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How would the government respond to deflation?
bronco2078
Posts: 9,964 ✭✭✭✭✭
Personally I wouldn't mind seeing price deflation. Houses can go down that doesn't bother me , I have a roof over my head I don't really care what its valued at as long as it doesn't leak. Lately , the Fed is so worried about deflation they are trying to actually create inflation.
Every single layer of government is addicted to tax revenues , taxes tend to be based on sale prices book values blah blah blah. Is the simple answer that if prices go down the government will be starved out of business?
Is the war against deflation really a war against the guillotine and the lamp post?
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I knew it would happen.
Japan is probably next up for that debacle.....after Argentina and Turkey of course.
"Ask anyone in Japan, the US, Europe, or India if they would like to see falling prices. The only people who don't want falling prices are central bankers, economic illiterates, and Wall Street types and banks dependent on ever-growing asset bubbles (because of bad loans made on speculative-priced assets)."
Keep an open mind, or get financially repressed -Zoltan Pozsar
On one hand, we have what seems to be a bottomless pit of bank losses and obligations in the name of CDOs and CDSs that are being transferred from the private sector to the public sector via QE. We don't get to know the magnitude of this phenomenon, but it's still ongoing in hopes that the economy can retire it before it collapses the system.
On the other hand, we have the exponential increase of government debt, unfunded liabilities and increased government spending programs - the sum total of which is accelerating too fast for the economy to compensate.
And it's a worldwide situation that involves the world's "reserve currency", plus most all other currencies as well. Prior to the collapse of the Soviet Union, the monetary disconnect was illustrated when people put signs in their windows, in opposition to the government's continued lies and halftruths, stating that:
"2 + 2 = 4"
We are almost there as well, only in a much bigger way.
I knew it would happen.
Zillow puts the house I'm in at 273 k , at the peak it was supposedly at 465k . I was looking at tax bills and didn't see a decrease to mirror that.
Instead what we have seems to be a freeze it at the peak system. When that couldn't work any longer they drop the valuations and raised the rate. Smoke and mirrors everywhere you look.
If my property vale declines by 42% and the tax bill stays the same what is the true rate of inflation?
If they could only get a fixed rate and it was truly indexed to value then they would need to raise taxes by a vote. There would be blood in the streets if they asked for that 70% tax increase in 1 step.
<< <i>Although severe deflation almost certainly disrupts normal economic activity, economists cannot point to any empirical data to prove that mild deflation (eg - 1 % per year) has a detrimental impact on consumption and economic growth. >>
I agree with that . But, normal economic activity doesn't describe the government sector. Even mild deflation would destroy our government.
>>
Each of the policy options I have discussed so far involves the Fed's acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.
>>
Bernanke found a more efficient way than helicopters, and even crowed that QE came at zero cost. Ha ha ha ha ha ha, but media pundits all over echoed his comments as gospel because it fit their narratives. Unfortunately the average member of Congress (same for the average newspaper or TV reporter) probably couldn't pass a 10th grade math exam. QE gets into a realm where only a few can even understand what is being done or said, much less someone that can't do basic algebra. Ah well, the rich and their politically connected friends will keep taking theirs, keep squeezing the little people, until the big one hits, and then it may be like the French revolution all over: Off with their heads.
<< <i>Although severe deflation almost certainly disrupts normal economic activity, economists cannot point to any empirical data to prove that mild deflation (eg - 1 % per year) has a detrimental impact on consumption and economic growth. >>
Indeed. Japan has experienced deflation for 2 decades. Seems to me the Japanese citizens are doing quite well.
Knowledge is the enemy of fear
<< <i>
<< <i>Although severe deflation almost certainly disrupts normal economic activity, economists cannot point to any empirical data to prove that mild deflation (eg - 1 % per year) has a detrimental impact on consumption and economic growth. >>
Indeed. Japan has experienced deflation for 2 decades. Seems to me the Japanese citizens are doing quite well. >>
While I don't think that doubling the money supply, as they are doing in 18 months is a good idea, no, Japanese citizens are not doing well.
