Risk of deflationary collapse greater now than in 2007

[fmccap]

I thought this was interesting.

 

Janet Tavakoli: Risk of deflationary collapse greater now than in 2007

By the way, the reason we are worse off than in 2007 is because of the Fed's, response, the Treasury's response, the Obama Administration's response, and the Congressional response.

 

That's quite a lethal combination.

 

None of the structural problems regarding consumer debt, excess capacity, or malinvestments have been addressed. Instead the government's solution is to pile on more debt and bail out failed institutions at taxpayer expense.

 

One cannot cure a debt problem by going further in debt. It's as simple as that.

[Trimdingman]

I thought this was interesting.

 

Janet Tavakoli: Risk of deflationary collapse greater now than in 2007

 

 

It isn't deflationary, it is inflationary.

[fmccap]

It isn't deflationary, it is inflationary.

Right now we are going through deflation. I know they are printing and borrowing like crazy but credit is going away faster causing prices to go down and people's wealth to go down.

[Trimdingman]

Right now we are going through deflation. I know they are printing and borrowing like crazy but credit is going away faster causing prices to go down and people's wealth to go down.

 

 

It is both deflationary and inflationary. It is deflationary if you look at it in terms of how much items cost in dollars. It is inflationary in terms of how much they would cost in dollars converted to their real value compared to gold, for example. At some point in the near future, the buying power of the dollar will have to find its true level. Then inflation will take off. The same thing happened with the Russian ruble. Under the socialist umbrella, it was a valid currency, but when it had to prove its true value after the collapse of the Soviet Union, it was worthless. The US dollar is in the same boat. The US is now almost as socialist as the USSR was. Maybe it is more so if you add up the value of all of the entitlements. What is preventing the US from collapsing the same way the USSR did?

[suv_guy_19]

The primary reason for the current negative inflation numbers is the lower price of energy this year in comparison to last. Things like food are still inflating at more than 3%.

[Edstock]

"Risk of deflationary collapse greater now than in 2007"

 

Maybe, but probably not.

 

Anyway, what's a "collapse"? 5%? 10%? 20%? 30%? 40%? 50%? More? Neat buzz-word, works well, for the crowd. But with no quantifying estimate of just how much is a "collapse", it's just tea-party jingoism from pandering "journalists" and financial pundits.

 

For example, they appear to be unaware that most of the G-7-8 are in the same boat, and thus their opinons are rather parochial. But that's par for the course, considering the source. The point is, this is a world problem, not just an American problem.

 

It may come as a surprise, but it's not all about the US.

[fmccap]

The primary reason for the current negative inflation numbers is the lower price of energy this year in comparison to last. Things like food are still inflating at more than 3%.

Well food down here is still getting cheaper and that's a good thing in my book.

[suv_guy_19]

Really? I would have thought not. It's amazing to me how US retailers keep such low prices in the face of a bad economy and falling dollar.

[fmccap]

Really? I would have thought not. It's amazing to me how US retailers keep such low prices in the face of a bad economy and falling dollar.

Here is something you might like to read.

What is Money and How Does One Measure It?

The key point above is that an increase in money supply confers no overall economic benefit. Over time, money simply buys less and less.

 

At any point in time, however, when demand for money increases (people want to hold it as opposed to buy goods and services) prices of goods and services decline decline. This can happen even as money supply increases. It is happening now.

[xr7g428]

Mish is confused, the thing that proves that money is NOT a commodity is that it does not confer an economic benefit by its increase.

 

Money is a place holder for goods and services. It provides portability of value.

 

A change in the money supply is only meaningful when it can be compared with the change in the total amount of goods and services created by the society. When money supply does not change and the supply of goods increases, we have deflationary collapse. When the money supply is increased faster than the growth of goods and services, we have inflation. Infaltion can be tolerated as it self corrects prices very quickly, deflation punishes the productive producers.

[fmccap]

Mish is confused, the thing that proves that money is NOT a commodity is that it does not confer an economic benefit by its increase.

 

Money is a place holder for goods and services. It provides portability of value.

 

A change in the money supply is only meaningful when it can be compared with the change in the total amount of goods and services created by the society. When money supply does not change and the supply of goods increases, we have deflationary collapse. When the money supply is increased faster than the growth of goods and services, we have inflation. Infaltion can be tolerated as it self corrects prices very quickly, deflation punishes the productive producers.

Could it be that you are confused?

[xr7g428]

Not in this case. Think it through for yourself.

 

The definition of a commodity is: Anything movable (a good) that is bought and sold; Something useful or valuable.

 

The value of a commodity lies in its usefulness. Corn for example is a useful commodity, because you can eat it, make other foods from it, feed it to cattle, and so on. In the case of this article, having more of a commodity is a measure of wealth that is intrinsic to the value of the commodity itself. The value of the corn is that the corn itself has use. Think of every other commodity such as oil or pork bellies or orange juice.

 

Paper money, has almost no intrinsic value. It is easy to forget, but gold also has intrinsic value. It is wide used in electronics, and to make jewelry and medical devices and many other things. Silver prices crashed when they stopped using it to make photographic paper, but it is still very highly prized for electronics and many other manufactured items.

 

The only time paper money acts like a commodity is when a bank note company sells their services and paper goods to government entities that wish to create money. You can trust that they charge the same amount to print $1 and $10 and $100 bills.