[quote=GH][quote=CA renter]Wages are stickier than prices. Workers’ purchasing power rises, while “capitalists” lose purchasing power. It reverses an unhealthy wealth disparity that almost always precedes deflationary periods — there is no more money to be pulled from the bottom.
Deflation is healthy and necessary. It is what restores equilibrium and corrects unhealthy imbalances.
Yes, deflationary collapses can be hard; jobs are lost, and people see the value of their assets fall, but there is always a floor in a deflationary collapse. There is no ceiling in an inflationary collapse, and inflation causes far, far more damage over the long run, IMHO.[/quote]
Answer this. What is the root cause of todays recession? OK, DEBT!!! Not government debt, but personal debt used to buy houses, cars, TV’s etc.
Two trillion dollars or this debt has been transferred to the national debt to avoid our banks collapsing. In Iceland the citizens are being asked to pay for private bank losses and the same is true in Ireland, Greece, Portugal, Spain and yes England as well. So in large numbers personal debt IS nationalized, which makes sense since our government is really just the representation of the citizens.
IF we do the austerity thing, and millions more are driven into bankruptcy and foreclosure. Millions of businesses fail and default and our cities and states default, then this debt too will be nationalized. (Or many investors (pensioners) will have to accept their money was loaned out and will not be repaid).
Austerity would have been fine instead of our debt bubble, but now that we have the debt it has to be dealt with. It is NOT possible to repay this debt without growth which means default or inflation.[/quote]
You’ve hit upon one of my biggest pet peeves.
You are right that this debt has been nationalized, largely because the govt has now guaranteed all this debt via refinances into FHA and GSE loans, and we’ve also guaranteed trillions (?) of dollars of loans/securities/bets that were not originally part of our national debt. This is exactly why I wanted the banking system to fail back in 2008. The losses would have been taken largely by those who deserved to take the losses, and both lenders and borrowers would have taken some serious lumps.
Now, our hands have been tied. IMHO, the Fed intentionally took rates this low so that people would refinance from privately-held loans into publicly held/backed loans over the past few years. This is in addition to all the “toxic” assets that are sitting on the Fed’s balance sheet.
This is where trillions of dollars of our national debt have come from, BTW. It’s disgusting how (cash) savers have been punished with these low rates and high asset prices (lost purchasing power), while the people who caused our financial crisis are being saved at the expense of regular working people, savers, and taxpayers.
Still, I favor a carefully planned default over inflation. The ones who cause our crisis should be the first ones sacrificed.