They have been in a 25 year deep recession/depression. Their government debt load is nearly three times what ours is on a per capita basis. All that has been saving their butts are extremely low interest rates which are under 1% on the ten year.
When rates rise, they are in deep trouble, and as we owe them about a Trillion five, we are as well.
Real per capita GDP has grown about 1 % per year; virtually all Japanese have access to health care at a cost lower than in the US and with better outcomes; between 1990 and 2010, life expectancy at birth increased from about 79 to 82; infant mortality dropped from about 5 per 1000 births to 2.6; the infrastructure in Tokyo in much better than it was 20 years ago; there is significant new high quality construction; there are new subway lines; the bullet train is faster and still runs from Tokyo to Osaka about every ten minutes; the food is excellent, whether you are looking for a bowl of noodles are an elaborate kaiseki dinner; there are more Michelin three star restaurants in Tokyo than in any other city in the world ...
<< <i>Although parts of rural Japan are quite depressed, overall, the country has done quite well over the past twenty years, especially when one considers aging demographics.
Real per capita GDP has grown about 1 % per year; virtually all Japanese have access to health care at a cost lower than in the US and with better outcomes; between 1990 and 2010, life expectancy at birth increased from about 79 to 82; infant mortality dropped from about 5 per 1000 births to 2.6; the infrastructure in Tokyo in much better than it was 20 years ago; there is significant new high quality construction; there are new subway lines; the bullet train is faster and still runs from Tokyo to Osaka about every ten minutes; the food is excellent, whether you are looking for a bowl of noodles are an elaborate kaiseki dinner; there are more Michelin three star restaurants in Tokyo than in any other city in the world ... >>
It seems like our friends in Japan haven't kept up with our level of fascism
<< <i>Japan has experienced deflation for 2 decades. Seems to me the Japanese citizens are doing quite well. >>
Japan is a nation of savers, not borrowers. Debt is what makes things different.
Nearly Half of America Lives Paycheck-to-Paycheck
Keep an open mind, or get financially repressed -Zoltan Pozsar
there wouldn't be gold to revalue, so they would resort to massive borrowing for public works
projects, increased unemployment benefits, and direct payments to individuals to get
money into the economy.
I would expect less of a TARP and more of government takeover of banks. Deposit insurance would
be increased and its guarantee would be reaffirmed.
Derivatives would be backed up but this time Goldman Sachs probably not getting 100 cents on the dollar.
The stock market would decline and take out the March 2009 lows.
Interest rates would turn negative on short term Gov't securities and approach zero on longer dated Treasury paper.
When the housing bubble burst we had a pretty severe asset price deflation. For a wide swath of america a house is the major asset in their portfolio. How did the government respond to that? They effectively raised my property tax "rate" by 70%. Not exactly what I was looking for in the way of a helping hand.
Any of us in business for ourselves had to make a rapid accommodation to the new reality. Those in the private sector working for others found accommodations thrust upon them , hiring freezes , weekly hour cut back, layoffs , pay cuts , benefit cuts the list goes on. Our friends in government made no accommodations that I noticed. Spending still goes up , they can't even manage to freeze it in place let alone reduce it.
projects, increased unemployment benefits, and direct payments to individuals to get money into the economy.
Huh? It's not massive yet? Notwithstanding the fact that the "stimulus" never resulted in any publics works projects that I know of, or that increased unemployment benefits were already extended more that double any other time in history, or that direct payments to individuals have followed the same increasingly upward trajectory for higher and higher percentages of the population than ever before.
A trillion here, a trillion there. Pretty soon it adds up to real money.
I knew it would happen.
