patrick.net

debyne says

Are you suggesting we proverbially "kick the can" by continuing to inflate, inflate and inflate so as to avoid the deflationary medicine that's necessary to bring balance to the force?

Nope--I'm suggesting that there is no such thing as deflationary medicine and that it is incorrect that you ever need deflation to "right" things. Or balance anything. That's not how the economy works.

debyne says

If we maintained discipline in our monetary and fiscal policies, I doubt we would have these wild swings as much...but I suppose that's how the elites make their money given they're the few that are "in the know".

History shows different. On the gold standard before the Fed, wild swings were MUCH more common.

tatupu70 says

Nope--I'm suggesting that there is no such thing as deflationary medicine and that it is incorrect that you ever need deflation to "right" things. Or balance anything. That's not how the economy works.

How does it work then? If you take out large amounts of debt and just keep borrowing and borrowing to cover your original interest payments, how can you avoid the deleveraging (resulting in deflation) that must eventually occur? Continuing to borrow and print doesn't seem like sound policy to me.

debyne says

How does it work then? If you take out large amounts of debt and just keep borrowing and borrowing to cover your original interest payments, how can you avoid the deleveraging (resulting in deflation) that must eventually occur? Continuing to borrow and print doesn't seem like sound policy to me.

By deleveraging, in this case, you mean defaulting--right?

I'm assuming you are talking about the Federal Government? There are two ways in which you can avoid defaulting--reduce spending and increase revenues. Both will be required. Raise taxes on the 1% and cut military spending are two good places to start. Add some tariffs to bring jobs back, redistribute wealth and income to the 99% and you'd be amazed at how quickly the budget deficit would turn into a surplus.

The reason you borrow is to enable you the time to fix things. Defaulting is the worst of all possible outcomes.

debyne says

How does it work then? If you take out large amounts of debt and just keep borrowing and borrowing to cover your original interest payments, how can you avoid the deleveraging (resulting in deflation) that must eventually occur?

The Wogster is conspicuous by his absence...

tatupu70 says

By deleveraging, in this case, you mean defaulting--right?

I'm assuming you are talking about the Federal Government?

I mean paying down debt, and I'm referring to any entity involved in creating inflation such as the Federal Gov't, the Fed or banks.

tatupu70 says

There are two ways in which you can avoid defaulting--reduce spending and increase revenues.

Won't a reduction in spending lead to deflation since less dollars are entering circulation and going toward savings or debt?

tatupu70 says

Wow--tatpoop? Are you 5?

Sorry. I got annoyed because we had already covered this topic, but I am old enough to remember stagflation, which you seem not to recall.

tatupu70 says

Which came first in 1929--unemployment or deflation?

In 1929? I would be very interested to see if you can find good data on that. People talk about the stock market crash in October 1929, but actually the full year 1929 had a 20% increase in the DJIA, and the unemployment rate was under 4%.

During the period 1929-33, a global depression including widespread unemployment caused deflation in America; prior to the FDIC, defaults were also a serious problem, causing bank runs and panic. In Germany, monetary expansion caused hyperinflation and political instability including widespread violence. Increasing the CPI does not generally cause greater employment or prosperity, as the people of Zimbabwe and countless Latin American countries can tell you. (The people of the Weimar Republic could have told you the same, but many died in the following years.) Increasing CPI is more likely to cause stagflation, malaise, and instability.

BTW, as the experience of the 1930s showed, the Fed system does not appear to reduce the severity of downturns compared to the prior system. The Great Depression was probably the worst in American history, even worse than the recession of the 1870s, which was probably the worst of the 19th century. In the current century, the Fed system has shown its real function: keeping in place the one group of bankers who proved they cannot be trusted to run a bank.

The problem with deflation is that debt becomes very expensive.

FortWayne says

The problem with deflation is that debt becomes very expensive.

A high debt can result in a deflation. And a deflation can cause liquidation/elimination of those debts. The bondholders lose shirts in that case.
But yes, this is exactly why they are trying hard to avoid a deflation.

curious2 says

landtof says

here are 2 such examples:

Correlation is not causation. Tatpoop spews what the Fed told him to say, and feels smart whenever he echoes the Fed verbatim. In reality, unemployment causes deflation, not the other way around.

Exactly. According to Tatupu's logic, wet roads cause rain. If we are in drought, we just need to wet our roads more with *borrowed* water.

debyne says

Won't both a reduction in spending lead to deflation since less dollars are entering circulation and going toward savings or debt?

It is deflationary, which is why it is usually done slowly and during periods of growth so its effects can be moderated.

curious2 says

During the period 1929-33, a global depression including widespread unemployment caused deflation in America; prior to the FDIC, defaults were also a serious problem, causing bank runs and panic. In Germany, monetary expansion caused hyperinflation and political instability including widespread violence. Increasing the CPI does not generally cause greater employment or prosperity, as the people of Zimbabwe and countless Latin American countries can tell you. (The people of the Weimar Republic could have told you the same, but many died in the following years.) Increasing CPI is more likely to cause stagflation, malaise, and instability.

