patrick.net

Apparently central bank apologists are as passionately dogmatic as the so-called idiots they deride.

If it makes you feel better, reference this article from The Economist,

http://www.economist.com/news/china/21599395-chinas-property-prices-appear-be-falling-again-double-bubble-trouble

which goes into financial detail then concludes:

"Because China has misallocated housing, some parts of the country remain overcrowded while others remain empty. A bubble is always bursting somewhere, even as another inflates elsewhere. In China’s patchwork housing market, the Cassandras are never right everywhere but they are often right somewhere."

China IS the PBOC. That's the best I can do for you.

So you are an apologist. I was pretty sure. No problem. But the article isn't mine, it was written by an author for The Economist. I just happen to agree with its premise and proving anything to you personally is not high on my list of priorities right now.

darlag says

So you are an apologist. I was pretty sure. No problem. But the article isn't mine, it was written by an author for The Economist. I just happen to agree with its premise and proving anything to you personally is not high on my list of priorities right now.

Hey darlag, where's the massive Weimar-level money printing-based inflation we've been promised by Austrians for the past 30 years?

Rothbard was frothing about it since the late 70s. Peter Schiff throughout the 2000s. And Austrians generally for years and years.

thunderlips11 says

where's the massive Weimar-level money printing-based inflation we've been promised by Austrians for the past 30 years?

I'm a deflationist. In my worst-case vision of the future the economy 'deflates' a la 2008 on steroids. The dollar will actually get stronger as global markets implode simply because most global debt is denominated in dollars. People will be scrambling for dollars to mitigate their debts.

Once the collapse is over, if the central bank still exists and hasn't been run out of town on a rail, then perhaps it will be possible for a hyper-inflationary event of the nature you describe. But not before that. Debt destruction is the single-minded goal of deflation. Currencies do not inflate while their economic environments deflate.

darlag says

Debt destruction is the single-minded goal of deflation

Not being a dick, but I don't get it - Private and Public debt is exploding, particularly private debt. And not just in the US but in the UK and I believe most of the industrialized world.

It seems to me deflation is a tool to strengthen debt, since if you have a loan at a fixed payment, yet the buying power declines and cash becomes more scarce, eventually creditors do not only collect nice interest and principle for a while, they have a better chance at possessing the underlying asset, too, as deflation makes the fixed payment less and less feasible to pay.

Inflation would do the opposite - debtors get out of debt faster by paying off fixed payments with cheaper and more plentiful money.

thunderlips11 says

It seems to me deflation is a tool to strengthen debt, since if you have a loan at a fixed payment, yet the buying power declines and cash becomes more scarce, eventually creditors do not only collect nice interest and principle for a while, they have a better chance at possessing the underlying asset, too, as deflation makes the fixed payment less and less feasible to pay.

As you say deflation means more loans will default so without collateral creditors lose their money. For those with collateral that repossess assets, these assets will have lost value as well. So they may not get all their money back. I don't creditors have much to gain from deflation. In fact with deflation better not lend, not take risk, and capture the value gain.

With stable inflation, creditors adjust rates to cover inflation. So it doesn't really hurt them.

Declining stock, bond, housing and commodity prices is deflationary. The value simply disappears into thin air. Default on debts, i.e., credit card loans, tuition and mortgages is deflationary. Again, to the degree that collateral isn't available to the creditor (which would be some credit card debt, all of the tuition debt and a substantial portion of real estate debt) the value of stuff simply disappears into nothingness -- as if it never existed. In a deflationary spiral, prices decline relentlessly. There are NO economic tools to halt or slow deflation which is why central banks are afraid of it and even to talk about it.

The perception of wealth, i.e., the wealth effect, makes us believe that we are worth the estimated value of our property and equities. Look no further than the real estate collapse in 2006 and the stock market collapse in 2008 to see that was not true. Those were deflationary events from which the economy has not yet recovered and probably will not before the next freefall begins.

A good description of deflation is available here...

http://www.globaldeflationnews.com/inflation-vs-deflation-part-1which-one-is-controlling-the-fate-of-america-and-will-it-cause-the-next-great-depression/

darlag says

Those were deflationary events from which the economy has not yet recovered and probably will not before the next freefall begins.

Asset values can deflate, this is not the same as deflation. There was no deflation in the US after 2008.

But the temporary demand created by the wealth effect disappeared when assets reverted to values based on the actual economy behind them. It wasn't real organic demand coming from wages. The monetary policy to rely on this wealth effect is just ludicrous.

Heraclitusstudent says

Then the government compensate for the "lost demand" by printing tons of cash and paying people to dig holes and more people to fill holes, and no deflation happens. Just economic dysfunction.

To the degree it can, it will certainly TRY to print its way out. But in a free-falling deflationary spiral, debt is being destroyed faster that any CB could ever dream to print. In a full-fledged spiral, I would liken printing efforts by the FED to be akin to trying to fill Lake Michigan with a garden hose. It just ain't gonna happen.

Remember, WPA and CCC projects didn't begin until 1932 -- _AFTER_ the stock markets had already bottomed and the damage was done. Why would anyone think the FED will do it any different this time? They have already used up the bullets they believed they had. All they have left is rhetoric which will only work until the public loses confidence.

darlag says

In a full-fledged spiral, I would liken printing efforts by the FED to be akin to trying to fill Lake Michigan with a garden hose. It just ain't gonna happen.

The fed filled the lake in the US. Private debts are growing again, assets flying.

darlag says

“The essence of a credit-expansion boom is not overinvestment, but investment in wrong lines, i.e., malinvestment.”

This is the primary difference between Keynes and Von Mises. In my observation its the quality of the investment that matters more than the amount.

http://en.wikipedia.org/wiki/Malinvestment