Keep an open mind, or get financially repressed -Zoltan Pozsar
All of the government's responses (and those of the FED) to the financial crisis are what are causing deflation in silver prices. Their easy money policies brought demand for silver forward and now demand for silver is disappearing. Look for more easy money policy to attempt to steal demand for silver from even farther into the future. Yes, more QE is coming - the silver production and distribution economy can no longer prosper without it. We have been and will continue to borrow demand for silver from the future. Like the interest on national debt, there is no end, only bankruptcy for owners of silver?
Liberty: Parent of Science & Industry
Keep an open mind, or get financially repressed -Zoltan Pozsar
The real threat of deflation is going to be met with some more serious money creation.
There's no chance of a rate increase, in my opinion.
I knew it would happen.
I think we'll see an increase.
Here's a warning parable for coin collectors...
The Fed appears to be dying to find an excuse to make an at least token interest increase. They seem to be underscoring any rationale that raises its head above the horizon.
I think we'll see an increase.
I agree. They will go to 0.25% so they don't have to walk around all winter with their tail between their legs. Would have gone up in September (or earlier) without the political pressure.
And they can always go back to zero next year.
In theory, anyway.
My Adolph A. Weinman signature
Better question for the OP is "is the government secretly promoting deflation?" If so, why?
During the peak of the 08 crisis the FED owned less than $500 billion in US debt. Today it's US Treasury holdings are approx. $2.46 trillion. The "official" count of FED treasury holdings.
As the crisis unfolded and it became very clear to our foreign "lenders" that our credit rating was actually questionable, the government and the FED came up with a plan to sell more and more of this debt to the FED. This is brilliant in the fact that to accomplish this all the government needed to do was authorize (which they did) a massive, continuing increase in the US dollar money supply (from thin air) to fund the FED purchases that at the same time would provide the money addicts in Washington more of their preferred "drug." The FED would then indefinitely hold the debt. There are most likely unspoken plans to eventually "forgive" this debt, since to pay it off the government would simply buy it from the FED with dollars which the FED is obligated to turn around and return to the government.
The creation of the US dollar is a complicated process and for good reason - to make it as difficult as possible for the average citizen to understand or even worse, observe being done. What is important is the fact that an increase in the money supply (the true definition of inflation) normally results in price inflation by basically decreasing the value of all those dollars currently in existence. A sudden increase in prices, on the other hand does get the attention of the average Joe. The massive amount of dollars created since the 08 crisis would normally and should have resulted in massive price inflation. Time to open the toolbox and pull out the deflation hammer.
Now keep in mind that while most all of this money does not directly reach the private economy, it eventually does as the government recklessly spends it. Once it hits the streets the threat of price inflation becomes a big concern and usually only because it makes the natives restless.
What better way to keep price inflation in check than to stimulate and promote a deflationary economy. Like all good FED/government monetary "tools" this too will end badly. Question is "when will the deflation bubble bursts, just how badly will price inflation respond."
Lets take a look at their "official" response to the question "Is the FED printing money in order to buy Treasury securities?"
Like their intentionally complicated money creating process, their purposely confusing explanation to a simple "No" leaves the mind in a tizzy.
As always pay heed to what the FED says, but only when you can understand it. If you can't understand it, there is a reason why.
Keep an open mind, or get financially repressed -Zoltan Pozsar
yup, PM's are not exempt from deflation. But we already knew that. We also know that, unlike fiat, PM's will not go to zero.
I really don't kniw why PM'S are equated to fiat currency. A more accurate comparison would be real estate, and specifically, raw land.
Knowledge is the enemy of fear
Food for thought:
Better question for the OP is "is the government secretly promoting deflation?" If so, why?
During the peak of the 08 crisis the FED owned less than $500 billion in US debt. Today it's US Treasury holdings are approx. $2.46 trillion. The "official" count of FED treasury holdings.
