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Why there's no inflation | |
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Date: September 20, 2004 06:44 PM
Author: Alan Conway
Subject: A lesson for Mugambo?
I just read the Mugambo's ramblings on inflation. I thnk I followed it at the start - the Fed lowers interest rates and pumps money all over the world. Consumers consume. Commodity prices and houses go up. Then so should jobs and wages etc, but they aren't.
Maybe that is because of the Basic Business Plan of every company in the western world - produce goods at Chinese or Indian labor costs and sell them at US/European etc prices. That way you keep total costs down and profits up.
Inflation in commodities and deflation in labor costs means benign inflation.
Of course, if this is true, the real trouble will come when the Western Consumers that we are all relying on to keep spending their future income will one day realise that they can't keep it up. It won't matter how low interest rates are or how much money the Fed prints, their Marginal Utility for Credit will be zero, or maybe even negative if they don't have a job.
When that happens stop worrying about inflation. Deflation will be something we will all be screaming about.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=188513)
Date: September 24, 2004 01:38 PM
Author: Vangel Vesovski
To have deflation you need to use market money not legal tender currency. It seems to me that the Mogambo understands that very well. It could do you some good to gain the same level of understanding.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=189941)
Date: September 24, 2004 04:19 PM
Author: Finster
Subject: Market Money & Legal Tender
The error in this statement is that it draws a false distinction between "market money" and "legal tender currency". They are one and the same.
Moreover, any implication that deflation cannot happen under a legal tender currency is incorrect. It happened in the US in the early 1930's and again in Japan in the late 1990's. Alan is correct about the cause of deflation. Weak credit demand, as we have now, means lack of monetary expansion. If credit demand weakens further, it can lead to monetary contraction.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=189988)
Date: September 24, 2004 07:59 PM
Author: Vangel
Vesovski
Market money does not need forced tender laws to ensure its acceptance.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190053)
Date: September 25, 2004 07:33 AM
Author: Finster
Subject: So Repeal Them
So repeal the forced tender laws. They're obsolete. People will still use the same money they do now. US dollars, European euros, Canadian dollars, Japanese yen, etceteras. They are all now market money.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190187)
Date: September 25, 2004 10:01 PM
Author: Vangel
Vesovski
Sorry, but the forced tender laws are to the benefit of government and will not be repelled until the public refuses to put any value on the FRN. Even after that happens the government will probably move the decimal point and introduce a new currency just like Turkey just did. Your $100 bill will probably shed two zeros and be worth one NEW dollar. A few years or months later the act will be repeated and a NEW NEW dollar will be introduced that will be worth 100 NEW dollars. Eventually the process stops and the market will demand the use of a commodity based monetary system in which supply cannot be created out of thin air.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190376)
Date: September 24, 2004 04:53 PM
Author: EHtaga
While ultimately a fiat based currency or 'money' vitually guarantees inflation over the long haul, we can and indeed have had deflation under a 'fiat' based system. When this occurs even under a 'fiat' the consequences of such or the environment under which it takes place, I would imagine would be far worse. So while I think Vangel is correct in the long term, it's those short term anomalies even under 'fiat' that will really signal a major shift or cycle, that which some here believe we may have entered or will enter shortly . If one were to place today's ennvironment on Maslow's hierarchy to self realization, some could argue that we haven't even surpassed or have been brought down to level 2 ie safety given the disproportionate amounts we dedicate to it. So in answer to Dr W in another thread "How far we have advanced" really not very far, we may have actually regressed. Economically, if one were to go down a few notches in one's 'needs' my guess is that we will finally get back down to basics or consuming for basic needs. Anyone here ever come across an item whose price was a 'screaming buy' (compared to what it would otherwise fetch)but on which we passed as its utility to us was so much less. Imagine multiplying that by millions as more and more consumers become, by necessity, more value and money conscious. I digress, sorry. Live long and prosper dear friends.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=189997)
Date: September 24, 2004 07:30 PM
Author: Kali
GM now offering 6 years no interest loans. Can't afford health care cost. Looking like one of many deflationary anchors on the horizon. Along with many inflationary ones also.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190041)
Date: September 24, 2004 07:59 PM
Author: Matthew
Newhall
Subject: Gotta run but here my thought quick....
