Why the Fed can’t put out the fire

[sdduuuude]

OK, barnaby. A good start. As I said, it is slow to sink in.

You said “lowering (is) an inflationary tactic if the money has nowhere priductive to go”

Don’t you mean, lowering is an inflationary tactic if the money has SOMEWHERE to go?

So, the idea is that the money supply is shrinking, not growing because the money that was created by new debt (as opposed to actual printing) has gone bye-bye ?

And the fed is lowering but not necessarily lending because the banks don’t want to borrow from the fed to lend out.

[barnaby33]

No what I meant is that lowering interest rates encourages borrowing. If that borrowing is put to productive use, its not inflationary. Say I borrow money to build a factory which then improves productive output or fosters competition. That doesn’t tend to be inflationary.

However if I borrow money and pour ever more of it into something like housing, where the population is growing slowly or not at all, that becomes inflationary as ever more dollars chase ever fewer, or stagnant amount of resources.

Inflation isn’t an increase in prices, to me at least. Inflation is an increase in the money supply. Depending on what you do with that money prices can rise or fall. Our economy hasn’t expanded in productive capacity, at nearly the rate at which we have created credit, prices rise to compensate.

Falling prices aren’t deflation either. We happen to have deflation and rising prices (at least for now and in some areas) at the same time! I don’t have enough of an understanding to predict if this will stay so, or that deflation will actually strengthen the dollar causing prices to fall. I am pretty sure that whatever else happens deflation is accelerating and will continue to do so for the near term. The fallacy is that the Fed thinks it can stop it. The crime is that it is trying.

Josh

[barnaby33]

No what I meant is that lowering interest rates encourages borrowing. If that borrowing is put to productive use, its not inflationary. Say I borrow money to build a factory which then improves productive output or fosters competition. That doesn’t tend to be inflationary.

However if I borrow money and pour ever more of it into something like housing, where the population is growing slowly or not at all, that becomes inflationary as ever more dollars chase ever fewer, or stagnant amount of resources.

Inflation isn’t an increase in prices, to me at least. Inflation is an increase in the money supply. Depending on what you do with that money prices can rise or fall. Our economy hasn’t expanded in productive capacity, at nearly the rate at which we have created credit, prices rise to compensate.

Falling prices aren’t deflation either. We happen to have deflation and rising prices (at least for now and in some areas) at the same time! I don’t have enough of an understanding to predict if this will stay so, or that deflation will actually strengthen the dollar causing prices to fall. I am pretty sure that whatever else happens deflation is accelerating and will continue to do so for the near term. The fallacy is that the Fed thinks it can stop it. The crime is that it is trying.

Josh

[barnaby33]

No what I meant is that lowering interest rates encourages borrowing. If that borrowing is put to productive use, its not inflationary. Say I borrow money to build a factory which then improves productive output or fosters competition. That doesn’t tend to be inflationary.

However if I borrow money and pour ever more of it into something like housing, where the population is growing slowly or not at all, that becomes inflationary as ever more dollars chase ever fewer, or stagnant amount of resources.

Inflation isn’t an increase in prices, to me at least. Inflation is an increase in the money supply. Depending on what you do with that money prices can rise or fall. Our economy hasn’t expanded in productive capacity, at nearly the rate at which we have created credit, prices rise to compensate.

Falling prices aren’t deflation either. We happen to have deflation and rising prices (at least for now and in some areas) at the same time! I don’t have enough of an understanding to predict if this will stay so, or that deflation will actually strengthen the dollar causing prices to fall. I am pretty sure that whatever else happens deflation is accelerating and will continue to do so for the near term. The fallacy is that the Fed thinks it can stop it. The crime is that it is trying.

Josh

[barnaby33]

No what I meant is that lowering interest rates encourages borrowing. If that borrowing is put to productive use, its not inflationary. Say I borrow money to build a factory which then improves productive output or fosters competition. That doesn’t tend to be inflationary.

However if I borrow money and pour ever more of it into something like housing, where the population is growing slowly or not at all, that becomes inflationary as ever more dollars chase ever fewer, or stagnant amount of resources.

Inflation isn’t an increase in prices, to me at least. Inflation is an increase in the money supply. Depending on what you do with that money prices can rise or fall. Our economy hasn’t expanded in productive capacity, at nearly the rate at which we have created credit, prices rise to compensate.

Falling prices aren’t deflation either. We happen to have deflation and rising prices (at least for now and in some areas) at the same time! I don’t have enough of an understanding to predict if this will stay so, or that deflation will actually strengthen the dollar causing prices to fall. I am pretty sure that whatever else happens deflation is accelerating and will continue to do so for the near term. The fallacy is that the Fed thinks it can stop it. The crime is that it is trying.

Josh

[barnaby33]

No what I meant is that lowering interest rates encourages borrowing. If that borrowing is put to productive use, its not inflationary. Say I borrow money to build a factory which then improves productive output or fosters competition. That doesn’t tend to be inflationary.

However if I borrow money and pour ever more of it into something like housing, where the population is growing slowly or not at all, that becomes inflationary as ever more dollars chase ever fewer, or stagnant amount of resources.

Inflation isn’t an increase in prices, to me at least. Inflation is an increase in the money supply. Depending on what you do with that money prices can rise or fall. Our economy hasn’t expanded in productive capacity, at nearly the rate at which we have created credit, prices rise to compensate.

Falling prices aren’t deflation either. We happen to have deflation and rising prices (at least for now and in some areas) at the same time! I don’t have enough of an understanding to predict if this will stay so, or that deflation will actually strengthen the dollar causing prices to fall. I am pretty sure that whatever else happens deflation is accelerating and will continue to do so for the near term. The fallacy is that the Fed thinks it can stop it. The crime is that it is trying.

