[SimSlim]

Goes with the process. Will be at least a few more quarters of this. As to "deflationary spiral," this just represents words intended to engender fear. Reductions in output are what got Congress all stirred up to throw $1.5 trillion in real dollars at the problem in two increments, one Republican and one Democrat.

[SergZHy67]

Um, Felch, while I generally believe that small deflations/inflations are the normal cycle, a huge deflation leads to a cut in production, and then a cut in jobs. When unemployment is already high, this is a quite bad thing to add on top of that... while getting paid half as much to buy things half as expensive might be irrelevant, if you're getting paid nothing, that's not quite the same.

[carinsurancess]

Um, Felch, while I generally believe that small deflations/inflations are the normal cycle, a huge deflation leads to a cut in production, and then a cut in jobs. When unemployment is already high, this is a quite bad thing to add on top of that... while getting paid half as much to buy things half as expensive might be irrelevant, if you're getting paid nothing, that's not quite the same.

It's a business cycle, related to the ridiculous bullshit that's been going on the past few years. All these *******s who've been spending money they didn't have are the root cause of it. Without them, there wouldn't have been the inflation of the past few years. Now we're feeling a pinch. That's life. Fighting the pinch is only going to turn it into a punch.

[gZAhTyWY]

It's a business cycle, related to the ridiculous bullshit that's been going on the past few years. All these *******s who've been spending money they didn't have are the root cause of it. Without them, there wouldn't have been the inflation of the past few years. Now we're feeling a pinch. That's life. Fighting the pinch is only going to turn it into a punch.

So we're not supposed to feel bad for the people losing their jobs in droves, because some other people overspent and drove the business cycle off a cliff?

You do understand that the point is deflation causes the (perhaps natural) downward trend to feed back on itself and push very far down, right? And just because something is a 'natural business cycle' doesn't mean we shouldn't do something about it, just like we shouldn't try to defend ourselves from 'natural' hurricanes and 'natural' earthquakes?

[cabonuserollyo]

don't know. the article I posted is showing inflation. rising fuel costs etc as the main cause.

[CymnMaync]

It's a natural part of the business cycle. Deflation isn't a crisis - it has winners and losers. The winners are the sensible people who save money and minimize their debt. Reckless speculators who got us into this mess are going to be forced to pay back their debts with more valuable money than they expected, but that's not my problem.

So you want another great depression?

As long as prices drop, a decline in wages won't really matter. Money is not real. If you get paid half as many dollars, but each of those dollars buys twice as much stuff, you're as wealthy as you were before. I'm not sure you've thought this through.

The economy runs on credit and debt. How many people who form the core of the earning population don't have long term debt? Many of them have student loans, but more have mortgages. If their income deflates, their long term debt does not.

Their "debt" is not independent of my "credit". Their debt is my credit. They are one and the same.

In our societies "saving" is more like lending your neighbour money to buy a house. It's all very well to say that savers will benefit, but the savers' money has already been lent to the borrowers, and is contingent on the borrowers being able to pay it back. It isn't like my money is actually in the bank, because the bank has lent it to other people. If their income deflates, they won't be able to pay the bank back and the bank can't pay me.

At some point, it is going to be rational for a person to simply walk away from their house and/or declare bankruptcy. Then the bank owns the house, and by extension so do I. But since prices have deflated, the house can't be sold for as much as the original buyer bought it for, and thus my savings are borked.

It would be different if most people saved their cash in an old sock under their mattress, but they don't. It's in banks, and has been lent to people who can't pay it back.

[pedFlicle]

Shut up, Ben.

[MexicoCity]

Shut up, Ben.

He doesn't follow instructions very well.

[yPuqQ248]

I thought it was hyperinflation we were supposed to be scared of ATM, what with the barrage of federal stimulus money getting unloaded on the economy. Or are we supposed to be scared of both at once somehow?

Yes. I think you are supposed to feel the fear of someone trying to walk on a tight-rope. It seems fear is the emotion du jour.

[Indessasp]

So you want another great depression?

Why, yes Mr. Kenobi, that's exactly what I want. Thank you for taking my views and succinctly summarizing them.

I'm not sure you've thought this through.

The economy runs on credit and debt. How many people who form the core of the earning population don't have long term debt? Many of them have student loans, but more have mortgages. If their income deflates, their long term debt does not.

