck down by the courts for being unconstiuttional. What the New deal did was redistribute capital from a more efficient part of the economy to other less efficient parts.
Here is some more good stuff on the new deal:
FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression

Off course "saving" the financial industry by pouring trillions into it is just as bad...

[DaveBrown42]

Re: Does debt deflation plus monetary inflation equal goldilocks?

However, the Fed move to "inject" (god I hate that word now) trillions into the system somehow

I like the word "inject" as it accurately portrays the Fed's current actions to be as prudent as paying to inject a junkie with more smack.

[nathanhulick]

Re: Does debt deflation plus monetary inflation equal goldilocks?

I'm a stock and futures trader, NOT an economist (Thank god!), but I'll try giving a "layman's answer".
Think of it this way: fiat money and capital are two entirely different things. Assuming the money the banks loaned out represented capital (someone had to produce a good or provide a service in order to obtain it), said capital has been wasted/destroyed (at least in part) by placing it into McMansions that cannot be sold for the loan balance remaining. When the Fed comes along and replaces it with Bernanke Pesos, said "money" only represents the clicking of a mouse at the Fed to "produce" the money that has been lost/squandered, but not the capital. It went to money heaven when the stick-slapping nitwits built their zillionth McMansion that isn't needed and cannot be afforded at price to allow the capital to be retrieved.

(I also hope that someone more erudite in these matters will vet my thoughts.)

Exactly.

All the US dollars in the world represent some sum total value of "capital" or "money". Printing more US dollars does nothing to change that total. All it does is transfer losses from one group to another (politically connected) group.

Unfortunately, the vast majority of people, including professional economists and Econ professors, do not understand this most basic concept.

[jdv]

Re: Does debt deflation plus monetary inflation equal goldilocks?

The WPA and other new deal programs where a disaster, that is why the New Deal did not work and much of it was struck down by the courts for being unconstiuttional. What the New deal did was redistribute capital from a more efficient part of the economy to other less efficient parts.
Here is some more good stuff on the new deal:
FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression

yah! All those hungry people should have been a little more patient waiting for something to trickle down!

[raja]

Re: Does debt deflation plus monetary inflation equal goldilocks?

When A borrows from B, and doesn't pay it back, the money A borrowed has been spent and propogated already in the economy.

If A borrows from B and pays B back, then the money that was borrowed into existence is extinguished.

I don't get this . . . .

No money was borrowed into existence.
B already had the money in his possession, which he lent to A.

If A doesn't pay it back, the money still exists in A's possession, or if A spent it, somewhere in the economy.

Furthermore, when A pays the money back to B, the money is now in B's hands . . . nothing was extinguished.

Or, are you talking about the lending of fractional reserve banking?

[jtabeb]

Re: Does debt deflation plus monetary inflation equal goldilocks?

I don't get this . . . .

No money was borrowed into existence.
B already had the money in his possession, which he lent to A.

If A doesn't pay it back, the money still exists in A's possession, or if A spent it, somewhere in the economy.

Furthermore, when A pays the money back to B, the money is now in B's hands . . . nothing was extinguished.

Or, are you talking about the lending of fractional reserve banking?

Sharp as ever RAJA!

[LinusK]

Re: Does debt deflation plus monetary inflation equal goldilocks?

the money destruction isn't...it is destruction of FUTURE credit.

When A borrows from B, and doesn't pay it back, the money A borrowed has been spent and propogated already in the economy.

That's not exactly true. If I deposit a dollar at the bank, and the bank lends it to you, the bank has created two dollars, where before there was only one.

If you repay the debt, then my dollar will be there, when I go to the bank to withdraw it. If you default, the bank has two choices. It can pay me my dollar out of its own funds (its capital), or it can default.

Either way, A's default reduces the amount of money in the economy. Either I lose my dollar, or the bank loses a dollar of capital.

Default is worse than repayment. When debt is repaid, there's less money, but the bank can go on lending. When there's a default, not only has money been extinguished, the bank's ability to make loans in the future is impaired as well.

If A borrows from B and pays B back, then the money that was borrowed into existence is extinguished.

