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Thread: Hyperinflation

  1. #11
    Senior Member reason's Avatar
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    Quote Originally Posted by Risen View Post
    Yep. It will be driven in part by the overture of supply/product with a low demand and cash flow. The inflation will begin when the cash we've been printing really starts to take its toll on the currency value, and dollars begin to really flood our economy. Then we'll have all this money floating around and an increase in demands for goods, which will be swiftly be met by shortages because these companies were keeping low amounts of product on hand in the deflationary period. Then all the other inflationary factors will pile on top of that.
    Unless the government starts imposing price controls (and it might if inflation gets bad), I do not think there will be many shortages. Maybe if suppliers were slower than consumers to adjust to inflation, but why would they be? Wages are usually slower to adjust to inflation than goods on a store shelf. Overall supplies may decrease, but a shortage is not the same as increasing scarcity.
    A criticism that can be brought against everything ought not to be brought against anything.

  2. #12
    Senior Member Lateralus's Avatar
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    Quote Originally Posted by reason View Post
    Sticky wages are a problem. But I think it is a habit that can and should be unlearned. Inflation is a high price to pay for such an error of economic reasoning. If this ignorance of prices is pandered to, then it will only make the problem worse. Labour markets are distorted by it.
    Part of the sticky wages problem is that people have become so accustomed to inflation.
    "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. #13
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by reason View Post
    But we are talking about a shift in purchasing power. After getting a loan, a debtor is like a monetary counterfeiter. He imposes a negative externality on everyone else by decreasing the purchasing power of their money. But unlike a counterfeiter, a debtor will eventually pay back his loan plus interest. When producing to pay off his debt the money supply decreases, and a positive externality is imposed on everyone else by increasing the purchasing power of their money.
    When money is introduced into the system, it is to purchase something. The 'externality' you talk about is an increase in demand, a far cry from negative. And it isn't linear - it ripples throughout the economy, way beyond the interest rate. When it is paid back, as in the destruction of the money, that portion of spending and the tap on effects go away.

    During the deflation the debtor is repaying everyone else for the buying power which he took from them when the loan was first being spent. When inflating the money supply the debtor is consuming or investing (and when the Fed makes credit artificially cheap, he is often consuming too much or investing badly). It is during the deflationary period when the production to pay for the inflation occurs, it will resemble a recession for our debtor, but it is also vital for his long term prosperity.
    No, it's not vital for long term prosperity. Deflation would simply reduce capital investment, reducing the pool of good available - it adds to the risk free premium of money.

    Sticky wages are a problem. But I think it is a habit that can and should be unlearned. Inflation is a high price to pay for such an error of economic reasoning. If this ignorance of prices is pandered to, then it will only make the problem worse. Labour markets are distorted by it.
    It's not a habit, or at least, not entirely a habit. The effect is measurable in many different situations. The pain of reduction is a normal human response.

  4. #14
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    Quote Originally Posted by ptgatsby View Post
    When money is introduced into the system, it is to purchase something.
    It also reduces purchasing of goods and services by other people.

    The 'externality' you talk about is an increase in demand, a far cry from negative.
    But it can be a negative. An increase in supply to meet that demand assumes that borrowed money will be repaid by productive efforts in the future. If producers did not assume that, then they would not bother satisfying the demand. Too many people in the U.S. have defaulted, and the government is never going to pay off its debt (at least not in real terms, because to do so would mean increasing the purchasing power of the dollar). Producers will only keep sending Americans goods until they realise that Americans can't pay for it (or only do so with debased currency). In the meantime, Americans have been dismantling the capital which would enable them to produce these things themselves. When the supply is cut a painful correct will occur.

    No, it's not vital for long term prosperity. Deflation would simply reduce capital investment, reducing the pool of good available - it adds to the risk free premium of money.
    Deflation would increase the supply of credit to make capital investments in the future. The U.S. is broke. Most people cannoy borrow any more money, and the Fed has already screwed with prices so much that nobody can tell the difference between a good or bad investment. People need to save and restock the banks with real credit, not the fake stuff the Fed is pumping into it.

    Credit does not fall from heaven like manner, but needs to be created by people paying off debts, saving money and investing in the future. Inflation destroys the incentive to do all of those things, so the supply of real credit is almost empty. This is destroying the country's productive capacity and impoverishing the future.

    It's not a habit, or at least, not entirely a habit. The effect is measurable in many different situations. The pain of reduction is a normal human response.
    But it isn't necessarily a reduction, at least not the real terms. As Lateralus states, people have become accustomed to inflation and even been told that it is a good thing.
    A criticism that can be brought against everything ought not to be brought against anything.

