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Deflation

WB9YZU

NAXJA Forum User
Location
Madison, WI
The way I see it, an economy can't sustain continious inflation before the workers wages are not sufficient to buy goods and services.

The later part of the 90's and all of this century have suffered from inflation. A 100K house is now worth 2-250K, a basic car went from 5K to 12K, and we won't even talk about the inflation in the fuel and food markets.

But what about the workers wages? Did they inflate 2-3X what they were 10 years ago? In the private sector, I'd say no.

I see world leaders and even our Reps in Washington racing to save this situation. But what if it shouldn't be saved. What good is it to be employed if you can't afford to buy anything?

Is deflation really that bad?
 
The way I see it, an economy can't sustain continious inflation before the workers wages are not sufficient to buy goods and services.

The later part of the 90's and all of this century have suffered from inflation. A 100K house is now worth 2-250K, a basic car went from 5K to 12K, and we won't even talk about the inflation in the fuel and food markets.

But what about the workers wages? Did they inflate 2-3X what they were 10 years ago? In the private sector, I'd say no.

I see world leaders and even our Reps in Washington racing to save this situation. But what if it shouldn't be saved. What good is it to be employed if you can't afford to buy anything?

Is deflation really that bad?

Too much of anything is bad, too much inflation or too much deflation are both very bad, but too much deflation is worse than inflation. We can survive more inflation than deflation % wise before everything turns to shit. Inflation can be caused by many things. Whether workers can buy the products when inflation is running amok, depends on the source of the inflation. Oil and fuel prices tripling overnight, when the source of those is overseas, is especially bad for us, in that case you are right, inflation is bad, but when it trips the circuit breakers and heads the other way, it is a disaster, if it is not stopped immediately. Inflation caused only by rising wages here can keep pace with rising product costs for products made entirely here. The damage, caused by inflation, if any, depends on the cause of the inflation, and the amount. A 1% steady inflation rate, to keep the deflation beast at bay is what has successfully driven our economies for decades.

Areas like real estate, housing, and commodities can not be allowed to fall in price for too long, or too far (true Deflation). If they do, then the producers (commodities, housing, building, transportation.....) can no longer make profits, or service their loans, loans go bad, banks go bad, credit dries up, borrowing dries up, spending dries up, business expansion stops and contracts, people get laid off, and thus stop spending, and it can eventually wipe out all value in the country......... Growth stagnates, profits end and become losses, then people get laid off, new jobs don't get created because no one wants to expand or start a business when business is dying, leading to less buying, less selling, less profits, it turns into a vicious cycle. On the other hand, a small amount inflation helps keep this from happing (But other things can trigger deflation even if you inflate the money supply, like what is happening right now). In our case the FED policy last year, high FED funds rate, combined with government ignoring the housing problem for too long, and the AIG derivatives problem which was sold all over the world, has combined for a perfect storm that even rapid world wide printing of money by itself won't fix. It will help, but they need to address the deflation of real estate / housing or will just delay Great Depression #2.

Part of the problem with continuous deflation is that everyone stops buying and decides to wait for prices to stop dropping (but they never during the crash that led to the Great Depression). Why buy a house for $200,000 if it is dropping in price every month. Let that go on for a few years and everyone gets screwed like they did in the 1930s.

During the 1930's we had one problem we don't have now. Back then there was an inelastic money supply, it was tied to gold reserves limiting the FED's ability to print new money.

The reason house prices went up so high the last 10 years is that mortgage payment dropped when interest rates dropped. Mortgage interest rates were 13-20% back in 1980 when I bought my house. As the economy recovered, and inflation abated in the early to mid 1990's interests dropped from 20% to about 5% (maybe lower) for home loans, so a person who could afford a 50,000 house at 20% interest, could now afford a 200,000 house at 5% interest. Then all of a sudden house prices went up 400%, new home building bubble started to keep up with new demand, and then when the Fed raised the FED funds rate from 1.5% to 4.74% between 2005 and 2007, the house of cards came crashing down.

Now, even though they have dropped the FED Funds interest rates to 1% banks are too afraid to loan, people are too afraid to buy and borrow, so prices keep dropping, people keep getting laid off.

200 years ago deflation was not as serious a threat as it is now. 200 years ago everyone lived on a farm and produced most of their own food. Now if industry shuts down you have 300 million people in the US alone who don't have the skills to survive off the land, even if they had any land. Mass starvation usually leads to revolution, a bloody mess.

Mass starvation (caused by monetary policy mistakes like the ones we have just seen) in the Germany in the 1930's helped put the Nazis in power. Google "Germany, Great Depression, deflation, inflation, financial crisis" for more on where we are heading if Congress does not gets it act together quickly.

That is part of the story anyway.
 
Congrats ECOMIKE... the above is spoken like a true liberal!

200 years ago, you didn't pay your bills you went to jail, simple as that. It was called 'debtors jail'. Mass starvation in Germany, thats the first time I heard that one. The German people were fed up with everything owned by the Jews (this is not a discussion about Jews, just history).

Get off your liberal high horse and join the real world.
 
Congrats ECOMIKE... the above is spoken like a true liberal!

200 years ago, you didn't pay your bills you went to jail, simple as that. It was called 'debtors jail'. Mass starvation in Germany, thats the first time I heard that one. The German people were fed up with everything owned by the Jews (this is not a discussion about Jews, just history).

Get off your liberal high horse and join the real world.

