The force of Hazlitt is strong with this one!
Equivocation. I’ve defined inflation and deflation several times already. Please adress the substance of my arguments.
After the housing crisis, housing contracted and other sectors grew to pick up the slack. It was a classic structural adjustment. Unemployment only rose by a tiny amount and real GDP continued to grow at a normal pace. It would have been better had the government allowed housing to contract faster but to say that a recession was delayed by more than a year due to this intervention is an extremely strong claim and I still haven’t seen any evidence.
How do the graphs you cite show deflation? M2 has fallen. This is beside the point anyway because markets are predicting low inflation or deflation.
About to happen? You seem to like making cryptic claims without backing them up.
Did I ever deny this. I deny two things: One, there is an inflationary time bomb waiting to explode; two, inflation always leads to low interest rates. Hyperinflation is dependent on a US debt crisis which is still a long way off and wouldn’t even be the end of the world anyway. It would be bad but the entire US economy wouldn’t collapse. Inflation can cause low interest rates and probably does for some short term bonds, but this doesn’t happen for all types of bonds at any given time.
Eventually the Euro will replace the dollar. This is still years away and would not be the end of the US economy anyway.
Falling against what? The Chinese yuan? Do you actually think that the next reserve currency is going to be the yuan? Maybe years and years from now, but not in the near future. I don’t see how any of this is relevant to the discussion anyway.
Should say “How do the graphs you cite show inflation?”
Huh?
Yes, trillions of dollars in monetary growth can delay a collapse for quite some time, or else monetary policy wouldn’t exist, now would it?
They show massive monetary growth, and cite official sources. As I’ve already stated, inflation tends to obfuscate expectations; basically, their predictions are meaningless, they don’t understand economics, and fail to recognize the nature of the FED and the US government.
Look at Yugoslavia, Russia, Spain, Argentina, Rome, ect,… Printing a lot of money causes inflation; printing too much money causes hyper-inflation. During the inflationary process all is well, like the addict getting his “fix.” Naturally, the problem occurs once the inflation stops or is slowed, if it ever stops or slows down at all. In my opinion, there are only two possibilities: The politicians fess up and take responsibility for the mess they created (allowing the economic crises), or the dollar and the American economy is destroyed (bringing other economies down with it). So, again, choice A) economic crises, choice B) economic destruction.
Falling against commodity currencies: http://www.x-rates.com/d/EUR/AUD/graph120.html (Australian Dollar), http://www.x-rates.com/d/EUR/NZD/graph120.html (New Zealand Dollar), http://www.x-rates.com/d/EUR/CAD/graph120.html (Canadian Dollar). The next world currency should be gold, but it won’t be (probably SDRs). It’s relevant because you seem to deny that monetary growth causes inflation, and that the dollar is falling in its purchasing power. My point is quite simple: the Euro is collapsing, just at a slower pace relative to the Pound/Dollar, the whole world is inflating.
You said, “Inflation doesn’t always lead to low interest rates,” the question is; how do you define “low?” Inflation always leads to a reduction in the market rate of interest relative to the natural rate; the degree of this divergence depends on the rate of inflation relative to the increased demand for it, as the creation of fiduciary media creates additional demand (since investments are cheaper).
You obviously have not read my previous comments. There is a response to all of you points. I won’t answer these concerns for a tenth time.
It’s not an equivocation. You claimed that inflation was an excess of money. Necessarily, deflation would be a shortage of money. But you claimed that deflation was already here. So is there a shortage of money (by your definition) or is the market re-pricing assets?
There is shortage of money. I thought I was clear. The monetary base has shot up but this is meaningless. The supply of money has either grown very slowly or fallen while the demand for money has grown tremendously. If the demand grows by 2% and the supply only grows by 1%, there is shortage and there will be deflation.
You were not.
So lowering interest rates is now meaningless?
Can you back this up with data?
Where is this deflation? Where specifically?
Yes. Read my other comments.
M2 has fallen.
The CPI has fallen and asset prices have fallen. The TIPs spread predicts more deflation if the supply of money does not increase.
Has it?
And they have fallen due to a lack of circulating currency?
Yes. http://research.stlouisfed.org/fred2/series/M2
They have fallen due to a fall in nominal expenditure.
