Preach on, brother!
The Direct Cash Payments/Giveaways (+ Side Discussions About Inflation and Deflation)
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Joe Fan
10,000+ Posts
China has got themselves in a predicament and they keep digging a deeper hole for themselves. You can tell here they know it and are worried.
And doesnt it seem like the US media is the only group in the country who cannot see through this nonsense. And maybe the Cato Institute too
Joe Fan
10,000+ Posts
The whole idea of us letting ourselves be put in a position of having to depend on China (or ANY country) for lifesaving medicines is pretty crazy.
We must get ourselves out of this situation. It is a national security issue.
Trump gets it. He was on the supply chain issue from Day One. Even before Day One. If you doubt it, go look at his econ platforms which were all published online. Included was the need to get out of our China-dependence on medications and medical supplies.
But he knows that it cant be done overnight. And so this explains some of the overly diplomatic language he uses towards China and Xi, for now at least.
We must get ourselves out of this situation. It is a national security issue.
Trump gets it. He was on the supply chain issue from Day One. Even before Day One. If you doubt it, go look at his econ platforms which were all published online. Included was the need to get out of our China-dependence on medications and medical supplies.
But he knows that it cant be done overnight. And so this explains some of the overly diplomatic language he uses towards China and Xi, for now at least.
Monahorns
10,000+ Posts
What are you talking about Japan has been inflating severely since the 90s. It is why their economy has stagnated.
Inflation is the government stealing your savings a little bit of a time vs a lot a time. It is still theft. Steady, mild deflation means that things are getting more affordable. That is helpful for poor and working class more than all others.
We should be chastising the government for their monetary policy not congratulating it.
If you think inflation is good and deficit spending helpful, then you are a Keynesian. You are not a free market supporter. You can't accept all the assumptions of Keynes and give lip service to freedom and markets.
I’m not at a place to post links at the moment, but I would urge you to check your facts on your argument that “Japan has been inflating severely since the 90’s.” Japan has actually had a very, very low inflation rate, and even deflation, since the ‘90s. It is known in Japan as the lost decade, or the lost two decades.
That concept that deflation is a negative for an economy is widely accepted by economists of various schools of thought, and is not at all controversial. I’m all for debating different schools of thought, on inflation vs deflation, including some arguments that are a bit ‘out there,’ so I’m all ears. But consider this: in a deflationary environment, spending (a major driving force in the economy) goes way down because people put off purchases in hopes of getting the item cheaper in the future. Of course, hyper-inflation is even worse.
But spending on essentials and entertainment will still go on. Wouldn’t the economy adapt to the spending patterns? Maybe savings and investment would increase?
Austin_Bill
2,500+ Posts
China making threats about not giving the US the vaccine (should they find one), was all I needed to hear. F those Charlies, the only thing we should import from them is our socks and underwear. Scratch that, I don't want them touching my boxers.
China has proving once and for all they are untrustworthy and should not be given any more business. Bring back our industries and send them to places that will actually partner with us.
What a very uneducated opinion.
A fair point re: investment. More investment is a countervailing factor and a good thing. But modern consumer economies require spending to drive them. While essentials must always be bought, the larger durable goods (tv, car, new fridge, lawnmower, upgrades to the home, furniture), and luxuries, are put off when you know the prices will go down. Demand flattens out and even declines. Not as much $ changes hands. We had some deflation in the Great Depression, Japan has some in the 90’s and 2000’s. While it beats hyper-inflation (or very high inflation), it’s not a good situation. The economy is flat at best.
Savings in bank accounts in a deflationary environment would be at a very low interest rate—approaching zero. Theoretically, you might end up paying the bank to keep your money. Of course, lots of savings wouldn’t go to bank accounts.
Joe Fan
10,000+ Posts
The problem is that their consumer market is about to become the largest in the world. Everyone wants in it. That gives the Chinese a lot of leverage, even if they are liars. We have already seen multinationals corps compromising themselves just for access to that market. While Americans can probably resist it in the future, I don't spineless europeans can.
LongestHorn
2,500+ Posts
Musburger1
2,500+ Posts
Inflation is an increase in the money supply. More specifically, the increase in money directed at a specific item, product, industry, etc. Of course deflation is the opposite.
