"Yes, in a perfect world, if possible, 0% inflation is better than 2%."
Agreed as to the zero percent. However, I do not know who is taking the gloomy view of the current economic situation. If this economy cannot withstand a minor [for example a two percent] deflation, maybe it is more fragile than I thought.
"No, just an admission that if you make real interest rates higher you will get less borrowing. If that doesn't bother you, that's fine. If the reduced borrowing leads to less output and fewer jobs and that doesn't bother you, that's fine."
True as to the effect of higher true interest rates. However, manipulation of interest rates almost by definitions causes economic distortions through false signals to the economy. Maybe it really is easier for the Government / Fed to pick the ideal price of money [interest] than to fix / manipulate other prices to someones version of perfection. My concern remains that through constant manipulation of interest rates a lot of bad [or at least economically distorted] decisions have been made.
"If there were a workable way to set the money supply so it wasn't "dinked around with" I'd be all for it. Gold won't work anymore, so dink we must."
Maybe. As previously indicated, I would settle for a target of zero inflation.
BTW, with a gold exchange standard, most transactions would probably continue to be settled by lots of ones and zeros.
One other little tidbit, which is probably more coincidence than anything else: @$20.83 per ounce gold at the time the Fed was established and an approximate 96 percent loss in the purchasing power of the dollar over the period since 1913, you end up with a gold price in the same general range as the current price.
"Unfortunately, the savings won't outweigh the pain. Consumers will benefit. During the Great Depression, the 75% who were employed probably enjoyed the lower prices. The other 25% were screwed. Manufacturers who aren't driven out of business will benefit, the rest (and their employees, creditors, suppliers) will be screwed."
Do you foresee a calamity occurring solely due to a mild deflation? In any event, please recognize that it is the level of debt that causes and inflicts the most serious pain in a deflation.
"The MSM reports whatever makes Bush look worse. And then they report the Core rate with the if you don't eat or use energy snarkiness."
Actually, I think the MSM is more kind that I might be one this one -- usually "the core rate [which excludes food and energy]" sometimes followed by the "CPI including food and energy."
" If only gold and silver were still practical."
You may or may not be right. There is probably some price of Gold where a gold exchange standard would work, but the implementation would involve a higher gold price, more faith than most private holders of gold have in governments, and a consequential bout of inflation as at least some privately held gold was being monetized at higher than then prevailing market prices.
I am still very against Washington's dangerous tendency to ignore any part of the Constitution it finds inconvenient. Witness the numerous violations of the plain language of the Second and Tenth Amendments.
"I thought CPI was based on a basket of goods purchased by the "typical consumer"? If the typical consumer changes the items purchased......."
Correct, but my point was that to be an honest measure, the chicken for fillet substitution should also be reflected in the quality adjustment as well, not just as blip downward through the magic of substitution. IIRC that is not how it is done.
" Who said I'm unconcerned about debt? I do know deflation makes it more difficult to pay off debt."
It does at that. However, hopefully I adequately described the role that unserviceable debt has in triggering deflations -- particularly truly serious deflations.An absence of excessive debt equates to a very low probability of nasty deflations.
" Yes, debt is rising. And so is net worth."
Read the quote from Greenie in my earlier post again addressing the realities associated with unrealized gains from asset inflation. Greenie probably understands our current position a lot better than an examination of his policies would indicate. Some of the conspiratorial types even believe that he has been acting out the Francisco D'Anconia role from Atlas Shrugged. My best guess is that he believes in the theory that more pain later is preferable than a little pain now theory. My opinion is it might be better for his perceived place in history, but not for the American people.
In any event, the point is that inflating asset prices can deflate even in a loose monetary environment e.g. California real estate 15 years ago, NASDAQ in 2000. It did not take a general / monetary deflation to trigger those slides. If we have a significant real estate decline in more than a few markets, watch out for Fannie and Freddie and if they go ... BTW, continuation of the housing bubble does nothing but make a bust at some point in time much more likely.
There needs to be a margin of safety [savings and modest debt leveraging]. The long term trends indicate to me that the margin of safety is eroding. Without a margin of safety, cascading defaults can bring on the nastiest form of the deflation you fear so much.
I think we have thoroughly expressed our opinions. I congratulate you on having at least given considerable thought to monetary risks. I really do wish you well.
The problem is not the price that gold is monetized at. The problem is that after that point, the gold supply expands at some rate, maybe 2% a year, that is slower than the long term growth rate of the economy. Then we'll have long term deflation.
In any event, the point is that inflating asset prices can deflate even in a loose monetary environment e.g. California real estate 15 years ago, NASDAQ in 2000. It did not take a general / monetary deflation to trigger those slides.
IIRC, Greenspan inflated the money supply pre-Y2K and started to deflate in January 2000. I thought that, as well as the Microsoft persecution, led to the bubble popping.
I think we have thoroughly expressed our opinions. I congratulate you on having at least given considerable thought to monetary risks. I really do wish you well.
Good luck to you as well.