As the crisis unfolded and it became very clear to our foreign "lenders" that our credit rating was actually questionable, the government and the FED came up with a plan to sell more and more of this debt to the FED. This is brilliant in the fact that to accomplish this all the government needed to do was authorize (which they did) a massive, continuing increase in the US dollar money supply (from thin air) to fund the FED purchases that at the same time would provide the money addicts in Washington more of their preferred "drug." The FED would then indefinitely hold the debt. There are most likely unspoken plans to eventually "forgive" this debt, since to pay it off the government would simply buy it from the FED with dollars which the FED is obligated to turn around and return to the government.
The creation of the US dollar is a complicated process and for good reason - to make it as difficult as possible for the average citizen to understand or even worse, observe being done. What is important is the fact that an increase in the money supply (the true definition of inflation) normally results in price inflation by basically decreasing the value of all those dollars currently in existence. Inflation, on the other hand does get the attention of the average Joe.
Now keep in mind that while most all of this money does not directly reach the private economy, it eventually does as the government recklessly spends it.
Once it hits the streets the threat of price inflation becomes a big concern and usually only because it makes the natives restless.
What better way to keep price inflation in check than to stimulate and promote a deflationary economy. Like all good FED/government monetary "tools" this too will end badly. Question is "when will the deflation bubble burst, and just how bad will price inflation respond."
Lets take a look at their "official" response to the question "Is the FED printing money in order to buy Treasury securities?"
Like their intentionally complicated money creating process their explanation to a simple "No" leaves the mind in a tizzy.
Lots of straw reaching and inaccurate assumptions. 5 years ago authors of the same ilk preached hyperinflation and now that they've been wrong try to tempt you into believing another conspiracy theory.
I love this place!!!
Knowledge is the enemy of fear
Lots of straw reaching and inaccurate assumptions. 5 years ago authors of the same ilk preached hyperinflation and now that they've been wrong try to tempt you into believing another conspiracy theory.
I love this place!!!
As I said in the post, hyperinflation is the normally expected result of massive money creation and was rightfully expected and called for by many respected economists. Whey they, I and now you did not know is that the FED had the right tool in place - deflation.
FED ain't stupid, just lacks long term vision, and only because politics are so short term.
Keep an open mind, or get financially repressed -Zoltan Pozsar
yup, PM's are not exempt from deflation. But we already knew that. We also know that, unlike fiat, PM's will not go to zero.
I really don't kniw why PM'S are equated to fiat currency. A more accurate comparison would be real estate, and specifically, raw land.
Because your master has convinced all of us to price and pay for things in fiat currency. But, for you I will trade some of my gold eagles for some of your silver eagles.
Keep an open mind, or get financially repressed -Zoltan Pozsar
Bring on that deflation I'm ready. Just when my house's value drops hurry up and tax it at the new low value .
Bring on that deflation I'm ready. Just when my house's value drops hurry up and tax it at the new low value .
My house value has dropped steadily from 2007 to 2016 (-25 to -30%). Plenty of deflation in my neck of the woods.
On the other hand, all that money and debt creation by the FED/ECB/BOJ had to go somewhere. And it did. It went into their favorite charity, stocks and bonds. Central Banks of the world are now major investors (by buying with cheap currencies they created out of thin air) in the world's stock markets and selected real estate, via mortgage backed securities. The Swiss NB has $65 BILL invested in the stock markets. So while we have deflation in some things, there has been massive inflation in others. The FED has upgraded their toolbox from the 2003-2008 period to better decide where they want the inflation to be. Eventually, it all comes apart at the seams. For now, their game continues to work.
