... and how well does continually stepping up the dosage work?
" It's easier to adjust interest rates higher to account for inflation than to adjust rates lower to account for deflation. You usually can't borrow for less than 0%."
"Adjustment" mechanisms associated with loans are generally for the benefit of the debtor. If loans were pegged to an accurate measure of inflation plus a real interest rate, ... well maybe ... but then the motive [theft by deception] would go out of inflation.
It's also easier to give employees COLAs during inflationary periods than it is to reduce their salary during deflationary periods. And if you were able to overcome the "stickiness" of salary, how does deflation benefit the average worker again."
??? You are the one advocating the continuation of monetary scams, not me.
If you've ever heard the phrase "pushing on a string" , it refers to the difficulty of interest rate cuts to stimulate the economy. Notice how long the Japanese Central Bank has held rates near zero and how that has failed to stimulate their economy.
I've heard the term. You mistake the effect with the cause. Japan had a debt explosion in the eighties. The current pain did not come from deflation, it came as the inevitable consequence of the inflation [debt is money in fiat money regimes -- debt that cannot be serviced must be liquidated] that preceded it. The Japanese still haven't written off all their bad commercial loans, but have written off or restructured a lot of them. That part of their debt structure has improved.
"Who has unsustainable debt? Is debt easier to service with rising or shrinking earnings? Easier to service if you're employed or if you're unemployed?"
The U.S. If you are employed, but the chances of almost everyone who works for wages being unemployed at some point in time is very high. Too much leverage means bankruptcy if anything goes wrong.
" So a recession would be a small price to pay to boost the savings rate? You're funny!"
Thanks, so are you. Recessions serve the purpose of working off excesses. The business cycle is not a thing of the past. As long as there are credit expansions there will be periods of liquidation in the aftermath. A zero savings rate is not healthy. IIRC the U.S. hit a zero percent savings rate in the fourth quarter of 2005.
"So it has to be one of the other? Hyperinflation or 15 years of dragging economic performance? Are you comparing our current situation with Weimar? Would 2% inflation every year be like Weimar?"
After years of inflation, debt and couple of bubbles? Being somewhat optimistic, we might be able pull back from the brink without a major deflation. However, if we keep mainlining monetary cocaine much longer those will be the choices. If we can have two percent inflation every year we can have no inflation. The Fed gods are not omnipotent [I for one do not even believe that they are real gods.]
BTW, if you believe the two percent inflation number, consider hedonic adjustments, substitution, and the "core rate" concepts. Then tell me again what the real inflation rate is currently.
" Have you ever talked to an economist in person? Boy, they are funny guys. Always joking around. That's what the helicopter speech was about. It was just a joke. Because deflation is no problem at all. It's just a coincidence that we had crippling deflation and 25% unemployment during the Great Depression."
Fed Board members know that their speeches will draw attention. IIRC Helicopter Ben was a Fed governor at the time and if so he was sending a message. It might have been a joke if he had said it in conversation. In a prepared speech before the press? Yeah right.
"So, do we need to go back on the gold standard? For the children?"
No, although it would impose discipline for the long haul. Helicopter man claims to be a proponent of inflation targeting. If he can hit that mark, a target of zero within the current fiat money regime would be just fine with me. And no, the prime beneficiaries would be pensioners or for that matter anyone else who never realized they were on the wrong side of a crooked game.
You might appreciate this quote I saw recently which was attributed to your hero Greenie [sorry no link]: "This vast increase in the market value of asset claims [stocks, bonds, houses] is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent. But what they perceive as newly abundant liquidity can readily disappear … history has not dealt kindly with the aftermath of protracted periods of low risk premiums."[emphasis added]
Actually inflation has come down nicely since 1980. So that'd be reducing the dose.
The current pain did not come from deflation
Deflation hurt corporate earnings and reduced employment. How did that not cause pain? And then the government went on a massive spending spree to try to stimulate the economy. So now they have an insane level of government debt.
The Japanese still haven't written off all their bad commercial loans, but have written off or restructured a lot of them.
Is it easier to service or renegotiate your debt when your company has growing earnings or shrinking earnings and losses? Are banks more likely to write off bad debt when they have earnings and reserves or losses and no reserves?
The U.S.
The U.S. has unsustainable debt? How do we compare to Japan after their 15 years of "not-a-problem-deflation"?
Do you think our debt will be more sustainable after the unemployment and losses caused by deflation?
Too much leverage means bankruptcy if anything goes wrong.
Yes, deflation is bad when you're leveraged.
If we can have two percent inflation every year we can have no inflation. The Fed gods are not omnipotent.
No they are not. They cannot fine tune the inflation rate. That's why 2% is safer than 0%.
Then tell me again what the real inflation rate is currently.
I'll take the Fed's word for the inflation rate unless you can show me a better one. What do you think the real inflation rate is?
Fed Board members know that their speeches will draw attention. IIRC Helicopter Ben was a Fed governor at the time and if so he was sending a message.
Yes. The message was that we would not suffer the same deflation as Japan. We would not stop at cutting the Fed Funds rate. If we needed to, we would increase the supply of high powered money.
No, although it would impose discipline for the long haul.
It would impose deflation for the long haul.