Money is created by loans. If the loans are originated to purchase houses and/or build homes and apartments, there will be inflation in that area. Conversely, when demand shrinks, loan origination slows, and defaults pick up then we see deflation in the housing sector.
Loans can be originated to businesses to a) conduct commerce, b) expand the business, and c) to buy back stock for the purpose of driving the price up in order to reward share holders with dividends and stock options. A lot of the third category happened during the past decade. Boeing is a prime example. In cases such as this, we see inflation in the stock market without commensurate expansion of economic output. In addition, much of the "investment in stocks" is done with leverage. So you have borrowed money used to purchase stock resulting in an inflated market bubble (the greatest economy ever). Along comes a giant pin prick in the form of Covid-19 and the bubble bursts. Loans default, layoffs accelerate. tax revenue falls, etc. The result is massive deflation as the money supply evaporates.
The massive stimulus and array of alphabet inter-bank lending facilities is a desperation move by the powers that be (Wall Street, The Fed, and the government) to stop the disintegration of the money supply. Because the money supply is evaporating, there is a funding shortage (dollar shortage), creating a demand for dollars and strengthening the dollar. This destabilizes the global economy. We don't know what will happen. Some of the more pessimistic (but realistic) possibilities:
1) The spread of the virus does not quickly reverse or continues to result in a chain reaction of layoffs, defaults, and the like. In this case, a trillion dollar stimulus is insufficient. The system would implode as there would not be enough capital to offset derivative failures. Retirement plans would see investments collapse and because of the large number of unemployed, injections into these plans would decrease. The government would be forced to double down on stimulus and basically continue sending checks in larger and larger denominations. Retirement funds would need to be bailed out also. At some point, hyper-inflation could be a concern.
2) Global demand for oil would reach a decades low due to the slowdown. This forces oil prices to a level where the shale industry requires a multi hundred-billion dollar bailout to keep going. The loss of revenue (to Texas) should the bailout not occur would not only cost Texans jobs, but also vastly reduce State revenue and squeeze State services. This would be a national disaster.
3) Many convicts could be released for two reasons. First, as a humanitarian cause to stop the virus from spreading inside prisons. Secondly, due to funding shortages the authorities simply turn them loose. So at a time when supplies and jobs are short, and released convicts have no where to go, what percentage of these people will become a menace to society?
4) The current shortages in stores is due to panic. In short, its a demand induced panic which will eventually subside. But as supply chains become under pressure, food doesn't get harvested in California with the borders closed (fewer pickers), truckers are restricted from interstate delivery or decide to stay at home, then you have supply shortages. A lack of TVs is no big deal, but a lack of food on the shelves is.
In conclusion, I've listed four serious to critical scenarios that need to be avoided. I'm not sure if it isn't too late. The current globalized system is under great pressure and is systemically flawed. The virus is exposing that.
Money is created by loans. If the loans are originated to purchase houses and/or build homes and apartments, there will be inflation in that area. Conversely, when demand shrinks, loan origination slows, and defaults pick up then we see deflation in the housing sector.
Loans can be originated to businesses to a) conduct commerce, b) expand the business, and c) to buy back stock for the purpose of driving the price up in order to reward share holders with dividends and stock options. A lot of the third category happened during the past decade. Boeing is a prime example. In cases such as this, we see inflation in the stock market without commensurate expansion of economic output. In addition, much of the "investment in stocks" is done with leverage. So you have borrowed money used to purchase stock resulting in an inflated market bubble (the greatest economy ever). Along comes a giant pin prick in the form of Covid-19 and the bubble bursts. Loans default, layoffs accelerate. tax revenue falls, etc. The result is massive deflation as the money supply evaporates.
The massive stimulus and array of alphabet inter-bank lending facilities is a desperation move by the powers that be (Wall Street, The Fed, and the government) to stop the disintegration of the money supply. Because the money supply is evaporating, there is a funding shortage (dollar shortage), creating a demand for dollars and strengthening the dollar. This destabilizes the global economy. We don't know what will happen. Some of the more pessimistic (but realistic) possibilities:
1) The spread of the virus does not quickly reverse or continues to result in a chain reaction of layoffs, defaults, and the like. In this case, a trillion dollar stimulus is insufficient. The system would implode as there would not be enough capital to offset derivative failures. Retirement plans would see investments collapse and because of the large number of unemployed, injections into these plans would decrease. The government would be forced to double down on stimulus and basically continue sending checks in larger and larger denominations. Retirement funds would need to be bailed out also. At some point, hyper-inflation could be a concern.