Their "debt" is not independent of my "credit". Their debt is my credit. They are one and the same.

In our societies "saving" is more like lending your neighbour money to buy a house. It's all very well to say that savers will benefit, but the savers' money has already been lent to the borrowers, and is contingent on the borrowers being able to pay it back. It isn't like my money is actually in the bank, because the bank has lent it to other people. If their income deflates, they won't be able to pay the bank back and the bank can't pay me.

At some point, it is going to be rational for a person to simply walk away from their house and/or declare bankruptcy. Then the bank owns the house, and by extension so do I. But since prices have deflated, the house can't be sold for as much as the original buyer bought it for, and thus my savings are borked.

It would be different if most people saved their cash in an old sock under their mattress, but they don't. It's in banks, and has been lent to people who can't pay it back. I have thought about this. I think that it is natural and to be expected after the reckless lending of the past few years. I also checked the figures, which you and Victor can look at in the link I provided. There is, as of the latest figures, no deflation. This is purely theoretical.

The ridiculous actions that the government is going to take to try to control a natural market force are only going to be counter-productive. If you reward people who take on too much debt this time, they'll never learn their lesson. And in another twenty or thirty of hundred years we're going to go through another credit crisis even worse than the current one.

Unless people are held accountable for their private decisions, capitalism won't work.

[JMLot]

The inflation figure was released this morning: zero over the last year.

Not too scary. Yet. There are some areas of deflation, of course. Housing, f.e.

[Acrogeokickic]

´Unless people are held accountable for their private decisions, capitalism won't work.´

´Corporation (noun): An engineered device for obtaining individual profit, without individual responsibitlty´ - from Civilization IV

----

´That's capitalism. It's cold, it's hard, it's not fair, but it's real life.´ - as long as most people concieve and colport its laws as natural and unchangable.

[strongjannabiz]

Deflation is predicted, not yet apparent. That's what the article says.

Inflation is being observed. I understand that deflation looks likely, and I understand the causes. But we've got enough problems without imagining new ones.

Markets aren't natural. They are sophisticated cultural creations. Anyone who has studied tribal economies knows this. Markets are created by people, but they obey fundamental rules. That's the nature that I'm referring to.

I agree. That's why I'm a Marxist. Well, that's one solution. I'd prefer to be a free citizen who is responsible for his own decisions. You know, an adult, unlike these whiny pseudo-capitalist *****es who want something for nothing. I respect your intellectual clarity and honesty.

Yes, but if holding them to account means burning our own arms off, then we ought to reconsider. Not holding them to account is like giving in to a hostage taker's demands. That just encourages these punks to take our economy hostage again, and next time the demands will be even greater. I'd rather lose the hostages, and establish the precedence that we don't waver.

[limpoporanique]

It's not about desert, but about the consequences credit. We need long term credit in order to fund long term projects. For individuals this might be a home purchase, for municipalities, a school, for a country, a new highway.

If deflation hits, it means that people won't want to make long term investments, because the risk of default will be much higher. But if people don't do that, then prices fall further. Why would anyone take a loan, even at no interest, if the value of the money you were using to pay off the loan decreased markedly every year?

That's the beauty of capitalism. If deflation occurred, borrowers would be free to borrow at negative interest from any willing parties. The free market is about freedom and responsibility. You're free to make any arrangement you want with anyone else who is agreeable.

It also doesn't work if left to itself. The market is complex, and beyond the understanding of any individual. We're like blind men feeling an elephant. Your hands are just up his rear is all.

That's over. You can't pay your bills. There's plenty of capital in Asia. It didn't disappear. Rates will be higher, but that's perfectly reasonable.

[Sniliabiz]

And there should be no doubt: A deflation would hit not only those who ´overextended´ themselves. You could have a perfectly fine credit (if there is such a thing), built a house, still be 100.000 in the reds with it (but constantly reducing it), and then massive deflation hits. You´re screwed badly. Given the fact, that deflation didnt really occur for some time now (the thread title suggest more than half a century), it would have required more than just cautious risk-assessment to account for the possibilty of it, when the credit was issued. And that goes for pretty much all the credits issued. Altogether the credits may have contributed to a raising risk of deflation, but i would assume that the risk of it wasnt taken into account on issueing most of them. Typical market failure by unintended results of masses of individual decisions taken independently only with a specific intention in mind.