The gold price has generally followed M2/M3 for decades. It's just that the FED has become quite adept at delaying when gold starts catching up. But, it always catches up. The M2 is on a nearly constant up trend. The FED & Co. would never allow gold to slowly and accurately track M2. That would be too easy for J6P to figure out. So we get massive swings in currencies, commodities and other assets to keep the masses confused and scared. It's like taking a train ride from NY to LA that has 180 degree turns every 50 miles. You're gonna get there, if you can patiently keep your seat on the train. Meanwhile M2 tracks higher like clock work.
https://fred.stlouisf............a>
Money Base M0 - not your normal looking chart since Oct 2008
Velocity of M2 money stocks
$1.8 TRILL in MBS held by FED
Liberty: Parent of Science & Industry
Isn't it interesting how there's "inflation" in the prices of things that people want to buy more of, and "deflation" in things that people (in the aggregate) want to buy less of? It's almost as if the supply and demand of things affects the prices of them, rather than what's obviously happening: nefarious manipulation by "Them"
Are you saying people want to buy more college "education" at $25K-$100K per year and Obamacare medical plans costing monthly premiums of $1,000-$1,500? Does the typical American want to buy more of the stock market? I don't think so. The Central Banks certainly want to do more buying and have been supporting most every dip for the past 7 years. FED/govt policy has chased people into specific markets where they can get a return...any return. So some real estate markets are hot, while most are so-so at best. Does the FED holding $1.8 TRILL in MBS have anything to do with a better RE market the past few years.....they doubled up on those since Oct 2012. Did J6P create that demand or did the FED?
Commodity prices fell dramatically from 2011 through 2015. Are you saying that people wanted less food, less clothing, less cars, and less energy during this period? Oil crashed from $110 to $26 because people wanted less of it? Supply and demand seems to affect asset prices a lot less since Central Banks, big banks, and hedge funds via their computerized trading schemes have taken significant control in trading the markets. Rather than boom and bust cycles every 4-8 years, we have them every few weeks/months now....lol. You can't have true price discovery, and true supply and demand, when the HFT Bots are at work. Price discovery for most traded assets went out the window years ago. Central Banks determine the winners and losers. Best to side with them if you can....as long as they remain solvent.
Lots of straw reaching and inaccurate assumptions. 5 years ago authors of the same ilk preached hyperinflation and now that they've been wrong try to tempt you into believing another conspiracy theory.
I love this place!!!
As I said in the post, hyperinflation is the normally expected result of massive money creation
Wrong!!!!
And I stated this premise was wrong years ago. Now, according to you guys, I was only right because it's a conspiracy.
LIke I've said before, be thankful you don't know what I do. LMAO!!! Haha
Knowledge is the enemy of fear
PMs don't equate to fiat currency, they are simply a hard asset as opposed to a government enforced system.
Real estate and PMs aren't really comparable either, I don't even know where to begin in order to call them comparable. At least they're both real though.
I knew it would happen.
One stunner was the "all commercial bank loan and lease deliquencies, industrial and commercial." 2012-2016 is a carbon copy of 2004-2008.
Quite a compilation of economic and financial charts here - many from the FRED
One stunner was the "all commercial bank loan and lease deliquencies, industrial and commercial." 2012-2016 is a carbon copy of 2004-2008.
One thing to keep in mind is that Corp and govt debt isued in the last 5 years is sub 3%, while in the pre-08 period was north of 6. Debt servicing is much lower. Also, almost all pre 08 debt has been refinanced at much lower levels. I'm not saying it's a non issue, but it is not as serious as one could be made to believe.
Knowledge is the enemy of fear
Quite a compilation of economic and financial charts here - many from the FRED
One stunner was the "all commercial bank loan and lease deliquencies, industrial and commercial." 2012-2016 is a carbon copy of 2004-2008.
One thing to keep in mind is that Corp and govt debt isued in the last 5 years is sub 3%, while in the pre-08 period was north of 6. Debt servicing is much lower. Also, almost all pre 08 debt has been refinanced at much lower levels. I'm not saying it's a non issue, but it is not as serious as one could be made to believe.
It's a great comfort to know that folks are failing to service sub 3% debt instead of failing with 6% + debt .
Quite a compilation of economic and financial charts here - many from the FRED
One stunner was the "all commercial bank loan and lease deliquencies, industrial and commercial." 2012-2016 is a carbon copy of 2004-2008.
