Posted on 11/21/2014 1:30:29 AM PST by TigerLikesRooster
DRAGHI: Inflation Must Rise Without Delay
Mike Bird
European Central Bank boss Mario Draghi is speaking today at a banking conference in Frankfurt, and he has one central message: we have to bring inflation back up, now.
It’s one of Draghi’s most forthright speeches, with one exceptional snippet: “It is essential to bring back inflation to target and without delay.”
Draghi added: “We have to be very watchful that low inflation does not start percolating through the economy in ways that further worsen the economic situation.” You can take a look at the full text of the speech here.
(Excerpt) Read more at businessinsider.com.au ...
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He is right of course. Deflation is a very debilitating disease for an economy. The notion that prices will decline if one waits to make a purchase has the effect of slamming the brakes on consumption, reducing employment, and causing still more deflation. It is a negative spiral that monetary authorities fear as much as they fear hyperinflation. It’s why central banks usually target low, but positive, rates of inflation, like the ECB’s 2%
Economists do not always love to see economy correct its own excess. They only like "good" correction or "good" equilibrium.
Yes, probably you’re right that a global deflationary depression with mass starvation, revolutions, a rise of fascism and communism, world wars and unprecedented levels of death and destruction is better than this situation of a few chatroom monetarists having anxiety about the money supply situation.
In other words “We need to steal more money from people who work for a living and save for retirement.”
Screw ‘em. I have some money saved and I’m watching its value drop. I’d rather have deflation.
Then everything else is hunky dory cheap. If you need to buy a big screen TV your going to be ok and get a great deal, inflation is low then.
Greenspan and ilks screamed about coming deflation in early 2000. They said commodity price was falling. So they had to pump money into economy as if there were no end. For a while, it seemed to work. Then what? 2007 happened and it is history. Between the bad now and the terrible later, they will always choose the latter. All the time.
Nobody tried to slam the brake during the upswing. Everybody conveniently believed that there would be no crash and we are in the new age of gravity-defying economy.
Postpone the reckoning all you want. Instead of turning things around, what will come would be worse than what you expect if things go down now.
That equilibrium thing does not work as it is supposed to, does it? During the upswing, it was so far off the equilibrium. Actually, things would not have been this bad if they did not dump money during Dotcom bubble or after 9/11. Everytime the market appears to head down, there was always money from Fed. They messed up the market badly.
Then we are here now, worrying about fascism and communism? Is it such a surprise which nobody foresaw? Don't they read history? Oh that is right. "It is different this time. You never know you are in the bubble until you are out of it." An excuse so convenient (actually so stupid.)
People scoffed at Japan during 90's. They must let the market does it work, clearing out the deadwood, the preached. Well, now it is EU and US's turn. If you prevent market from doing it work, you don't really have faith in the market either. This is not even about the controlled crash. It is about no crash at all cost.
They jerked 'the invisible hand' around, and now it is going to slap them. You can't avoid being slapped forever. If you want to see how civilization will destroy itself, you are setting it up nicely. Slow certain descent to the bottom in the best case, but slow descent followed by abrupt catastrophe is more likely.
Deflation is bad. The deflation postponed by dumping trillions of dollar's worth of money into the market would be many times worse. I still feel that we should have deflation in early 2000's. It would be bad but nowhere near what we are about to have now, if we postpone it further.
No deadwood will be cleared, no cleansing and the new recovery.
It is already well past the time things can be fixed with economic means. We are just pretending that it is not. This thing cannot be fixed with monetary policies or any other economic measures. They allowed it to become too big to be an economic problem.
You can't say that these things can be seen in hindsight. Not really. Indicators showed that market was grossly inflated, and it does not take a Nobel prize winner to see that it will lead to a crash which could cause not only economic disaster but also geopolitical crisis.
That’s not true. Deflation is only permanent when governments intervene. Worse, by focusing solely on prices you miss the real cause: Socialism and its ideas on human action.
Pre-Fed America never experienced a deflationary spiral.
These deflations are a direct result of government policies. Japan is a centrally planned economy with laws that Americans would revolt at. Get rid of the bad economic policies and the economy will thrive, people will have kids, etc.
Pre-Fed America suffered massive deflation over and over again.
Pre-Fed America suffered massive deflation over and over again.
What does Draghi think years of QE by the Fed were trying to do?
“Pre-Fed America never experienced a deflationary spiral.”
Try googling “the long depression”.
Pre-Fed America had the same long term economic growth as today without the unsustainable increase in debt. Deflation is only a problem when you are up to your neck in debt like everyone is nowadays. The borrowers and spendthrifts are glad to hear this prescription by the Eurobanker, but people interested in long term growth with stability recognize it is a bandaid on bleeding artery.
1873-1893 was the greatest period of industrial growth in American history, perhaps in all of history.
“1873-1893 was the greatest period of industrial growth in American history, perhaps in all of history.”
Crony capitalism at its best. Railroads were the biggest industry in the country and they reaped a windfall in government land grants and subsidies.
It was also the time of the Long Depression. The 1873 return to the gold standard, which had been abrogated by Lincoln, caused the American money supply to contract. The resulting collapse in agriculture prices wrecked farmers and other heavy borrowers.
So we should encourage and promote more borrowing at this point as well?
That runs into the “pushing on a string” dilemma. You can’t force people to borrow. Interest rates are already near zero. No one is borrowing, and/or no one wants to lend. This is the sort of thing that signals to you that there is deflation.
A lot of what the Fed has been doing is in the attempt to keep asset prices from collapsing. People have loans against those assets and if the price falls below what they owe they will walk away or declare bankruptcy. It would set in motion a vicious spiral.
True, but the vicious spiraling collapse will only be worse if we postpone it. The theory of expanding debt to infinity has one important flaw.
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