BTW, i think the crisis is systemic, not caused by misbehaviour of anyone really. If the rules of the market are considered ´natural´, then it follows that greed is also ´natural´ and those people behaved only ´natural´ (by trying to make a maximum profit) given the system they operated in. It´s damned easy to project the shortcomings of capitalism onto a rather limited group of people. In that, the major difference between 1929 and 2009 in Germany is the fact, that today, we dont blame the jews, but the managers, bankers, speculants (basically what jews were stereotypically believed to be anyways in ´29). In both cases, the chorus of society went: ´Capitalism would bring heaven on earth, if we could just get rid off these sickening elements. You know, these ´jewish´ high finance speculants and no-work-profiteers.´ Fact is, this kind of people are the children of the system and it will always bring these kind of people to its top.

Greed can be good, but greed without rational assessment of the risks runs into problems. Good greed drives people to develop new methods of manufacturing, or to invent a better mousetrap, and thereby earn huge amounts of money. Bad greed leads people to speculate with borrowed money and run themselves into debt. For example, I am greedy in that I save my money to buy stocks. That's fine. I'm not buying stocks on margin though, because that's stupid. Stupid people get burned.

As far as people owing mortgages, that does suck. Many people weren't irresponsible about buying their homes, and could be badly hurt by severe deflation. However, they could renegotiate terms with banks, under threat of defaulting. A bank would rather have fewer dollars than no dollars, especially if those fewer dollars are worth more than they were before.

Also, and this is very important, the deflation we're talking about is purely theoretical. Nearly a trillion dollars of federal money are about to be dumped into the American economy. Other countries are following suit. I'm slightly more worried about severe inflation (which does horrible things to poorest members of society, like the elderly and disabled, who live on fixed incomes) than about some phantasm of deflation.

[PHOTOSHOPoem]

That is very rare, and requires special circumstances. If you could make money simply by borrowing it, how would the banks keep any reserves? Everyone would just remove their bank deposits, because they would be being charged for keeping them in the bank. Then it's old sock time.

It is rare, but possible. Free markets make anything possible, so long as people are willing to agree to terms.

This is pure faith based economics, and deserves no more time than a witch doctor's economic theory.

Why the animosity? Marxism either failed (in the Soviet Union) or it never existed. Marxism is faith based - capitalism is rational, and has a long history of overall success.

Why would they give it to you? You have nothing to give in exchange. You used to have a safe currency, but that is in jeopardy now. The Dollar is doing quite well against the Euro and Pound. So we have that going for us.

The Asians have money, and they're free to lend to us. I'm not saying that they will, but they could. Unlike the USSR, nobody is going to force them to do anything. It's a free market. However, those that miss out on the opportunity to lend money to the United States will miss out on the potential for profits when our economy recovers.

[spiveker]

dp

[rozneesitcn]

I don't think they are making it up.

I don't think they are either. I think they are making predictions based on their best understanding of the situation. But it's still just a prediction, not an observation.

The problem is they don't. People often do not behave in the way that economists say they should. Behavioural economics is attempting to remedy this defect, but it is a relatively new science. True. Individuals are irrational. But markets are an aggregation of many people, and over the long term, they tend to behave in a rational manner. Which is why we had a bubble that popped. Irrationality lost out to rationality.

Everyone might prefer this, but it would be self defeating, and thus irrational. You aren't being asked to give up all areas of your life, just those to do with productive activity. Which I'm not willing to give up.

The whole point of capitalism is to get something for nothing. That's why people acquire capital - so they can use it to get others to work instead of them. Capitalism is about getting something by directing the excess resources that you already possess into something productive. That's a long way from nothing. If you have the capital to build a robot, you don't need workers. It would still be capitalism though.

The problem with that view is that the wrongdoers won't be the people who suffer the most. Those who will bear the brunt of unemployment and poverty are those who had very little to start off with. That's true. The poor always get it in the bum. But that's no excuse for rewarding the stupid bastards who got us into this mess. Let the downturn work itself out.

[85IbLcwQ]

´The whole point of capitalism is to get something for nothing. That's why people acquire capital - so they can use it to get others to work instead of them.´

Obviously. Sad, that this even has to said. Everybody who wants to be successful has to be a ´jew´ (please dont forget, how and why i am using this term from my previous posts).

