did the FED pump liquidity during the depression?

[bart]

Re: did the FED pump liquidity during the depression?

Not so fast, El Bartos ... ;)

No one has shown that a deflation can occur without there having been a prior inflation. The inflation of the 1920s and deflation of the 1930s are a perfect case in point. A ballon or a tire likewise serve as illustrative examples.

Just try deflating a balloon that has not yet been inflated and you will see why you have a heavy burden of proof.
...

Au contraire, Manor Mouth...

A balloon is not even close to a valid analogy, since a balloon without air does not at all compare to a working and functioning economy, and they all have money and a monetary system. :p


We start out with a stable economy and that implies money exists. To create a deflation without a prior inflation, as an extreme analogy but to show and prove my point, just burn some of the money and/or eliminate a percentage of the money in all accounts and/or crash a stock market and/or double interest rates overnight, etc. etc. :eek:

(edit/add)
Do note that this is a theoretical discussion only, and also an attempted *fin*... and also shows that my point that a deflation being caused by a prior inflation is at least partially a logical fallacy.... like Greenspan... ;)

[Finster]

Re: did the FED pump liquidity during the depression?

Au contraire, Manor Mouth...

You must warn me when you are going to be funny. You just got beer and chips all over my monitor.

A balloon is not even close to a valid analogy,...

That's an interesting charge, but without merit. In fact the application of the terms inflation and deflation to finance was inspired by the pneumatic analogy in the first place.

Much as I'd like to take credit, I hardly invented it.

... since a balloon without air does not at all compare to a working and functioning economy, and they all have money and a monetary system. :p

Money has been around for millenia. Economies even longer. Being as it's practically your namesake, I'd assumed you've heard of barter. But until the introduction of credit - and paper currency is a form of credit (see IOU account, supra) - there was no inflation. No balloon. No deflation.

We start out with a stable economy and that implies money exists. To create a deflation without a prior inflation, as an extreme analogy but to show and prove my point, just burn some of the money and/or eliminate a percentage of the money in all accounts and/or crash a stock market and/or double interest rates overnight, etc. etc. :eek:

(edit/add)
Do note that this is a theoretical discussion only, and also an attempted *fin*... and also shows that my point that a deflation being caused by a prior inflation is at least partially a logical fallacy.... like Greenspan... ;)

Okay, your "burn-the-money" qualifies as a putative mechanism for deflation. But it's as a murder case being tried on the basis of opportunity without motive ... governments and their central banks have utterly no incentive to offer up payment on claims that are not even being made ... their interest is overwhelmingly in the opposite direction.

[bart]

Re: did the FED pump liquidity during the depression?

That's an interesting charge, but without merit. In fact the application of the terms inflation and deflation to finance was inspired by the pneumatic analogy in the first place.

Much as I'd like to take credit, I hardly invented it.

Another blowhard, perhaps? ;)

Money has been around for millenia. Economies even longer. Being as it's practically your namesake, I'd assumed you've heard of barter. But until the introduction of credit - and paper currency is a form of credit (see IOU account, supra) - there was no inflation. No balloon. No deflation.

Yes, agreed - and two points to the Man from The Manor.

Okay, your "burn-the-money" qualifies as a putative mechanism for deflation. But it's as a murder case being tried on the basis of opportunity without motive ... governments and their central banks have utterly no incentive to offer up payment on claims that are not even being made ... their interest is overwhelmingly in the opposite direction.

Yes yet again... and remind me what that has to do with positing that inflation must precede deflation, as in causation? ;) ... and let me know when we've beat the "dead horse" enough. ;)

[Finster]

Re: did the FED pump liquidity during the depression?

Yes yet again... and remind me what that has to do with positing that inflation must precede deflation, as in causation? ;)

Yes, on both counts. In fact the example you gave is yet another instance of just that. In order to burn the money, it has to have been created in the first place. Somewhere along the line, the money supply has to have risen from zero to some finite, positive amount. Since the quantity of real stuff represented thereby was never zero, the money supply increase outpaced the real stuff.

Consequently, there was inflation.

Q.E.D.

... and let me know when we've beat the "dead horse" enough. ;)

That would be when you give up and admit that I'm right.

[bart]

Re: did the FED pump liquidity during the depression?

Since the quantity of real stuff represented thereby was never zero, the money supply increase outpaced the real stuff.

Consequently, there was inflation.

Q.E.D.

I was with you all the way up to the leap of faith about the money supply having outpaced.

That would be when you give up and admit that I'm right.

[Finster]

Re: did the FED pump liquidity during the depression?

I was with you all the way up to the leap of faith about the money supply having outpaced.

Leap of faith? HARRS! An increase in money supply from zero to any finite positive value is an infinite percent increase. How that would not outpace any finite change in real stuff is an mathematical curiosity worthy only of Usual Suspects and other questionable characters we both know...

That would be when you give up and admit that I'm right.

. .

I thought so...

[bart]

Re: did the FED pump liquidity during the depression?

Leap of faith? HARRS! An increase in money supply from zero to any finite positive value is an infinite percent increase. How that would not outpace any finite change in real stuff is an mathematical curiosity worthy only of Usual Suspects and other questionable characters we both know...

