Posted on 12/20/2014 11:19:23 AM PST by Kaslin
Theory #1: Break-Even Rates Provide "Deflation Warning"
Hmm. Hyperinflation as rock and deflation as hard place?
Deflation is a bugaboo to Keynesians and oligarchic thinkers because declining prices, which are a net neutral market phenomenon, is not inflation which enriches those at the top, bankers and such, who are allied with the nations’ fiat money sources. Declining prices are a result of increased and more efficient production in a stable money world. As such they are not actually deflation. Keynesians and bankers, however, define prosperity as rising nominal prices and from that are prone to warp the markets into inefficiency but that always benefits the bankers. Government and bankers believe “proper” inflation to be about 3%, enough to give the bankers, etc. a continually increasing share of total wealth without having to produce more while maintaining stability of markets and societies.
What they call “deflation” is really a very very good thing.
But for statists, it is bad. It makes the much-discussed “economic indicators” go down, which small minds equate with declining prosperity. In a similar way, inflation is thought to be good, because it makes the numbers go up, which the uninformed think is a good thing.
In order for deflation to not be a problem, the currency has to be worth something. A fiat currency makes things a mess.
Check out Russia today and see where we are headed tomorrow.
All I know is that stupidity pays
I remember six years of school where I had to buy lunch(1950-56). Twenty Five cents a day purchased one hamburger a bowl of stew and a soda at one of the local restaurants, that was true for all those six years.
I am from the same era and I don’t think I ever bought lunch. I always had a lunchbox or a brown bag.
Statists and other economic ignorami believe that expansion is inflation is expansion. They cannot conceive of other than a zero sum game. There is not real expansion of production. There is no more wealth in the world than there was a thousand years ago. In order for a society to be more prosperous it has to steal the wealth of other societies. Inflation is a tool to that end. Leftists are almost uniformly zerosumists and thus must accuse the richer countries of stealing from the poorer ones. But they do not decry the inflation that they think accomplishes this because it also transfers the wealth of the society to the rulers and bankers which is a primary goal of the left.
Statists love inflation, when it is combined with progressive taxation of income. As nominal incomes rise the government’s take, as a precedent of total income, steadily creeps up as more and more of the subjects move into higher tax brackets, even if their real incomes remain static or even decrease. This without the pols having to ever actually vote for an increase in tax rates, and by doing so incur the voters’ wrath.
On the flip side, deflation would produce the opposite result: as price and income levels fall, the government’s share of the pie declines, as the subjects slip into lower brackets.
So, yes, the government hates deflation and loves inflation.
This is also why statists would not prefer a consumption tax as opposed to a progressive income tax. Under a consumption tax the government’s share of total economic pie would not increase automatically; to increase the government’s take, pols would have to vote to increase the rate.
It is ‘disinflation’ as opposed to deflation.
I’m ready for some food prices to deflate but that isn’t going to happen. They never come down even when they can and should.
I’m sick of partially filled containers of all manner of foods. What do we do?
PS, we had little inflation until tricky dicky took us off the gold standard. It was almost unheard of.
It was either doing that ... or ... the USA be officially declared bankrupt at that time.
Yes.
There was actually a slight deflation through the nineties, the increase in money supply did not keep up with the increase in goods and services. The result was that peole like me that saw little or no increase in nominal earnings were not feeling continually pressed because the dollar was buying continually a little bit more. Major industrial strikes which had been the norm in the 80s and 70s did not happen in the 90s as workers, even union workers did not feel that they were falling behind. It was a good time.
BFLR
The real inflation rate is reflected only partiially in the prices we pay. The price inflation has been running between 6 and 10+% since 08. The real inflation is much higher than that and probably in the lower end of the area we call hyper. Most of the extra money goes into the stock market. There is little return for lending it and much better returns from equities so long as the Fed keeps making the stuff and shoveling into the banks. A rise in interest rates, while necessary for any hope to avoid collapse is to be feared for its immediate effects. It will suddenly make loans more profitable than equities and the Market will go down, precipitously or more lazily but inexorably down as prices rise rapidly in the rest of the economy. All that money has to go somewhere. It will go into the prices of cars and potatoes. It will probably also crash property values which will itself serve to drive up the prices of everything else even more such the rise in the price of groceries will actually be steeper than the inflation.
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