In astrophysics the big bang is preceded by a big crunch. This is supposed to obliderate all matter so there is none left that predates the bang. You can tell this because infinate gravity is supposed to move infinate mass infinatly fast towards the center of mass in the crunch. Then when no opposing gravitational force is left to resist the compression becomes perfect and reaches a "weird" state and explodes. (Roughly)
Since I heard this I have always thought that the assumption of "infinate" seems to be a cop-out and there must be finite numbers that we yet don't understand. Pre-bigbang matter must exist, just outside our view.
Substitute money for "matter", and you want to get as far away from the bank universe as possible.
IMHO Deflation is possible, but it will be quick and brutal, amd then bang hyperinflation and conflict.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190052)
Date: September 24, 2004 08:01 PM
Author: Vangel
Vesovski
Just because the price of computers fell in the 1980s did not mean that we had deflation. The price of commodity products is expected to fall as the technology used to produce them improves. And the rise of health care costs is price inflation, not price deflation.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190055)
Date: September 24, 2004 09:22 PM
Author: Kali
American automotive incentives reflect price pressure from the east. A combination of the east lower cost (health care, pension, environmental and liability laws...). Rising cost in the west (health care, pension, environmental and liability laws...) while inflationary, are going to cost these companies their continued existence in the US in their present form. Defaulting on debt as the airlines are doing will be deflationary. Pension defaults will be partially deflationary as yearly government guaranteed payments are capped. Not to mention the decreased consumption of laid off workers and struggling retires. Pension defaults will be partially inflationary as the bailouts are monetized.
I agree labor intensive and manufactured commodity products, DR's gee-gaws, will decrease in price thanks to third world production cost advantages. Natural resource products, such as plywood, will not be so kind and are already increasing greatly. Commodity production, while certainly becoming much more labor efficient, is still very energy intensive. Rising energy cost in production and distribution, combined with increased demand, will contribute to price inflation unless we enter into a worldwide economic depression where a large fraction of industrial activity stops. Less likely with the rise of the east.
The rise of health care cost are contributing to the same results I mentioned above about pensions.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190083)
Date: September 25, 2004 08:43 AM
Author:
Vangel Vesovski
Since our money is being debased we are seeing a great deal of price inflation. In this sea of price inflation there are pockets of price deflation as there always are. This price deflation is caused by an increase of some goods and services that is greater than the increase in demand for these goods and services. In some cases we have an increase in supply as there is a decrease in demand. In such cases the price declines will not be slow and steady but will be deep and fast. For possible candidates look to the fiat dollar, treasuries, equities and real estate.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190195)
Date: September 25, 2004 04:18 PM
Author:
Finster
Subject: More Possible Candidates
Gold, silver, even ... oil ...
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190286)
Date: September 25, 2004 09:55 PM
Author:
Vangel Vesovski
Subject: Not yet...
The supply of gold, silver and oil is not rising as we have a decrease in demand. In fact, there has never been as little above ground silver when compared to actual demand as we have today. While supply can always be increased one would have to invest capital and do work in order to produce a particular commodity. Such is not the case for something like the FRN, which is created out of thin air without any expense or effort.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190374)
Date: September 24, 2004 10:01 PM
Author: Lucius
Foster
Subject: Leads to make you buy, still overpriced and
much too high.
If you watch the deals in auto and truck purchase, you will see the bait of no interest for six years is given in exchange for the purchase of a vehicle at a price so high you would think it was a Rolls and a customized Bentley on top of that.
You give with one hand and take with the other. It is only an instrumnet to effect a close. Most deals end in the middle. A reduction in price and a little bit of interest and in the middle area is where it all ends. Lets see a purchase price of $45,000 at no interest for six years or $24,750 with an interest rate of 4.3%. Play with the figures. They are interesting.
I use this method in buying properties. I pay the high Spike price and the seller takes back a no interest note with equal payments over 35 years. Lets see that is 420 equal payments. He got his price he is happy and he has an estate for years. I bought the property at just about one half of the asking price if I had utilized normal 6% financing. Same thing. All even in the wash.
See this is all the stuff you learn over time. Time, took me 82 years. Think of the fun I could have had hanging out.
Cheers Lucius
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190093)
Date: September 24, 2004 10:07 PM
Author: Kali
And still the only thing keeping them alive is their financial component.
(http://65.88.90.51/forums/Index.cfm?CFApp=3&Message_ID=190094)