2) Global demand for oil would reach a decades low due to the slowdown. This forces oil prices to a level where the shale industry requires a multi hundred-billion dollar bailout to keep going. The loss of revenue (to Texas) should the bailout not occur would not only cost Texans jobs, but also vastly reduce State revenue and squeeze State services. This would be a national disaster.
3) Many convicts could be released for two reasons. First, as a humanitarian cause to stop the virus from spreading inside prisons. Secondly, due to funding shortages the authorities simply turn them loose. So at a time when supplies and jobs are short, and released convicts have no where to go, what percentage of these people will become a menace to society?
4) The current shortages in stores is due to panic. In short, its a demand induced panic which will eventually subside. But as supply chains become under pressure, food doesn't get harvested in California with the borders closed (fewer pickers), truckers are restricted from interstate delivery or decide to stay at home, then you have supply shortages. A lack of TVs is no big deal, but a lack of food on the shelves is.
In conclusion, I've listed four serious to critical scenarios that need to be avoided. I'm not sure if it isn't too late. The current globalized system is under great pressure and is systemically flawed. The virus is exposing that.
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LongestHorn
2,500+ Posts
LongestHorn
2,500+ Posts
Republicans Richard Burr, Kelly Loeffler and James Inhofe and Democrat Dianne Feinstein collectively offloaded up to $11million in stock between late January and early February,
Monahorns
10,000+ Posts
You have to twist the numbers and only look at certain things to say Japan has been deflating. If you look at money supply and prices in general they are inflating. They have been at 0% interest rates for decades now.
I read an article talking about claims that Japan has been deflating. It showed that those claims are based on a very specific definitions which are deceptive.
The idea that deflation is negative for an economy is called Keynesianism. Yes, most economists believe in it, but it makes no sense.
It completely ignores the time preference, which is a key economic reality. We are value things now more than in the future. It is why deflation doesn't lead to economic stagnation. Case in point, do you put off food, clothes, medicine indefinitely? How about purchasing a TV? How long do you wait to buy a TV, a week, a month maybe? That is about it.
Also, Keynes also taught that aggregate demand drives the economy, which is what you are agreeing with in your response. It doesn't. For economic growth you have to have capital, which is very simply savings. If you stimulate demand beyond what humans would naturally desire, you consume capital. That means, MAYBE, you get a bit of extra business in Year 1, but in Year 5 you get much less, because there is no capital to increase production.
Monahorns
10,000+ Posts
The US economy 1870-1910 shows that general deflation doesn't decline overall demand. It allows for the introduction of new goods. It improves the purchasing power of the poor and working class.
There were all kinds of things going on the Great Depression, too many to blame deflation for anything. The New Deal put in a lot of price controls and other regulation to increase prices. That led to a second depression around 1936.
Statalyzer
10,000+ Posts
I don't understand the idea that inflation is good because it means it's easier to get good deals on loans since you get to pay them back with dollars that are worth less to you than the dollars you initially borrowed. Because it would seem quite odd if lending institutions didn't take into account projected inflation when coming up with rates and time frames for repayment.
Monahorns
10,000+ Posts
I think so, when people are talking about the Great Depression and other economic down turns. If due to other factors people lose their jobs, they can't buy much. Reduced demand reduces prices. But then supply is reduced too, so sometimes those prices rebound some.
That is an example of deflation being a symptom of a poor economy.
Deflation can also be a result of a growing economy. If the money supply increases at a slower rate than demand for money or as goods/services increase, then prices will also go down even though there is more to buy and people in the stores ready to buy it. What happens in those cases is that more matures products reduce in price but newer higher valued goods command higher prices. Some of that due to perceived value and some of that due to higher production costs with new equipment, etc.
In that case the resulting deflation does nothing but bolster the buying power of the poor and working class.
Monahorns
10,000+ Posts
That could happen yes. Wages could be tied to other economic factors allowing for some reduction but maintaining or gaining buying power.
But wages don't have to decline. Wages generally trend up with higher productivity. High productivity also trends toward lower prices. So as capital is increased, productivity goes up, wages go up as a result, and all things being equal prices go down.