You need to learn your history again. First off--Weimar's problem is that their debt wasn't in their own currency. As is the case with almost all hyperinflationary environments. w.r.t the Great Depression, it was Austrian thinking that made it longer and deeper than it would have been had FDR continued his policies. Observe what happened in 1937 under "austerity" or "taking our medicine". Second, are you implying that the Great Depression in the US was caused by a global recession? As in, reduced overseas trade caused unemployment in the US?

Increasing CPI only causes problems if wages don't keep up, such as what happened when the price of foreign oil rose quickly in the 70s. Low levels of inflation is much preferable to deflation.

curious2 says

BTW, as the experience of the 1930s showed, the Fed system does not appear to reduce the severity of downturns compared to the prior system. The Great Depression was probably the worst in American history, even worse than the recession of the 1870s, which was probably the worst of the 19th century. In the current century, the Fed system has shown its real function: keeping in place the one group of bankers who proved they cannot be trusted to run a bank.

History once again disagrees with you.

Shaded areas are recession/depressions. (there are a LOT of shaded areas, aren't there?)

Or go here--there's a good chart here showing inflation before and after the Fed--it looks a LOT better after the fed to me. More predictable, more controlled.

http://www.24hgold.com/english/contributor.aspx?article=4269461978G10020&contributor=Tim+Iacono

gsr says

Exactly. According to Tatupu's logic, wet roads cause rain. If we are in drought, we just need to wet our roads more with *borrowed* water.

Wow, another poster who can't read. For the record, here's what I said:

tatupu70 says

There is a very strong correlation between deflation and high unemployment.

Seriously Wogster, did you have a come to Jesus epiphany or what?

Government bonds are what 25% of the bond market?

The could pay them off as well...

Back to my question, you stated that infation is bad. Have you changed your view?

marcus says

What you end up with is [an indebted majority wanting] inflation [because they like to "buy now" but don't like to "pay later"]. But this is sort of like everyone being [short] a stock. Now all you have is [buyers].

There, fixed that for you.

curious2 says

Then you say people who disagree with you can't read, when in fact they've quoted you.

I said gsr couldn't read because he misquoted me after I was very clear in my earlier post (which I reposted again). Just to be clear, I'll repost it for a 3rd time.

tatupu70 says

There is a very strong correlation between deflation and high unemployment.

Hopefully that clears it up for you.

curious2 says

tatupu70 says

curious2 says

Deflation does not generally cause unemployment, except in the FIRE sector

Of course it does.

Then you say people who disagree with you can't read, when in fact they've quoted you.

This is disingenuous, even for you. It's from a different thread, and later in that same thread I corrected myself to say this:

tatupu70 says

Of course it does. It has nothing to do with the FIRE sector, it's just Econ 101. Unless you are experiencing very high productivity gains throughout the entire economy(and it's highly competitive), deflation results from lack of demand. The same lack of demand that causes deflation also causes unemployment. And it's a positive feedback--deflation leads to unemployment, leads to more deflation, leads to more unemployment, etc.

curious2 says

that AAPL has become the most valuable corporation in the history of the world, amid perennial deflation in its sector. There, fixed that for you.

You understand the difference between productivity driven deflation in an individual sector and deflation in an entire economy that is driven by lack of demand, right?

Those are not the same thing. Do you understand that?

tatupu70 says

Do you understand that?

I understand that you are trolling, calling people illiterate and liars, and I'm not going to waste more time indulging you. I have already refuted your false claims, so I'll simply link.

curious2 says

I understand that you are trolling, calling people illiterate and liars

lol--who's the troll? Let's see:

1. calling people names. (tatpoop) check
2. falsely accusing me of callilng people liars and illiterate? check
3. Running away when presented with logical arguments refuting your points? check

That's pretty standard trolling. How about you look in a mirror

Pretend to take the high road all you want-your previous posts say it all.

tatupu70 says

MORE of the productive assets at fire sale prices making them even more powerful.

Exactly so what use are the Democrats?

tatupu70 says

Assuming you mean to say rooting--you shouldn't be hoping for deflation because the little guys lose BIG under deflation.

They aren't winning now, you're just scared it will fuck with the gravy train you got going on at everyone's expense.

Regardless where a person may stand deflation is here for a time to come. You stand in the front of it (money flow) and you will be standing in front of a freight train. Like the saying goes put hope in 1 hand and s$%^ in the other and see what hand is filled 1st.

CaptainShuddup says

They aren't winning now, you're just scared it will fuck with the gravy train you got going on at everyone's expense.