And as opportunities for profit shrank in the real sector during the last couple of decades, the capital went into some sort of dream state, where it really began to reproduce itself out of mere rumors of expected profits in the future. Either you took that risk, or you put your money in the sock, as Agathon puts it. The catch is: If the risk takers win, you loose out relatively, because you didnt take that risk and thus missed an opportunity for profit. If the risk takers mess it up tho, you are at least as screwed as they are, cause it can well happen, that your money in the sock is going down the drain. Since you operate in the same economy, the risk of it breaking down depends on the average risk people are going to take - a few, ´potent´, risk takers can totally alliviate your ´security policies´ putting you at the same risk, without the chance for profit, they ´enjoy´. Thus the money goes into risky, unreal derivates pretty much unchecked. You´d be dumb if you didnt. That´s the rationality of the free market.

[pharmacologist30]

Greed can be good, but greed without rational assessment of the risks runs into problems. Good greed drives people to develop new methods of manufacturing, or to invent a better mousetrap, and thereby earn huge amounts of money. Bad greed leads people to speculate with borrowed money and run themselves into debt. For example, I am greedy in that I save my money to buy stocks. That's fine. I'm not buying stocks on margin though, because that's stupid. Stupid people get burned.

Your view of capitalism is rather naive. While the arguments for good greed might have held in small businesses or family owned corporations, nowadays greed leads talentless hacks to lie, cheat, and steal for their bonuses while the company is falling apart long-term.

As far as people owing mortgages, that does suck. Many people weren't irresponsible about buying their homes, and could be badly hurt by severe deflation. However, they could renegotiate terms with banks, under threat of defaulting. A bank would rather have fewer dollars than no dollars, especially if those fewer dollars are worth more than they were before. Because that's working so well now.

Also, and this is very important, the deflation we're talking about is purely theoretical. Nearly a trillion dollars of federal money are about to be dumped into the American economy. Other countries are following suit. I'm slightly more worried about severe inflation (which does horrible things to poorest members of society, like the elderly and disabled, who live on fixed incomes) than about some phantasm of deflation. It will take a lot more than a trillion dollars to cause inflation.

It is rare, but possible. Free markets make anything possible, so long as people are willing to agree to terms. In a free market with securitized mortgages, I'd be surprised if you could identify your creditor if by some miracle your mortgage was still in one or a few pieces. (If not... guess what, the holder of the most junior tranche probably has no intention of renegotiating terms.)

Why the animosity? Marxism either failed (in the Soviet Union) or it never existed. Marxism is faith based - capitalism is rational, and has a long history of overall success. The sort of completely unregulated hardcore capitalism you advocate died long before Soviet "communism."

Individuals are irrational. But markets are an aggregation of many people, and over the long term, they tend to behave in a rational manner. Which is why we had a bubble that popped. Irrationality lost out to rationality. No... greed lost to fear.

Capitalism is about getting something by directing the excess resources that you already possess into something productive. Very true. Maybe someone should have told Wall Street.

We're in an economic catastrophe. You can either pick at the scab, or rip it off. I'd rather rip. I prefer to think of your solution as slitting our wrists to make the rest of the pain go away.

Fair enough. Got any useful suggestions? Yes, if deflation starts, print money. When deflation stops, stop printing excess money.

I know. So? The Great Depression cleared out a lot of dead weight companies and opened the way for new ideas to take over. Some ideas (Nazism) sucked. Others didn't. At what cost though?

The rough edges will always be there. The mixed-economy is like trying to borrow your way out of debt. It works for a little while, but it only compounds the systemic problems. Allow the free markets to do what they do, and the problems will sort themselves out over time. Yes, but a world-wide worker's revolution isn't exactly how I'd want my problems to sort themselves out. That or the apocalypse in some form are the only possible end-points for totally unfettered capitalism.

Who should be trying to understand the markets? If you say it's easy, have you figured it out? You're a smart guy, Victor. Why not just spend an afternoon and solve all our problems? It would take much longer than that, but the problem is a lot of economists aren't even trying. They treat the market as a black box with certain characteristics and never bother to question what's inside or whether their assumptions lead to useful results in practice.