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  1. #31
    Senior Member "?"'s Avatar
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    Economic 101 (if I recall correctly), inflation is experienced when demand is higher than supply causing prices to go up. As a result we go through a recession. If credit is tight then the greater the recession. Deflation is experienced when we produce too much or in our present case when demand is low resulting in prices lowering. Combine that with tight credit, you have a depression. The only thing that keeps us from going through a great recession or depression is low employment rate.

    The last time I noticed gas prices are lowest in four years, Wal Mart just announced that they will be lowering prices starting this week and Target is considering doing the same, the current administration and congress is scoffing at preventing over three millions jobs being lost in one fail swoop, not to mention all of the vending companies that will also go under trickling into other industries.

  2. #32
    Senior Member Lateralus's Avatar
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    Quote Originally Posted by "?" View Post
    Economic 101 (if I recall correctly), inflation is experienced when demand is higher than supply causing prices to go up.
    No. When what you describe happens, prices will rise in some areas, but fall in others. That's a redistribution of resources by the market. That's not inflation. Inflation is when prices rise across the entire economy due to an increase in the supply of money and/or an increase in its velocity (how often each dollar is involved in a transaction).
    "We grow up thinking that beliefs are something to be proud of, but they're really nothing but opinions one refuses to reconsider. Beliefs are easy. The stronger your beliefs are, the less open you are to growth and wisdom, because "strength of belief" is only the intensity with which you resist questioning yourself. As soon as you are proud of a belief, as soon as you think it adds something to who you are, then you've made it a part of your ego."

  3. #33
    Senior Member ptgatsby's Avatar
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    Economic 101 (if I recall correctly), inflation is experienced when demand is higher than supply causing prices to go up. As a result we go through a recession.
    That's not exactly it. Inflation refers to the rate of money growth beyond the rate of growth of the economy, in real terms, and any changes in the velocity of money. The demand for goods and services doesn't really factor into inflation directly, but of course is a fundamental part of real economic growth.

    That is, demands for goods and services works on national income - flip sides of each other. But rising prices for the demand of goods isn't defined inflation - inflation is the amount that prices rise above demand, due to money supply increases.

    If credit is tight then the greater the recession.
    It depends on if you like chicken or eggs. The recession itself, in this case, is more about the destruction of wealth (the rapid contraction of the money supply - IOW, tight credit) and the sudden reduction in the velocity of money.

    The result is a sudden and abrupt downturn in demand, which manifests as companies reducing production/etc... which means people lose their jobs, which means demand gets reduced... and so forth.

    This is more or less the first round in the spiral down. The question is if, if you believe basic macroeconomics, the government can replace the contracting money supply fast enough, without triggering inflation (which would spiral out of control and have no positive benefit.)

    Combine that with tight credit, you have a depression. The only thing that keeps us from going through a great recession or depression is low employment rate.
    Recession/depression is really about the length of the economic contraction. But you are correct about employment. The waiting now is to see if demand translates into income, or if the stickyness of employment holds out until demand is re-established. I would say that it is starting to balance out, though... I see no reason why it wouldn't continue (not saying you disagree, just commenting )

    Hey, look at that, I got some use of my econ before my final exam in two weeks. That's good too, cause I plan on forgetting everything the day after.

  4. #34
    pathwise dependent FDG's Avatar
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    Since I have been accumulating part-time jobs while I finish my degree, I have been trying to hedge my job portfolio, that is to say, have jobs with opposed betas (let's suppose we can construct a beta for the job market too, by using a state job as the riskless asset and building a market job portfolio). Cutting expenses isn't particularly hard for myself, since I still live with my parents (it is rather customary here in Italy up to 24-25) and I only pay my internet connection and some electricity bills.
    ENTj 7-3-8 sx/sp

  5. #35
    Senior Member "?"'s Avatar
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    Quote Originally Posted by ptgatsby View Post
    I would say that it is starting to balance out, though... I see no reason why it wouldn't continue (not saying you disagree, just commenting )

    Hey, look at that, I got some use of my econ before my final exam in two weeks. That's good too, cause I plan on forgetting everything the day after.
    The problem I have is in how the unemployment rate is figured. Real unemployment rates can never be determined since the government only considers the unemployed currently receiving benefits, not those who have exhausted their benefits and remain unemployed. Combine that with companies or industries such as non-profits that are exempt from having to contend with unemployment benefits, then the true percentage of unemployed has most likely never reached single digits. Besides we have no real idea of the population size of America. Keep up with the economics, you may be bailing us all out in the future. I will have to read up on inflation, but I think we can all agree we are experiencing deflation, not inflation and if the bailout does not succeed the economy is in trouble.

