We need some god damned INFLATION. Period.

[Kurt_and_Hunter]

I have so had it with the gibbering idiots, right left and in between, who cannot seem to grasp the most basic, unexceptional economic realities.

We are, and have been for some time, in a global economic situation where the only threat worth worrying about is deflation.

Anyone, from tea-baggers to Obama and everywhere in between, who has said anything about the deficit in the last two years is nuts. Flat earth crack-pots have more to say.

And anyone who has said anything about the threat of inflation in the last two years is even worse.

What is there not to get???

Deflation is the...worst...thing... in... the... world.

Deflation is the difference between a recession and a Depression.

Inflation makes people spend... your money is shrinking in value so you might as well buy something tangible before it's all gone.

Deflation is the opposite. When the prices of things are deflating then only an idiot buys durable things unless absolutely necessary.

An economy where only an idiot buys anything durable is no economy at all. The only investment that pays is holding money because the value of money is going up every day. (Why hire someone when the money you have to pay them is a better investment than whatever you might be hiring them to do?)

Japan never made it past -1.0%/year during their lost decade and that seems to have given people the idea that run-away deflation is impossible.

But it isn't. Deflation is as able to take root and accelerate as inflation, and with far worse results.

We are dying on the vine from a lack of inflation and people still talk about how we need to cut the deficit to fight inflation even though the deficit is quite fucking obviously not causing any inflation.

I give up.

Big Investors Fear Deflation
Bill Gross Among Those Bracing for Possible Decline in Prices: 'It's Happening'

http://online.wsj.com/article/SB10001424052748703787904575403204077239996.html?KEYWORDS=deflation

[closeupready]

1. You simply claim deflation's effects are worse than inflation's, yet

you don't explain why they are worse or how they are worse.

If you are sitting on a pile of cash, deflation would serve you very well, seems to me, no?

In my neck of the woods, by the way, inflation continues to occur.

[geek tragedy]

4. The people and institutions sitting on piles of cash

are largely responsible for this mess. They need to SPEND and INVEST.

[upi402]

6. and LEND n/t

[Kurt_and_Hunter]

5. You may have answered your own question.

If we are to assess the desirability of an economic effect in terms of how it affects someone "sitting on a pile of cash" then we will have an economy that does not function for normal people.

Most people do not have money. All they have is their potential labor and they have soe interest in it remaining a valuable comodity.

The true super-rich capitalist--the holder of huge paper investments--is terribly threatened by inflation and will do anything to prevent it.

And that is why the powers that be fund Glen Beck's nightly "beware hyper-inflation" show.

For ordinary people a normal level of inflation correlates highly with real (inflation adjusted) wage growth.

But anyone holding billions of dollars of government bonds paying 4% is desperate to not see inflation go over 4%, for obvious reasons.

Since 1980 we have protected capital by throttling inflation down (quite effectively) at the costs of jobs and real wage growth and in the process got the economy down to an idle speed where it is prone to stall altogether.

A dangerous game of chicken, but one that benefited the super-rich and thus "worth" the gamble.

It is amazing that the party of the rich (Boehner et al) is currently trying to finish off the global economy in a way that can only benefit holders of idle capital.

But here we are.

[geek tragedy]

7. Yes, I have rarely heard the

"is this fair to people sitting on piles of cash" argument advanced with much success.

[closeupready]

10. Thanks - I am an economics flunkie, so I appreciate your explanation.

(Note: I am not defending the policy.)

[Oregone]

12. Good for you

:)

See...ask an honest question and it creates the chance for a nice educated response

Deflation can create a dangerous spiral of deficient demand. You never want it to be more lucrative for the investor class to hoard than invest. If its advantageous, they will hoard until the sun goes down and the peons starve.

Unfortunately, a system exist that allows this disparity in the first place.

[geek tragedy]

2. Agreed. Even the 'inflation hawks' at the Fed have

figured this out.

Inflation is not a problem and will not be a problem.

