Funny how people/central banks keep fighting the natural and healing forces of deflation. Best to get it over with quickly. Contrary to popular myth, deflation doesn’t go on forever…as long as the PTB allow it to happen naturally (and quickly!).

Central banks, in their efforts to “fight deflation,” end up making it worse, IMHO.

Contraction = mass hardship, social upheaval and, ultimately, fighting.

Capitalism does not hold it’s composure under extended periods of contraction very well

[quote=pri_dk][quote]Funny how people/doctors keep fighting the natural and healing forces of cancer. Best to get it over with quickly. Contrary to popular myth, cancer doesn’t go on forever…as long as the medical caregivers allow it to happen naturally (and quickly!).

Doctors, in their efforts to “fight cancer,” end up making it worse, IMHO.[/quote]

Good point. One more reason to stop donating to Komen.[/quote]

Not a good analogy.

Deflation is healing, not killing. In today’s case (and many instances in the past), it’s a result of too much money being amassed at the top. It’s why you see deflationary events after massive credit expansions and after wealth/income disparities reach historical highs.

Deflation happens when all the money and credit available to the bottom of the economic pyramid gets spent — and this money invariably ends up at the top of the pyramid. The foundation begins to crumble, and deflation results. Deflation is when the money/purchasing power begins to move back down toward the bottom of the pyramid. It is essential to go through this process in order to build a stronger foundation for the next economic cycle.

The only other possible way to get out of this is to literally print money **and give it to the bottom of the pyramid, with no debt offset** so they can purge their debts. Of course, this has the added effect of cost inflation, and this runs counter to what we’d be trying to fix in the first place.

Deflation is the best cure for those at the bottom of the pyramid. Those at the top suffer because asset prices fall (wages fall, but tend to fall more slowly, effectively increasing purchsing power even though workers make less nominally). Since those at the top are the ones who suffer most during deflation, they spread the myth that deflation is bad and never-ending. This is not necessarily true. Deflation equalizes things, and that’s why those at the top (who influence not only policy, but the messages put out by the MSM, “think tanks,” and universities) will do everything in their power to prevent it.

[quote=briansd1][quote=Arraya]Contraction = mass hardship [/quote]

Given that’s the case, why would you ever want contraction?[/quote]

Within the context of a capitalist market system. The system is geared towards perpetual growth. You want to see politicians and economists panic see a GDP reported at less than 0.

[quote=briansd1][quote=Arraya]Contraction = mass hardship [/quote]

Given that’s the case, why would you ever want contraction?[/quote]

I want to see a fast, hard and deep contraction to spiral the world out of control – which it would, if left alone.

[quote=briansd1]Arraya, so you don’t care about the mass hardship and upheaval that you mentioned earlier?

Wouldn’t there be billions of innocent people caught in that spiraling out of control?[/quote]

It would be the end of the capitalist world system. We would have to organize in a new way.

CTL-ALT-DEL

Haha, well pri, I did actually have some thoughts but was going to contemplate them a bit further before putting pen to paper, as it were. But who knows if I will get around to that so here goes:

I think the BOJ is playing with fire here. People (myself included) wonder how investors can buy JGBs at such low yields, given the likelihood of future debt servicing problems based on debt loads, demography, etc. The answer, I think, is that people aren’t thinking about that stuff — as long as yields are higher than (or not much lower than) inflation, they just lap up those JGB’s. This has worked out, and Japan inflation has stayed super low (or negative), for so long, that people don’t really question it. (This, as an aside, is why I think people who use Japan as a prologue for the US are making a mistake: our REAL yields are already far lower than Japan’s ever were on a sustained basis).

So it occurs to me that the long awaited tipping point for the Japanese bond market might come when Japanese inflation increases in a non-transitory way. Once the Japanese people internalize a higher rate of inflation, they will demand higher yields, and (depending on the size of the yield increase) that’s when the trouble could start.

Of course if the JGB can thread the needle perhaps that won’t happen, but as I said, I think they are playing with fire. And as you said, we do indeed live in interesting times.