I thought so... I gather you've conceded, given your lack of a point and specifics that directly address my point?

[Finster]

Re: did the FED pump liquidity during the depression?

I thought so... I gather you've conceded, given your lack of a point and specifics that directly address my point?

My point is simple. Deflation does not and can not occur except as a counter-reaction to inflation. I raised the point here because it is germane to the subject of this thread - the Great Depression.

Many have bought the Keynesian line that the error of the Fed was simply its failure to inflate enough circa 1929-1931. They ignore the fact that we never had a depression sufficient to warrant being called "Great" until we had a central bank in the first place, which ought by itself to be enough to raise an eyebrow or two. The connection is not accidental - the prime cause of the Great Depression and the deflation experienced was simply the undoing of the inflation the Fed had fostered in the years prior.

My subsidiary point is equally simple - that the foregoing fact is but a special instance of a more general point - that deflation is always the undoing of a prior inflation. One cannot have deflation without there first having been an inflation.

You raise the example of the destruction of money, but in so doing merely sidestep the part about the creation of that money in the first instance. One cannot have money without creating it in the first place. And the creation of money itself is an inflationary act.

Imagine the world before the very first creation of money. The total money supply was zero. There existed nevertheless assets, goods, etceteras - real stuff - in a non zero amount. The first money unit created - by the economist's definition - necessarily involved inflation. The money supply increased from zero to one - an infinite factor - without a corresponding increase in the quantity of assets, goods, etceteras.

Consequently, not only can you not have deflation without first having inflation, but you can't even have money.

Exactly where does this involve the alleged "leap of faith"? Sounds like fact and logic to me. It does to you, too ... unless of course you have been hobnobbing too much with a certain faith-based pseudoanalyst whose initials are VV ...

;)

[Tet]

Re: did the FED pump liquidity during the depression?

I've read conflicting reports -

some are simply claiming that the FED did not try very hard,

and others claim the FED tried very hard, but banks would not lend and borrowers would not borrow.

Before the Depression people owned real assets and property, after the Depression the FED owned real assets and property, pumping money into the system would not have allowed this to occur. The FED pumped no liquidity during the depression.

[bart]

Re: did the FED pump liquidity during the depression?

My point is simple. Deflation does not and can not occur except as a counter-reaction to inflation. I raised the point here because it is germane to the subject of this thread - the Great Depression.

Many have bought the Keynesian line that the error of the Fed was simply its failure to inflate enough circa 1929-1931. They ignore the fact that we never had a depression sufficient to warrant being called "Great" until we had a central bank in the first place, which ought by itself to be enough to raise an eyebrow or two. The connection is not accidental - the prime cause of the Great Depression and the deflation experienced was simply the undoing of the inflation the Fed had fostered in the years prior.

My subsidiary point is equally simple - that the foregoing fact is but a special instance of a more general point - that deflation is always the undoing of a prior inflation. One cannot have deflation without there first having been an inflation.

You raise the example of the destruction of money, but in so doing merely sidestep the part about the creation of that money in the first instance. One cannot have money without creating it in the first place. And the creation of money itself is an inflationary act.

Imagine the world before the very first creation of money. The total money supply was zero. There existed nevertheless assets, goods, etceteras - real stuff - in a non zero amount. The first money unit created - by the economist's definition - necessarily involved inflation. The money supply increased from zero to one - an infinite factor - without a corresponding increase in the quantity of assets, goods, etceteras.

Consequently, not only can you not have deflation without first having inflation, but you can't even have money.

Exactly where does this involve the alleged "leap of faith"? Sounds like fact and logic to me. It does to you, too ... unless of course you have been hobnobbing too much with a certain faith-based pseudoanalyst whose initials are VV ...

;)

on VV! :-)


As you undoubtedly know, we are talking about two different things and to put it directly, you're talking about practice and at least some history, and I'm talking primarily about theory.

To use your odd balloon analogy, a working economy that has not had a prior inflation and is in a stable price mode is similar to a balloon with air in it but not filled all the way.

Assuming that "goods" stay at the same level and "money is burnt" (air let out of the balloon)... *shazzam*, we have deflation and without a prior inflation (as in "more money than goods", not air being added).
Either that is true or it isn't... or you can continue to avoid the issue... eh, *crazy legs* (pseudo pod-person? ;))? ;)

[spunky]

Re: did the FED pump liquidity during the depression?

Spunky,

I believe if one finds the Ka-Poom Theory tenable, and if it comes to fruition, then the belief is there will be a period of disinflation (there is worry by some that even deflation may occur). Deflation is bad--people stop spending, prices go down, profits go down, unemployment goes up. During disinflation or if it comes to deflation, interest rates will drop. The Fed is believed to be prepared to fight the deflation ogre by making money easily available so people will spend thus reflating the economy. "Poom" is expected to happen if the Fed is successful with stopping the disinflation or deflation. "Poom" will be highly inflationary. The thinking seems to be that if interest rates drop and one can afford to borrow money, then when rates are low would be the time to do it. Once the inflation resumes and rates go up, then one is "stuck" with a low interest loan which can be paid back with inflated dollars. If one is fortunate to have a locked in low percentage loan rate, then the advantage to pay it back over as long a period as possible in ever inflated dollars/bonars.

