Posted on 09/24/2007 10:37:43 AM PDT by oblomov
Good grief, what a pansy.
Why do you say that?
Uh-huh. This is the same "inevitable" crash he's been predicting ever since he started opining.
At that point, a bimetallic quasi-Gold Standard should be the alternative to work for against the statist and inflationary nostrums that will doubtless be proposed.
Wow. He is a goldbuggerer. What a surprise.
I missed the memo where the Fed said the cut was to help the home mortgage borrower.
Nothing wrong with being for a gold-backed currency, in my view. Many reputable economists and politicians have favored it. But to say it is “inevitable” reveals a right wing form of Marxist historicism that obviates rational thought...
Because you think deflation is a good thing?
Good grief. I don’t want Paul Volcker, 20% interest rates, and nasty recessions. I want investment, innovation, and steady economic growth.
Yes, a slight deflation is a good thing. High deflation, on the other hand, is even more pernicious than high inflation, which is why central bankers choose hyperinflation over strong deflation in the event of a financial crisis. But small amounts of inflation are corrosive to both the financial well-being and moral character. Inflation is the handmaiden of the “twilight of authority”.
But small amounts of deflation (<3% per annum) ensure fiscal probity and an emphasis on production over consumption.
How'd that work out for Japan in the 90s?
But small amounts of deflation (<3% per annum) ensure fiscal probity and an emphasis on production over consumption.
If GM had to lower the price of their product 2.5% each year, you think they'd be a stronger company? Would any company expand production if there was 2.5% annual deflation? How many houses would be built or bought each year if the prices dropped 2.5% every year?
>>>Yes, a slight deflation is a good thing.
>>How’d that work out for Japan in the 90s?
Not well, but only because of the nature of the deflation there. The government prevented insolvent companies from failing, and engaged in massive spending to prop up the consumer economy.
A better example is the US in the latter part of the 19th century. There was persistent deflation on the order of 2-3%, and yet there was unprecedented economic growth and opportunity.
>>If GM had to lower the price of their product 2.5% each
>>year, you think they’d be a stronger company? Would any
>>company expand production if there was 2.5% annual deflation?
Yes and Yes!!
>>How many houses would be built or bought each year if the prices dropped 2.5% every year?
Houses would be treated as a consumption good, like a car or television set. They would be bought with similar expectations, and would not be traded like Pokemon cards. The consumption emphasis of the economy would change to a production emphasis. Firms would focus on increasing production efficiency and on innovation, rather than counting on inflation to bury the mistakes and mismanagement. It would be a different social and cultural environment. The assumptions behind your questions would no longer be true.
You are forgetting the computer industry. It has become a powerhouse sector with just such practices.
Instead of a gold standard we should have an “oil standard”. A currency redeemable (in principle) for a barrel of oil. Hell, maybe a gasoline standard - redeem it for a gallon of gas. Nobody wants or needs gold. Whereas....
Yes, because as a business owner, with deflation, I'd sure as heck want to borrow money to expand my production capacity. Lower price for my product and higher loan payoff is so enticing.
You mean deflation in Japan didn't cause people to delay purchases?
Yes and Yes!!
Why and why?
Firms would focus on increasing production efficiency and on innovation, rather than counting on inflation to bury the mistakes and mismanagement.
You think firms would borrow to fund R&D and the expansion of production in a long term deflationary environment?
No I'm not.
It has become a powerhouse sector with just such practices.
If you don't understand the difference between increased productivity and efficiency leading to lower prices and economy wide monetary deflation leading to lower prices.....
Money needs to be
1) a store of value
2) a medium of exchange
3) fungible
4) a standard of deferred payment
There have been suggestions in the past of tying the USD to a basket of agricultural commodities, most notable the Granger movement in the US in the 19th century. Although these commodities are fungible and are widely traded, the suggestions were largely derided as crackpot monetary theories, since it would subject the economy to ups and downs on the basis of the weather or pestilence. And the monetary standard could not be stored long term.
The ancient Sumerians actually did use a wheat standard, rather than a gold standard. It did not work badly for them, but theirs was a simple economy.
The problem with an oil standard is that it effectively gives the oil producers 75% of our currency, and the US only 25% (since that is the portion of our consumption that is domestically produced).
But unlike agricultural commodities, oil can at least be stored.
I know as an employee, I wouldn't mind my salary dropping 2.5% every year.
Lower price for my product and higher loan payoff is so enticing.
For sure. You'd probably want to double your production.
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