I post some quick links below (there are many, many more) for anyone out there who believes either:
1. Japan did not experience deflation (the "lost decade(s)"); or
2. Deflation is good.
Point number 2 is a conclusion/opinion/analysis, so there are counter-arguments out there, and arguments to be made by people with differing viewpoints. If you agree with point 2, then you and I simply disagree. Point 1 is ignoring the factual historical reality.
Back to point 2, I'm not aware of anyone in any leadership position in our government (either party or independent) who wants deflation. But they're probably out there. Deflation is avoided like the plague.
Bank of Japan is deluded to think deflation fight is over
Japan's Lost Decade: A Brief History and Lessons Learned
Japan’s Deflation Mindset Could Be Contagious
The Lost Decade: Lessons From Japan's Real Estate Crisis (an admittedly simplistic discussion)
What is Deflation? - Definition | Meaning | Example
Fighting Deflation in the U.S. and Japan
In case you think this is just all a bunch of left-leaning academics blabbering on, here's The American Conservative discussing the grave danger of deflation below:
Will Trump Defuse the Coming Debt Deflation Bomb? | The American Conservative
1. Japan did not experience deflation (the "lost decade(s)"); or
2. Deflation is good.
Point number 2 is a conclusion/opinion/analysis, so there are counter-arguments out there, and arguments to be made by people with differing viewpoints. If you agree with point 2, then you and I simply disagree. Point 1 is ignoring the factual historical reality.
Back to point 2, I'm not aware of anyone in any leadership position in our government (either party or independent) who wants deflation. But they're probably out there. Deflation is avoided like the plague.
Bank of Japan is deluded to think deflation fight is over
Japan's Lost Decade: A Brief History and Lessons Learned
Japan’s Deflation Mindset Could Be Contagious
The Lost Decade: Lessons From Japan's Real Estate Crisis (an admittedly simplistic discussion)
What is Deflation? - Definition | Meaning | Example
Fighting Deflation in the U.S. and Japan
In case you think this is just all a bunch of left-leaning academics blabbering on, here's The American Conservative discussing the grave danger of deflation below:
Will Trump Defuse the Coming Debt Deflation Bomb? | The American Conservative
Joe Fan
10,000+ Posts
Japan has been stuck in an economic hole for the last 30 years
They have fallen and cant get up
Completely agree on this point. This sort of manipulation has led to a bubble.
If you both:
a. automatically oppose all Keynesian approaches and solutions at all times; and
b. support Trump's and the GOP's (Keynesian) approach to a stimulus package to kick start the economy--which includes huge government spending to stimulate demand, increases the deficit, and doles out massive government grants and loans,
then you have some cognitive dissonance to work out internally.
Rigid adherence to an ideology has caused much harm throughout history. Wise leaders take a healthy dose of pragmatism when necessary.
a. automatically oppose all Keynesian approaches and solutions at all times; and
b. support Trump's and the GOP's (Keynesian) approach to a stimulus package to kick start the economy--which includes huge government spending to stimulate demand, increases the deficit, and doles out massive government grants and loans,
then you have some cognitive dissonance to work out internally.
Rigid adherence to an ideology has caused much harm throughout history. Wise leaders take a healthy dose of pragmatism when necessary.
Could you elaborate on this point? Are you talking about financial "derivative failures" such as where sellers of options/market-makers cannot make good on their agreement to buy at a certain price point on a certain date? Insurance/re-insurance AIG-type failures?
I have read of certain market-maker option sellers (often hedge funds, financial entities, etc.) possibly being unable to make good on options they sold to open far out-of-the-money. They do this to make some $ off of people whom they think are suckers (they're usually right). The underlying prices rarely move enough to put their counter-parties in-the-money. Now, due to the market crash, many of these previously far out-of-the-money options are in-the-money and must be settled on a date certain. Problem is that some of these market-makers might not have the $ to make good on their option contracts.
Those of you who've secretly longed for some of these rich hedge fund guys to get their comeuppance--you may get your wish. Better watch out what you hope for.
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In the early 90's Krugman predicted the internet would be about as useful as a fax machine, probably because "economics" or something
You need inflation to increase product prices (revenue) over a long timeline to make up for cases when salaries went up during periods of low demand. If salaries varied with demand, then there would be no need for inflation.
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