One thing to keep in mind is that Corp and govt debt isued in the last 5 years is sub 3%, while in the pre-08 period was north of 6. Debt servicing is much lower. Also, almost all pre 08 debt has been refinanced at much lower levels. I'm not saying it's a non issue, but it is not as serious as one could be made to believe.
It's a great comfort to know that folks are failing to service sub 3% debt instead of failing with 6% + debt .
Who said anything about debt not being serviced? Paranoia?
Knowledge is the enemy of fear
Keep an open mind, or get financially repressed -Zoltan Pozsar
Knowledge is the enemy of fear
Someday you will realize that it is higher prices that demands money creation. Then your Bizarro World wont seem so bizarre.
The FED prints all this money. . .
While spending reaches a 60 year low:
Kinda debunks your theory doesn't it?
Keep an open mind, or get financially repressed -Zoltan Pozsar
When so much money is concentrated at the top it doesn't make for a healthy economy and the concentration continues unabated.
Your comment about the Fed printing all the money is correct, however, as typical, the portrayal of printing money having a bearing on velocity is an incorrect comparison, and is reason why you continue to call out conspiracy or manipulation theory when "your" assumptions or knowledge do not play out as planned.
Knowledge is the enemy of fear
Consumer spending is not great because 75% of American consumers aren't doing well. Nearly all the "money", both generated and created, added to the economy has landed in the hands of the top quartile. The percentage of Americans classified as low income is now over 50% and growing.
When so much money is concentrated at the top it doesn't make for a healthy economy and the concentration continues unabated.
Consumer spending is also not bad. It would be better if global interest rates were to rise thus giving retirees more confidence that their savings will support them thru retirement.
The number of Americans classified as low income will continue to increase as more boomers leave the workforce. These "statistics" that politicians throw around are misleading and used to generate fear. They know when you are afraid you are controllable. Why so many here feel the need to be controlled is an interesting study in social psychology.
Knowledge is the enemy of fear
Not at all derryb. Spending is not at a 60 yr low. Learn what these graphs represent before commenting on them.
Your comment about the Fed printing all the money is correct, however, as typical, the portrayal of printing money having a bearing on velocity is an incorrect comparison, and is reason why you continue to call out conspiracy or manipulation theory when "your" assumptions or knowledge do not play out as planned.
Velocity of money: "The velocity of money is the rate at which money is exchanged from one transaction to another and how much a unit of currency is used in a given period of time."
Money is not moving, and MV chart clearly shows it's at its lowest in 60 years. For money to "move" it has to be spent. Holding onto this money indicates fear and very weak confidence. Confidence is a key to PM performance.
Keep an open mind, or get financially repressed -Zoltan Pozsar
Not at all derryb. Spending is not at a 60 yr low. Learn what these graphs represent before commenting on them.
Your comment about the Fed printing all the money is correct, however, as typical, the portrayal of printing money having a bearing on velocity is an incorrect comparison, and is reason why you continue to call out conspiracy or manipulation theory when "your" assumptions or knowledge do not play out as planned.
Velocity of money: "The velocity of money is the rate at which money is exchanged from one transaction to another and how much a unit of currency is used in a given period of time."
Money is not moving, and MV chart clearly shows it's at its lowest in 60 years. For money to "move" it has to be spent. Holding onto this money indicates fear and very weak confidence. Confidence is a key to PM performance.
Thank you for discrediting yoor implied notion that velocity of money has to do with the printing of money.
Velocity of money does not demomonstrate spending either. It is the turnover of a dollar and is most closely tied to lending. IE, banks creating loans with deposits. Banks can take $1 on deposit and create $10 in loans---this is velocity. Banks are not lending at the rates in previous years, hence velocity is lower. People are spending, but with fewer borrowed dollars. Isn't that precisely what the fiscal conservatives, especially those that frequent this forum, want?
Knowledge is the enemy of fear