Sorry, but deptor's jail did not exist in the USA 200 years ago.

But what do your mistaken comments have to do with deflation, what it is, what causes it, back to the original question asked in the first post?
 
Sorry, but deptor's jail did not exist in the USA 200 years ago.

But what do your mistaken comments have to do with deflation, what it is, what causes it, back to the original question asked in the first post?

How do we have a discussion with you ECOMIKE if you cannot get your facts straight?

Regarding don't pay debt go to jail...
In 1833 the United States reduced the practice of imprisonment for debts at the federal level. Most states followed suit.
This is still in effect, though watered down. Don't pay alimony, don't pay child support what happens?

What about your mass starvation in Germany claim?

Sorry, I cannot get on your liberal views wagon when you cannot get your facts straight!
 
How do we have a discussion with you ECOMIKE if you cannot get your facts straight?

Regarding don't pay debt go to jail...
In 1833 the United States reduced the practice of imprisonment for debts at the federal level. Most states followed suit.
This is still in effect, though watered down. Don't pay alimony, don't pay child support what happens?

What about your mass starvation in Germany claim?

Sorry, I cannot get on your liberal views wagon when you cannot get your facts straight!
I don't see anything about political view in what ecomike has said. What I read was background information on what has happened in the past to instigate inflation or deflation.

Thanks for the read Ecomike, very interesting
 
How do we have a discussion with you ECOMIKE if you cannot get your facts straight?

Regarding don't pay debt go to jail...
In 1833 the United States reduced the practice of imprisonment for debts at the federal level. Most states followed suit.
This is still in effect, though watered down. Don't pay alimony, don't pay child support what happens?

What about your mass starvation in Germany claim?

Sorry, I cannot get on your liberal views wagon when you cannot get your facts straight!

Can you back your claims with references? I have never heard of US debtors prison during the 1800s.

I am speaking of debt, as borrowed money debt. Child support is not borrowed money debt. It is child support. Not the same, at least not exactly the same thing.

I am not going to bother posting proof until you back up your claims.
 
Can you back your claims with references? I have never heard of US debtors prison during the 1800s.

I am speaking of debt, as borrowed money debt. Child support is not borrowed money debt. It is child support. Not the same, at least not exactly the same thing.

I am not going to bother posting proof until you back up your claims.

Debt is something you owe, regardless of what it is or who you owe it to. Alimony, child support, they are both debts.

In the 1700's and early 1800's debtors in prison in the US was common. For one of the debtors prisons in the US, go to Philly near Independence Hall. Here you can see where one of the debtors prisons from the US was (though the prison is long gone). Georgia was originally intended to be a penal colony, with debtors as its primary residents.
A quick Google search brought this: http://en.wikipedia.org/wiki/Debtor's_prison

Starvation in Germany, one of the major items that brought Hitler into power. was not starvation. Were they hungry? Yes, but that was brought on in the 40's by the war Hitler started. Germans as a people were not starving.
 
Sorry, but deptor's jail did not exist in the USA 200 years ago.

But what do your mistaken comments have to do with deflation, what it is, what causes it, back to the original question asked in the first post?

Maybe not as part of the United States, but I seem to recall that Georgia was originally a debtor's prison colony of the Crown.

Which is part of why we don't have debtor's prison here in the States - because we were trying to get away from that sort of thing.

(Of course, part of the problem with bills not being paid these days is that everything goes up except the money we make...)

And you are correct that child support is not a traditionally "assumed" debt in the same manner as credit. Child support is a legal obligation borne of the demise of the nuclear family and extended family unit. But, that is fuel for another discussion.

There is "consumer debt", "legal debt," "necessary debt," and other categories I am sure.

Consumer debt - money owed for consumer goods or for items purchased. Credit cards, car loans, and mortgages on second homes would fall into this class (I wouldn't count a primary home mortgage, nor loans on "basic" first personal vehicles. Those are considered necessities, but it gets silly.)

Legal debt - legal fees incurred by "the system," or due to infractions. Child support, spousal support/separate maintenance/alimony/palimony, court costs, traffic tickets, and the like would all fall in to this category.

Necessary debt - this would be loans for a primary residence (not a luxury mansion or something huge,) loans for primary vehicles (not luxury vehicles - while people these days "need" cars, they don't "need" a BMW, MBZ, or something else with wheels that costs more than some houses.) Of course, even debt to cover "the basics" is of dubious necessity - after all, why do things end up costing so much? Cars aren't built any better, the land hasn't changed any - and the primary problem with housing "values" is the fact that we need fewer people, not more houses...
 
Depends on your definition of starvation I guess.

"The word starvation is derived from the old English word meaning ‘to die’ but, in modern usage, it can also mean malnutrition. In either event, it is the result of a food deficiency."
www.opbf.org/book/export/html/40

Note that malnutrition can lead to organ failure and death. I have no doubt that many people here and there died from at least malnutrition during the Great Depression, malnutrition caused by a lack of sufficient amounts and types of foods. In essence they died from starvation, using the modern definition listed above, meaning malnutrition....

I was taught in grades 1-12 during the 60's that this country was started, and colonized, with expatriated debt prisoners from England who later outlawed debt prison when they founded this country. The recent manifestation of prison terms for not paying things like child support is something new, and something quite frankly that I think violates the principles this country was founded on, but that is another story, and not the topic of this thread.

Let's get back on topic.

The topic is DEFLATION!
 
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