  5. #15
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by reason View Post
    It also reduces purchasing of goods and services by other people.
    Only in terms of non-invested savings. Wages are pulled up by the increased demand. In tangible terms, more items are produced for each person to get; their wealth increases.

    But it can be a negative. An increase in supply to meet that demand assumes that borrowed money will be repaid by productive efforts in the future. If producers did not assume that, then they would not bother satisfying the demand. Too many people in the U.S. have defaulted, and the government is never going to pay off its debt (at least not in real terms, because to do so would mean increasing the purchasing power of the dollar). Producers will only keep sending Americans goods until they realise that Americans can't pay for it (or only do so with debased currency). In the meantime, Americans have been dismantling the capital which would enable them to produce these things themselves. When the supply is cut a painful correct will occur.
    You do not need to pay off debt for it to be useful. Debt is liquid, therefore the value of the payment stream can be perpetual. This is an argument against the way the US is doing business, not against monetary expansion, as that is nearly universal in the world.

    Deflation would increase the supply of credit to make capital investments in the future.
    No, it wouldn't. It would simply destroy capital now and reduce the incentive to invest in the future. Savings require a withdrawal of money from the economy for future investing. If not invested, reduces spending -> production -> wages -> spending. Deflation works against capital investment, as there is less incentive to earn a return (fixed return given, in a true risk-free sense).

    The U.S. is broke.
    No, it isn't.

    Most people cannoy borrow any more money,
    The majority of the population can still borrow money. Except for the financial crisis part, where there isn't enough money to go around, but it's still around.

    and the Fed has already screwed with prices so much that nobody can tell the difference between a good or bad investment.
    Bubbles do that, by definition. It's only by extension that the Fed would be responsible, through cheap credit, via the banks, to the mortgage industry. However, it's a complex effect, as allowing the market to remove risk from the industry played a huge part as well.

    Credit does not fall from heaven like manner, but needs to be created by people paying off debts, saving money and investing in the future. Inflation destroys the incentive to do all of those things, so the supply of real credit is almost empty. This is destroying the country's productive capacity and impoverishing the future.
    Credit is credit. There is no non-real credit. Or rather, there is no unreal money. The only money you are talking about is money that wouldn't be spent, or invested.

    But it isn't necessarily a reduction, at least not the real terms. As Lateralus states, people have become accustomed to inflation and even been told that it is a good thing.
    Same goes for inflation. Except wages are sticky downward... so inflation wins that battle pretty easily. By deflating, you are essentially contracting the economy. Less demand, less spending, less production, less employment.

  6. #16
    Senior Member reason's Avatar
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    I made a mistake. All these mortgage defaults are not creating deflation, they're creating inflation!

    Every dollar of debt that someone owes is a claim on any future goods and services they provide. When someone pockets $1000 in debt, spends it, and then can't pay it back, that $1000 has disappered into the economy without any corresponding goods and services being created. That's inflation! This is also why theft is inflationary.
    A criticism that can be brought against everything ought not to be brought against anything.

  7. #17
    Senior Member matmos's Avatar
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    Quote Originally Posted by reason View Post
    I made a mistake. All these mortgage defaults are not creating deflation, they're creating inflation!

    Every dollar of debt that someone owes is a claim on any future goods and services they provide. When someone pockets $1000 in debt, spends it, and then can't pay it back, that $1000 has disappered into the economy without any corresponding goods and services being created. That's inflation! This is also why theft is inflationary.
    In isolation it may be inflationary, but cancelled out (or overwhelmed) by other deflationary factors.

    Clarification: inflation is an aggregated sum.

  8. #18
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    Quote Originally Posted by bananatrombones View Post
    In isolation it may be inflationary, but cancelled out (or overwhelmed) by other deflationary factors.
    Perhaps, that seems to be the case for the moment.
    A criticism that can be brought against everything ought not to be brought against anything.

  9. #19
    Senior Member matmos's Avatar
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    Quote Originally Posted by reason View Post
    Perhaps, that seems to be the case for the moment, but I do not think it will last.
    Why not?

    Here in the UK the fear of deflation has seen the govt virtually giving away money... and still the shops close.

    I refer you to Sweden in the early 90s. Proto-utopia reduced to begger status in one fail swoop.

    Or Japan. (I believe the Japanese govt was literally giving away money at one point.)

    Once the cycle starts, by its very nature, it is difficult to control.

  10. #20
    Senior Member Lateralus's Avatar
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    Getting rid of fractional reserve banking would help.
    "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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