Given that: 1) The fed loans money to banks 1a) The more money that the fed loans to banks, the more "active" the "money printing presses" are 2) Banks loan money to people/businesses 3) If lots of people default on their loans the banks probably can't recover what they loaned out, leading to the "destruction" of money
how is anything but deflation going to get us out? In other words, a bunch of fiat money was flying around and getting tied up into a real estate bubble. That bubble has burst, "destroying" that fiat money, right? Since there's fewer dollars available to chase the same amount of goods/services, what else can happen besides deflation?
Yeah dooder, in a contracting GDP environment, deflation is the order of the day. Check out the recent CPI, it is down from 214 or so to 208 as of late. I do agree and believe we will experience inflation that will overwhelm the deflationary pressures as the fed prints off all the $$$ and borrows it to the treasury department.
Yes, money creation chasing fewer goods and services would cause inflation if we didn't have money being destroyed in the banking sector and a trade deficit.
Prices, including wages, are dropping though which is a good thing. It sets the right price on idle resources and will bring us back to full employment sooner. There are fears though of a deflationary spiral where expectations of price drops delay purchases causing more deflation. I wouldn't worry about that if credit markets were functioning.
We could be setting the stage for hyperstagflation if the stars align. But no economist has a clear eough crystal ball to say whether we will over correct or under correct on money supply. It's speculation based on what stupidity will next come from Congress and the president.
What we do know is that in a time where resources are unemployed, Obama is wasting active resources from now and the future. He's guzzling the hair of the dog to cure the hangover. The Captain has every reason to fear the worst, but I don't think there is any haven from this WMD.
"Yes, money creation chasing fewer goods and services would cause inflation if we didn't have money being destroyed in the banking sector and a trade deficit."
Trade deficits do not work that way.
If you're talking about money leaving the US, the term you're looking for is balance of payments.
Sometimes I feel like I am the only person who actually pays attention to what the trade deficit actually means. It's not a measure of money leaving or entering the country. It's not an all-encompassing measure of an economy's competitiveness. The trade deficit is only a part of the bigger picture, a picture which includes our persistent (and almost always ignored) capital account surplus.
You can run a trade deficit and still have a positive balance of payments. All it takes is to have your financial transfers plus capital account surplus greater than the trade deficit.
Now, the US is currently running a deficit on the balance of payments, so the main thrust of your argument is true, I'm just correcting the terminology because a trade deficit is not bad. It doesn't mean you're spending more than you're earning, it just means you're spending more than you're earning on a specific set of goods that doesn't include capital.
Oh, come on now. If you're running out of money, just print more. What could be simpler?
ReplyDeleteThat's what they've done in Zimbabwe. I wonder who will be on the new 10 Trillion USD note?
Punchington Out.
Serious question time.
ReplyDeleteGiven that:
1) The fed loans money to banks
1a) The more money that the fed loans to banks, the more "active" the "money printing presses" are
2) Banks loan money to people/businesses
3) If lots of people default on their loans the banks probably can't recover what they loaned out, leading to the "destruction" of money
how is anything but deflation going to get us out? In other words, a bunch of fiat money was flying around and getting tied up into a real estate bubble. That bubble has burst, "destroying" that fiat money, right? Since there's fewer dollars available to chase the same amount of goods/services, what else can happen besides deflation?
When clicking the link, I was expecting you to send me to some random Obama blogger.
ReplyDeleteA little surprised to see the St. Louis Fed chief saying that, to say the least.
Yeah dooder, in a contracting GDP environment, deflation is the order of the day. Check out the recent CPI, it is down from 214 or so to 208 as of late. I do agree and believe we will experience inflation that will overwhelm the deflationary pressures as the fed prints off all the $$$ and borrows it to the treasury department.
ReplyDeleteCaptain
ReplyDeleteWith all that new money being printed perhaps it's a good time to invest in ink and paper stocks.
Yes, money creation chasing fewer goods and services would cause inflation if we didn't have money being destroyed in the banking sector and a trade deficit.
ReplyDeletePrices, including wages, are dropping though which is a good thing. It sets the right price on idle resources and will bring us back to full employment sooner. There are fears though of a deflationary spiral where expectations of price drops delay purchases causing more deflation. I wouldn't worry about that if credit markets were functioning.
We could be setting the stage for hyperstagflation if the stars align. But no economist has a clear eough crystal ball to say whether we will over correct or under correct on money supply. It's speculation based on what stupidity will next come from Congress and the president.
What we do know is that in a time where resources are unemployed, Obama is wasting active resources from now and the future. He's guzzling the hair of the dog to cure the hangover. The Captain has every reason to fear the worst, but I don't think there is any haven from this WMD.
Anonymous, you didn't really print, "...borrows it to the treasury department."
ReplyDeleteYou can borrow from, or lend to. You cannot "borrow to."
Grammar Nazi out.
"Yes, money creation chasing fewer goods and services would cause inflation if we didn't have money being destroyed in the banking sector and a trade deficit."
ReplyDeleteTrade deficits do not work that way.
If you're talking about money leaving the US, the term you're looking for is balance of payments.
Sometimes I feel like I am the only person who actually pays attention to what the trade deficit actually means. It's not a measure of money leaving or entering the country. It's not an all-encompassing measure of an economy's competitiveness. The trade deficit is only a part of the bigger picture, a picture which includes our persistent (and almost always ignored) capital account surplus.
You can run a trade deficit and still have a positive balance of payments. All it takes is to have your financial transfers plus capital account surplus greater than the trade deficit.
Now, the US is currently running a deficit on the balance of payments, so the main thrust of your argument is true, I'm just correcting the terminology because a trade deficit is not bad. It doesn't mean you're spending more than you're earning, it just means you're spending more than you're earning on a specific set of goods that doesn't include capital.