A short-term loan such as 10 years on a mortgage would be best in times of higher rates and stable inflation, whereas long-term mortgages at low rates are best during periods of increasing inflation.

The potential problem with being "rich" and drunk on the beach in a foreign country is that someone might kill you, or if you do it long enough your liver might fail.

Jim thanks for your concern. My personal and financial situation is very unique, due to my profession, where I live and my wife/family. What you say about mortage rates and inflation is true, if you look at it from just a bottom line bonar perspective, but I dont. Money and wealth have an emotional aspect also. You cant just say Yman is happier, more satisfied, with his life because he has a bigger pile of clam shells than Z man. In basketball just because a certain player scores more points than another doesnt mean they are a better player.

[Finster]

Re: did the FED pump liquidity during the depression?

on VV! :-)

… thought you might appreciate that … ;)

As you undoubtedly know, we are talking about two different things and to put it directly, you're talking about practice and at least some history, and I'm talking primarily about theory.

I’m talking both theory and practice. The theory was the part about inflation - in the technical sense - being a prerequisite for even the existence of a money supply in the first instance. There’s no theoretical path whereby an economic can go from having zero money supply to having a finite money supply without the creation of money, and therefore without inflation. The practice was the part about the lack of any historical record of a deflation without there having first been an inflation. Every notable deflation, from the one with the collapse of the South Sea Bubble to the collapse of the 1920’s bubble, was preceded by a notable inflation. The exception that could show my thesis wrong is notable by its absence.

To use your odd balloon analogy…

Okay, bartster, you get two points for that one … ;)

…a working economy that has not had a prior inflation and is in a stable price mode is similar to a balloon with air in it but not filled all the way.

A self-conflicted proposition. The working economy - or the balloon - that is part-inflated, is still inflated and therefore has undergone at least some inflation (at odds with the presumption of not having had a prior inflation). By "inflated" we do not necessarily imply to the point of bursting!

Assuming that "goods" stay at the same level and "money is burnt" (air let out of the balloon)... *shazzam*, we have deflation and without a prior inflation (as in "more money than goods", not air being added).

Ahhh, bartmeister, but the money cannot be burnt without having been created in the first place.

Not any more than air being let out of the balloon without having been admitted in the first place!

Either that is true or it isn't... or you can continue to avoid the issue... eh, *crazy legs* (pseudo pod-person? ;))? ;)

And, my non-pod-person arche-foil, how would you prefer to frame the issue?

All I have contended is that inflation is prerequisite to deflation, and that the prime cause of the Great Depression and deflation was the prior Great Bubble and inflation.

[bart]

Re: did the FED pump liquidity during the depression?

A self-conflicted proposition. The working economy - or the balloon - that is part-inflated, is still inflated and therefore has undergone at least some inflation (at odds with the presumption of not having had a prior inflation). By "inflated" we do not necessarily imply to the point of bursting!

I give it an 8.1 out of 10... thou art quite cleverly twisting my point by using two definitions of inflation when I use just one. Inflating that balloon does not mean that inflation, in the sense of more money than goods, has occurred... but far be it from me to use the word blowhard when addressing fin balloons... ;)

Stated another way, the broad deflation definition being less money than goods does not require that the prior money quantity was related to the existence of a prior inflation... a priori (*cough, cough*)... ;)

And, my non-pod-person arche-foil...

Feeling "foiled" again? ;)

[WDCRob]

Re: did the FED pump liquidity during the depression?

Finster, is the minting of gold (etc) coins to guarantee their quality and make them more tranferable 'creating money,' or does your "money=infinite inflation" axiom only apply to fiat money not tied directly to a true gold (etc) standard?

If it's the former, why does the act of using gold as 'money' instead of 'stuff for barter' imply an inflation?


Bart, if it's the latter, why is it logically wrong to say that any money creation=infinite inflation?

And would it be possible to have a 'deflation' in a barter-based econmy?

[Pervilis Spurius]

Re: did the FED pump liquidity during the depression?

Finster, is the minting of gold (etc) coins to guarantee their quality and make them more tranferable 'creating money,' or does your "money=infinite inflation" axiom only apply to fiat money not tied directly to a true gold (etc) standard?

If it's the former, why does the act of using gold as 'money' instead of 'stuff for barter' imply an inflation?


Bart, if it's the latter, why is it logically wrong to say that any money creation=infinite inflation?

And would it be possible to have a 'deflation' in a barter-based econmy?

If I may pick a nit, the creation of money starting with no money is not infinite inflation. It is an undefined percentage increase in money. The ol' dividing by zero yields an undefined result not an infinite result. After all, if there is no money in the world and then 1 coin is minted, paper dollar printed, etc., thereby creating money, the rate of inflation cannot be infinite since the resulting money supply is itself finite. Infinite inflation must result in an infinite money supply.

I will now humbly accept any abuse that Finster may wish to dispense;)