Do me.
Frowning takes 68 muscles.
Smiling takes 6.
Pulling this trigger takes 2.
I'm lazy.
Posted on 09/12/2010 7:10:38 PM PDT by blam
Do me.
Deflation, as I understand it, is prices falling because supply exceeds demand.
Deflation is occuring now in housing, traditionally the most reliable American investment. Junk credit (in similar markets) created "bubbles" because people could buy capital goods with other people's money. Credit is dead; savings are up. We will have a surplus of luxury goods. Supply will exceed demand. Deflation shall ensue.
And how does the Money Supply affect this equation?
The same way it affects the housing market?
If deflation is happening in the housing market, why won't it happen in the other markets?
Thanks Captain Beyond.
I can’t eat FRNs either. My gold will still be worth something to humans in a hundred years (because this durable metal that is only created by supernovas will still exist and an ounce of it will still buy a good men’s suit).
The Federal Reserve will not likely exist at all. The building will be used as a warehouse by our gold-owning Chinese overlords.
I didn't say it wouldn't.
I'm asking you to explain to me, How Does Money Supply Affect Price Levels?
Feel free to include offsetting effects in your explanation (i.e., Supply vs. Demand, etc.); but please answer that basic question. Thank you.
Well, assuming that your scenario of "markets in general not susceptible to the deflationary pressures that the housing market is susceptible to in particular": in that case, it could be that the over-Supply in the Housing Market is far more pronounced than any over-Supply in the other markets.
So, let's go back to the basics:
Feel free to include offsetting effects in your explanation (i.e., Supply vs. Demand, etc.); but please answer that basic question. Thank you.
Waiting patiently...
“The fed was created by its owners to bring them staggering profits, “
The writer is an ignoramus.
“This is why I’m for ending the FED and going back to the gold standard. Gold is better then fiat since it causes less problems and ends inflation.”
The Fed was organized in 1913. The gold standard ended in 1971. The Fed didn’t take us off the gold standard, Nixon did.
Eric Janszen of iTulip makes the case that deflation arrived in 2009 and the Fed quashed it with massive increases in the monetary base. Being unfettered by a gold standard the Fed can continue to create money to combat deflation.
The price of fighting the deflation will be a future of high inflation. He sees a long period of stagflation coming.
“I’m asking you to explain to me, How Does Money Supply Affect Price Levels?”
That depends upon the velocity of money and willingness of banks to extend loans. As long as velocity remains low the price level shouldn’t increase. But the vast increase in the monetary base gives banks the ability to dramatically increase the money supply once they resume lending. The Fed has been trying to compensate for the collapse of credit by increasing the monetary base. This sets up the possibility of inflation when and if lending returns to normal.
Right now we are seeing inflation in many consumer items at the same time that deflation is dominating real estate.
FWIW, I agree.
I believe that we would have a demand-drought Deflation, if not for the Fed printing money.
However, I am also of the opinion that those who expect continuing Deflation, underestimate Mr. Bernanke's willingness to run the printing presses day and night to prevent it.
Deflation SHOULD happen, but I don't think it will (other than in some isolated markets with extreme over-Supply; but not in general). I believe that the Fed has inflated already (or else the CPI would probably be falling already) and will inflate further.
Yeah, I keep a copy of the links to the Monetary Base and the M1 Velocity in my bookmarks. I’d just like to hear HN’s explanation. (But I’m not going to ping her about it repeatedly, ‘cause I think that’s rude. She’ll respond when she likes).
I was expecting deflation but at this point I have to concede that TARP and quantitative easing all the rest of Helicopter Ben’s ammunition has stopped it in its tracks.
I just picked up Janszen’s ‘The Postcatastrophe Economy’. He comes across as a very astute analyst of the economy.
With gold at $1200/oz. and eggs at $2/dozen, one ounce of gold will buy 600 dozen eggs.
So, an ounce of gold is worth a mountain of eggs. You have it precisely backward.
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