So your solution to help the middle class is to make things worse for them?

Different doesn't always equal better.

CaptainShuddup says

They aren't winning now, you're just scared it will fuck with the gravy train you got going on at everyone's expense.

And btw--what gravy train do I have going? I'm a working stiff like everyone else.

This deflation environment is and will be very different. The cash is not going to stay cash and will be invested (traded) in our countries markets and GDP.

The dollar and our equities market have just begun their honeymoon. The majority will not reap much benefit regardless although things on the surface will look rosie due to misinterpretation and confusion but it will remain the same s%^% different day.

The markets are a traders market like they have been particularly since QE1 and CDS before that, however it's about to get much worse.

marcus says

Japan is an example of it working in an environment of low inflation and ever decreasing interest rates. And it won't work forever.

It's not working for Japan - Abenomics have widened the wealth gap significantly whereas a deflationary correction such as in 2008 was reducing the wealth gap significantly until the Fed stick-saved the leveraged investments of the wealthy.

bob2356 says

The tbill rate was 2% in 1980. This highest it ever hit was 7.5% briefly in 1982 (deficit still below a trillion), it was back down to 4% by the end of the 1982.

What are you talking about ? You're way off. 90 day TBIlls were over 10% for most of 1980, hit a high in the mid teens in 1981, and never dropped below 4% in all of the 80s.

The yield curve actually got inverted for a while there, when Volker was doing his thing.

bob2356 says

Uh, the debt in 1980 was 800 billion not 2 trillion. The tbill rate was 2% in 1980. This highest it ever hit was 7.5% briefly in 1982 (deficit still below a trillion), it was back down to 4% by the end of the 1982. https://www.bostonfed.org/economic/wp/wp1991/wp91_6.pdf

Try again.

"Real" t bill yields. Says it right in the first sentence.

Try this one.

https://research.stlouisfed.org/fred2/data/TB3MS.txt

$850 billion @ 12% = $102B in interest.
$18 Trillion @ .02% = $3.6B in interest.

control point says

bob2356 says

Uh, the debt in 1980 was 800 billion not 2 trillion. The tbill rate was 2% in 1980. This highest it ever hit was 7.5% briefly in 1982 (deficit still below a trillion), it was back down to 4% by the end of the 1982. https://www.bostonfed.org/economic/wp/wp1991/wp91_6.pdf

Try again.

"Real" t bill yields. Says it right in the first sentence.

Try this one.

https://research.stlouisfed.org/fred2/data/TB3MS.txt

$850 billion @ 12% = $102B in interest.

$18 Trillion @ .02% = $3.6B in interest.

Oops, I grabbed the ex ante chart by mistake. 10 year was 11.03% in 1980.

So how to you get .02% interest on the debt? That's the tbill rate. Less than 25% of the debt is in tbills. The rest is longer term bonds and notes from 1 to 3.5%. Mostly 10 years at 2.2%. http://www.federalreserve.gov/releases/h15/data.htm. So 12 (3/4 of 16) trillion times 2% is 240B, which is just about what was paid in 2013. Even at these historically low rates interest on the debt is the third largest item in the general budget after military and medicaid.

This is all well and good if the interest rate genie can be held in the bottle forever. Good luck with that. You guys keep thinking those happy thoughts.

bob2356 says

So how to you get .02% interest on the debt? That's the tbill rate. Less than 25% of the debt is in tbills. The rest is longer term bonds and notes from 1 to 3.5%.

I was comparing apples to apples. (t bills to t bills)

Truth be told, actualy budget impact of debt service is about 6x what it was in 1980. ($52.5b vs. $310B)

In nominal dollars.

Of course, if we fast forward a bit to 1989, we had $169B in net interest payments.

In nominal dollars. Or about $327B in 2014 dollars.

At the end of Ray-gun's run.

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/hist.pdf

bob2356 says

This is all well and good if the interest rate genie can be held in the bottle forever. Good luck with that. You guys keep thinking those happy thoughts.

Here is the thing....interest rates do not rise in a vacuum. Rising interest rates on treasuries implies rising inflation, which implies strong economic growth. As long as we dont further butcher tax revenues - added revenues will more than make up for the increase in debt service from rising rates.

control point says

bob2356 says

This is all well and good if the interest rate genie can be held in the bottle forever. Good luck with that. You guys keep thinking those happy thoughts.

Here is the thing....interest rates do not rise in a vacuum. Rising interest rates on treasuries implies rising inflation, which implies strong economic growth. As long as we dont further butcher tax revenues - added revenues will more than make up for the increase in debt service from rising rates.

LOL. So you keep on having the happy dream just as Bob suggested. The idea that rising inflation means strong economic growth is quite false. It's similar to the Phillips Curve nonsense.