As I have pointed out many times, borrowing and defaulting is NOT deflationary. It is disinflationary only...it stops future money creation.

So the replacement of defaulted credit with newly borrowed presto chango fiat currency is highly inflationary. It dilutes the existing money stock, penalizing savers and investors. And it rewards the big banks who wrongly took enormous risks and are getting bailed out.

The new money is real money. The old stuff is collapsing asset values. So this is the very worst thing you can do, pouring gasoline on a fire that should instead be allowed to burn itself out.

Had the Fed done nothing, the financial sector would have collapsed. That'd mean no checks, no credit cards, and no withdrawing your savings in cash (unless you managed to get there before everyone else.)

If it were up to me, I'd replace every executive at every big bank in the country, and make them all go work at McDonalds. But they're right that we can't let the banking sector fail, no matter how unfair it is.

[grapejelly]

Re: Does debt deflation plus monetary inflation equal goldilocks?

That's not exactly true. If I deposit a dollar at the bank, and the bank lends it to you, the bank has created two dollars, where before there was only one.

If you repay the debt, then my dollar will be there, when I go to the bank to withdraw it. If you default, the bank has two choices. It can pay me my dollar out of its own funds (its capital), or it can default.

Either way, A's default reduces the amount of money in the economy. Either I lose my dollar, or the bank loses a dollar of capital.

1. you lend the bank a dollar (make a deposit of a dollar to the bank)
2. bank lends me a dollar.
3. you have a piece of paper saying you have a dollar on deposit.
4. i have a dollar in my checking account.
5. okay
6. now I spend the dollar in my checking account.

7. I bought a dollar worth of hashish in the local economy. That dollar is propagating in the economy.

8. I don't pay the bank back their dollar (I default, so typical, I might add )

See, the dollar is still in the economy? There has been no shrinkage in the money supply?

And the bank can still pay you back -- they simply borrow another dollar into existence via the CB...using your deposit as collateral.

But, and this is key, even if the bank doesn't pay you back, there is STILL a dollar in the money supply. It hasn't disappeared, I paid it to the hashish dealer at the schoolyard, remember?

Default is worse than repayment. When debt is repaid, there's less money, but the bank can go on lending. When there's a default, not only has money been extinguished, the bank's ability to make loans in the future is impaired as well.

The bank's future ability to create new inflation is affected, as I agreed. The current money supply is not affected at all. It is disinflationary with respect to future money creation but not deflationary.

If I pay that dollar back, I suck a dollar out of the economy and give it to the bank, diminishing a dollar from the money supply. So only repayment is deflationary.

Had the Fed done nothing, the financial sector would have collapsed. That'd mean no checks, no credit cards, and no withdrawing your savings in cash (unless you managed to get there before everyone else.)

If it were up to me, I'd replace every executive at every big bank in the country, and make them all go work at McDonalds. But they're right that we can't let the banking sector fail, no matter how unfair it is.

Yes we can let the banking system fail. We should. There is no excuse for it as it is fraudulent. Fractional reserve banking periodically results in suspending the right to get your money out of the bank. It has to.

Today we can efficiently allocate savings through pooled accounts like you would lend money on prosper.com.

There is no reason to have banks other than to create inflation in order to finance huge government deficits (so they can fight wars and get re-elected) and to unjustly enrich certain elites.

[goadam1]

Re: Does debt deflation plus monetary inflation equal goldilocks?

i don't think I understand the whole anti-fiat currency concept. Didn't staying on the gold standard without a devaluation after 1929 lead to the depression being as big as it was? How would an economy adjust to changes in population and technology if it's money was inelastic? How would people borrow for r and d or capital improvements? I understand that money being too cheap is also a problem. But I think what really made this last bubble so bad wasn't the overly cheap dollars. The problem really got out of control with unregulated "near money." Banks were making fake assets for each other and leveraging those assets. Regulation would have tamped that bubble. The same thing goes for unregulated credit for consumers and in housing.

If they weren't printing away now we would be at the worst sudden stop imaginable. Thank god there is still some credibility with America to get away with it. I know the whole dollar bubble issue. We'll have to live with that problem soon enough but hopefully with a functioning dollar zone economy.