[DJ13]

3. Yes we do, but be careful for what you wish for

We could end up with another round of commodity inflation, which our enlightened government refuses to count in the official numbers.

[SoCalDem]

8. Our CDs are paying SHIT-for-interest

surprisingly, the interest paid on our CHECKING account is the same as a 1 yr cd right now, so I dumped a matured CD into checking until another one matures this month..By combining the two amounts, we can get an extra dribbles of interest. Just a few years ago we were getting upwards of 5%, and now it's under 2%..

[deaniac21]

20. Tax free municipal bonds work very well right now.

[BootinUp]

9. So, hypothetically, say I have a huge pile of cash...

deflation wouldn't be so bad for me in that case? I mean assuming it was big enough I never had to work again kind of cash.

[Oregone]

14. Incorrect

Because you would live in a world full of starving people who may not have that cash, but have plenty of pitchforks and torches.

Above all, while a smart capitalist will want to work the system for their benefit, they always know a stable marketplace that respects their property rights is in their long term interests. Unless one is willing to support totalitarianism, it is almost always more cost-efficient to promote social stability.

[BootinUp]

16. Not a bad point nt

[glitch]

17. Smart capitalists have been grossly outnumbered, especially since Reagan. nt

[Recursion]

18. Barring Oregone's scenario above, yes

If the deflation isn't bad enough to bring out the torches and pitchforks, your Big Pile o' Cash (tm) gets bigger every day just by sitting there. It's like an automatic interest rate on cash.

[kelly1mm]

11. Not so great an idea if you or your loveones are on a fixed income though. nt

[Kurt_and_Hunter]

15. Truly fixed? Yes. Though many fixed incomes have COLAs

[girl gone mad]

13. People simply don't understand what the deficit is.

If they did, it wouldn't be so frightening to them.

[Fool Count]

19. Inflation is bad for those who have money, but it's good for those who

have debts. That's all one needs to know in order to go and figure what US Government's policy goal is going to be.

[Kurt_and_Hunter]

21. *ding* *ding* *ding*

The super-rich hold a lot of paper investments that are worth more the lower inflation is.

And, in typical fashion, they have duped people in viewing inflation as the boogie man while encouraging people to go further in debt... debts incurred based on the presumption that they will be repaid with devalued (inflated) dollars.

Everyone in debt needs inflation.

Everyone holding that debt wants deflation.

Mortgage lenders/holders vs. home-owners, credit card companies versus consumers... we all know how that stuff turns out.

Thanks for the excellent and pithy post.

[nashville_brook]

23. that just blew my mind. wow.

[sendero]

22. Of course we do...

.... that is why the Fed has been funneling cash into the economy as fast as it can. But it's not working.

In order to create inflation you have to get money into circulation. That is done by LENDING and there just isn't a lot of lending going on for reasons we are all aware of.

Frankly, our gov't would be best served by sending every adult in the country a few thousand dollars, but they're not going to do that. They'll send trillions to the bankers, but the huddled masses can suck it.

[Kurt_and_Hunter]

24. Right on. If LENDING does work then try GIVING.

Bernanke has always faced ridicule for saying in public that deflation could be halted by dropping currency from helicopters, but it can.

(It's not even Bernanke's thought experiment, but he got the nick-name "helicopter Ben" from citing it.)

Sitting around waiting for someone to borrow at interest in a deflationary environment is, however, not going to go anywhere.

[MadHound]

25. No, what we need are jobs,

Inflation right now, especially with the large number of jobless out there, would be quite cruel, many are barely hanging on as it is right now.

If we started truly creating jobs, the rest would take care of itself.

[Kurt_and_Hunter]

26. You probably propose an impossibility

There is most likely no such thing as economic growth without inflation. The illusion of such (1981-2008) has been exposed as ultimately more costly than its benefits.

There is probably no way to get more jobs without some inflation... not as an unpleasant side-effect but part of the process itself.

[MadHound]

27. Yes, but you would have the inflation coming after the job creation

So people can afford to pay for it.