I checked that first. It’s fallen by 3/10ths of a percent in a month which is historically consistent with minor moves on a major plateau. Is your claim that 3/10ths of a percent has caused deflation?
That is not an answer to my question. Obviously prices have fallen due to a lack of purchasing power. My question was, has deflation been caused by a lack of circulating currency, your 3/10ths of a percent contraction? It seems to me that if you’re making the case that deflation is due to a lack of money, then prices are falling due to a currency shortage, not a shortage in purchasing power. Sound reasonable?
Yes. There has been a massive increase in the demand for money. Any change in the supply that falls short of that increase in demand will result in deflation.
Nominal expenditure is the MV part of MV=PY. I am saying that the fall in P is caused by a fall in V unmatched by a corresponding increase in M.
You’re flipping definitions again. You claimed that deflation was caused by a contracting supply of money. I am asking you if 3/10ths of a percent, which is well within historical norms, is enough to trigger deflation. Now you are claiming that deflation is price deflation (and not a monetary level) which has been created by increasing demand against static or slightly falling supply.
Which is it? Is deflation a contraction in the supply of money, or an increase in demand for money?
And secondly, how are you measuring the massive increase in the demand for money?
I’m not interested in monetarist equations. I asked you a simple question of logic, repeated here
Which relates back to the first part of this response. You define deflation as a monetary supply decrease. But you’re not able to show a meaningful decrease in the supply. But then you also declare deflation is price deflation, that demand for money is greater than the supply, but I am waiting for you to (1) clarify these two different meanings applied simultaneously, and (2) explain how you have measured the massive increase in the demand for money as the driving force behind deflation.
I’m not trying to be confrontational, I don’t have a dog in this race. If you have a valid point to make, then I want to learn it and know it. But you’ll have to be a lot more precise in your argument, because right now, it’s not very strong.
Go back and read my previous comments. Deflation is an excess demand for money. This can be caused by either a decrease in the supply of money with stable demand or an increase in the demand for money with stable supply. We have seen an enormous increase in the demand for money and a decrease in the supply of money.
MV=PY is not a monetarist equation. It is a logical identity. A framework for analysis. Nominal income must equal nominal spending, by definition. It is NOT the quantity theory of money.
Deflation (an excess demand for money) will inevitably lead to falling prices in the long-run. I am sorry if I wrote deflation in regard to falling prices without clarifying.
The increase in demand for money can be shown by the drop in nominal GDP. If nominal GDP falls and the money supply is stable, there must have been an increase in the demand for money as nominal GDP is equal to MV.
Oh!, so we arent talking monetarist quantity theory of money, or austrain quantity theory, but rather the fisherine equation of exchange? please say yes ;I have a response waiting, but dont want to waste it if its not appropriate…
Let’s hear it.
so we are doing Fishers equation of exchange, because thats what you meant? (yes/no)
You don’t know what deflation or inflation is, you make up your own definitions as you go along. How does one define “excess?”
Indeed, it’s tautologically true; both sides are exactly the same. “Velocity” is no different from “T” (transactions) whatsoever (You’re using Friedmans quantity theory, as opposed to Hume’s which is MV=PT). Money is never exchanged for money, ever, not on capital markets, nowhere. Whenever an increase in the supply of money does not yield the “expected” result, the mechanical quantity theorists blame “V.” Basically, for them, V=X; here’s what Mises has to say about the purely mechanical approach to quantity theory:
“In analyzing the equation of exchange one assumes that one of its elements–total supply of money, volume of trade, velocity of circulation–changes, without asking how such changes occur. It is not recognized that changes in these magnitudes do not emerge in the Volkswirtschaft [political economy, or more loosely `economy’] as such, but in the individual actors’ conditions, and that it is the interplay of the reactions of these actors that results in alterations of the price structure. The mathematical economists refuse to start from the various individuals’ demand for and supply of money. They introduce instead the spurious notion of velocity of circulation fashioned according to the patterns of mechanics.” (Human Action, p. 399)
You sound like a confused college student mixing definitions and concepts together without actually understanding them. Your comments are a mix of Keynesian, Neo-Ricardian, Monetarist, and Austrian principles, all muddled together; basically, it’s incomprehensible.
The length of the production process has everything to do with malinvestment. Demand for immediate/near-term consumption increases without a preceding capital accumulation, which leads to capital depletion, hence malinvestment.