  6. #36
    Senior Member Lateralus's Avatar
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    Quote Originally Posted by "?" View Post
    The problem I have is in how the unemployment rate is figured. Real unemployment rates can never be determined since the government only considers the unemployed currently receiving benefits, not those who have exhausted their benefits and remain unemployed. Combine that with companies or industries such as non-profits that are exempt from having to contend with unemployment benefits, then the true percentage of unemployed has most likely never reached single digits. Besides we have no real idea of the population size of America. Keep up with the economics, you may be bailing us all out in the future. I will have to read up on inflation, but I think we can all agree we are experiencing deflation, not inflation and if the bailout does not succeed the economy is in trouble.
    I have my doubts about the importance of knowing the true unemployment rate. It's not like during the real estate boom it was impossible to find a job. We had immigrants coming to the US by the millions to find work. And they found plenty of it because there were so many companies that needed employees. If you couldn't find work during the boom, you either didn't really try or you're one of the most worthless people in existence. My point being, you can use the figures from the boom for comparison.
    "We grow up thinking that beliefs are something to be proud of, but they're really nothing but opinions one refuses to reconsider. Beliefs are easy. The stronger your beliefs are, the less open you are to growth and wisdom, because "strength of belief" is only the intensity with which you resist questioning yourself. As soon as you are proud of a belief, as soon as you think it adds something to who you are, then you've made it a part of your ego."

  7. #37
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by "?" View Post
    The problem I have is in how the unemployment rate is figured. Real unemployment rates can never be determined since the government only considers the unemployed currently receiving benefits, not those who have exhausted their benefits and remain unemployed. Combine that with companies or industries such as non-profits that are exempt from having to contend with unemployment benefits, then the true percentage of unemployed has most likely never reached single digits.
    In absolute terms, I agree... and it drives me nuts. However, since we are comparing the same measurements over long periods, it should indicate something.

    Either way, we both agree that things are... not going well. And I suspect things are worse than I think. I base my reality on Canada, but we have a lot more stabilizers here than in the US. If this goes bad, it's going to go really bad.



    I will have to read up on inflation, but I think we can all agree we are experiencing deflation, not inflation and if the bailout does not succeed the economy is in trouble.
    Yah, right now we definitely saw a massive drop in the money supply, effectively deflation. I dislike looking at the economy from that perspective, but... it's clear that demand fell abruptly... and now it's becoming clear that wages were not sticky and income is following lock-step, as expected.

    My intuitive guess is that the US could reach 8%+ "on the books unemployment". And likely match it in discouraged workers.

    It's going to take more than the bailout, in my opinion, to get it going now. I don't see how aggregate demand can be jumpstarted before inflation kicks in.

  8. #38
    Senior Member Lateralus's Avatar
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    Quote Originally Posted by ptgatsby View Post
    Yah, right now we definitely saw a massive drop in the money supply, effectively deflation. I dislike looking at the economy from that perspective, but... it's clear that demand fell abruptly... and now it's becoming clear that wages were not sticky and income is following lock-step, as expected.

    My intuitive guess is that the US could reach 8%+ "on the books unemployment". And likely match it in discouraged workers.

    It's going to take more than the bailout, in my opinion, to get it going now. I don't see how aggregate demand can be jumpstarted before inflation kicks in.
    Deflation...that's what you risk when you have fractional reserve banking. I'm enjoying it, though. Unleaded just dropped to $1.56 here.

    I think once these inefficiencies (Big 3 go bankrupt, etc.) are flushed out, the economy will start recovering. The problem is the government is slowing this process down because people want them to "do something". There's nothing they can do, except make it worse.
    "We grow up thinking that beliefs are something to be proud of, but they're really nothing but opinions one refuses to reconsider. Beliefs are easy. The stronger your beliefs are, the less open you are to growth and wisdom, because "strength of belief" is only the intensity with which you resist questioning yourself. As soon as you are proud of a belief, as soon as you think it adds something to who you are, then you've made it a part of your ego."

  9. #39
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by Lateralus View Post
    I think once these inefficiencies (Big 3 go bankrupt, etc.) are flushed out, the economy will start recovering. The problem is the government is slowing this process down because people want them to "do something". There's nothing they can do, except make it worse.
    I wish I could agree, but history seems full of examples where things don't work out too easily without something to create aggregate demand.

    However, in the context of this thread, it really comes down to being able to weather the storm, if there is one. Having a buffer for job loss, for when it comes time to remortgage, etc. is a good idea, no matter what actually happens.

  10. #40
    Senior Member Lateralus's Avatar
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    Quote Originally Posted by ptgatsby View Post
    I wish I could agree, but history seems full of examples where things don't work out too easily without something to create aggregate demand.
    I'd like to hear some of these examples.
    "We grow up thinking that beliefs are something to be proud of, but they're really nothing but opinions one refuses to reconsider. Beliefs are easy. The stronger your beliefs are, the less open you are to growth and wisdom, because "strength of belief" is only the intensity with which you resist questioning yourself. As soon as you are proud of a belief, as soon as you think it adds something to who you are, then you've made it a part of your ego."

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