Josh

[JWM in SD]

JWM in SD

Josh,

Excellent, excellent, excellant!!!! I could not have done a better job myself. You are officially a Deflationista Disciple.

One point of contention though. The Fed / Bernanke doesnt really think they can stop the deflationary spiral. Yeah, I know…helicopter ben and all that non-sense. In reality all they are doing is mitigating the damage and slowing the rate of descent so that there is not a large scale systemic meltdown ala the Bear Sterns blow out.

The inflationary mindset, much like the housing price mindset, is so ingrained in the psyche of the masses that it is difficult for most of J6P to understand that rising prices do not necessarily equate with inflation. Unlike many posters I’ve seen who argue that the definition I use is too academic / abstract, I say bullshit. It is what is. It is the lack of consistency in the use of the terms that leads to massive confusion and obfuscation of the economic issues at hand disallowing for clear thinking on a complicated subject matter.

[JWM in SD]

JWM in SD

Josh,

Excellent, excellent, excellant!!!! I could not have done a better job myself. You are officially a Deflationista Disciple.

One point of contention though. The Fed / Bernanke doesnt really think they can stop the deflationary spiral. Yeah, I know…helicopter ben and all that non-sense. In reality all they are doing is mitigating the damage and slowing the rate of descent so that there is not a large scale systemic meltdown ala the Bear Sterns blow out.

The inflationary mindset, much like the housing price mindset, is so ingrained in the psyche of the masses that it is difficult for most of J6P to understand that rising prices do not necessarily equate with inflation. Unlike many posters I’ve seen who argue that the definition I use is too academic / abstract, I say bullshit. It is what is. It is the lack of consistency in the use of the terms that leads to massive confusion and obfuscation of the economic issues at hand disallowing for clear thinking on a complicated subject matter.

[JWM in SD]

JWM in SD

Josh,

Excellent, excellent, excellant!!!! I could not have done a better job myself. You are officially a Deflationista Disciple.

One point of contention though. The Fed / Bernanke doesnt really think they can stop the deflationary spiral. Yeah, I know…helicopter ben and all that non-sense. In reality all they are doing is mitigating the damage and slowing the rate of descent so that there is not a large scale systemic meltdown ala the Bear Sterns blow out.

The inflationary mindset, much like the housing price mindset, is so ingrained in the psyche of the masses that it is difficult for most of J6P to understand that rising prices do not necessarily equate with inflation. Unlike many posters I’ve seen who argue that the definition I use is too academic / abstract, I say bullshit. It is what is. It is the lack of consistency in the use of the terms that leads to massive confusion and obfuscation of the economic issues at hand disallowing for clear thinking on a complicated subject matter.

[JWM in SD]

JWM in SD

Josh,

Excellent, excellent, excellant!!!! I could not have done a better job myself. You are officially a Deflationista Disciple.

One point of contention though. The Fed / Bernanke doesnt really think they can stop the deflationary spiral. Yeah, I know…helicopter ben and all that non-sense. In reality all they are doing is mitigating the damage and slowing the rate of descent so that there is not a large scale systemic meltdown ala the Bear Sterns blow out.

The inflationary mindset, much like the housing price mindset, is so ingrained in the psyche of the masses that it is difficult for most of J6P to understand that rising prices do not necessarily equate with inflation. Unlike many posters I’ve seen who argue that the definition I use is too academic / abstract, I say bullshit. It is what is. It is the lack of consistency in the use of the terms that leads to massive confusion and obfuscation of the economic issues at hand disallowing for clear thinking on a complicated subject matter.

[JWM in SD]

JWM in SD

Josh,

Excellent, excellent, excellant!!!! I could not have done a better job myself. You are officially a Deflationista Disciple.

One point of contention though. The Fed / Bernanke doesnt really think they can stop the deflationary spiral. Yeah, I know…helicopter ben and all that non-sense. In reality all they are doing is mitigating the damage and slowing the rate of descent so that there is not a large scale systemic meltdown ala the Bear Sterns blow out.

The inflationary mindset, much like the housing price mindset, is so ingrained in the psyche of the masses that it is difficult for most of J6P to understand that rising prices do not necessarily equate with inflation. Unlike many posters I’ve seen who argue that the definition I use is too academic / abstract, I say bullshit. It is what is. It is the lack of consistency in the use of the terms that leads to massive confusion and obfuscation of the economic issues at hand disallowing for clear thinking on a complicated subject matter.

[sdduuuude]

The concept of money supply vs. prices is crystal clear to me. Has been for a while. I get that part.

You are saying “price increases be damned – we are in a deflationary environment.” Right ?

And this is the that starts to brings clarity on the concept: “The problem we have is that debt is being destroyed through default faster than the Fed can get money injected into the system”

Where I lose it is – how is it that debt can be destroyed, and if so, how does that actually reduce the money supply?

Thanks for the education so far …

[sdduuuude]

The concept of money supply vs. prices is crystal clear to me. Has been for a while. I get that part.

You are saying “price increases be damned – we are in a deflationary environment.” Right ?

And this is the that starts to brings clarity on the concept: “The problem we have is that debt is being destroyed through default faster than the Fed can get money injected into the system”

Where I lose it is – how is it that debt can be destroyed, and if so, how does that actually reduce the money supply?

Thanks for the education so far …

[sdduuuude]

The concept of money supply vs. prices is crystal clear to me. Has been for a while. I get that part.

You are saying “price increases be damned – we are in a deflationary environment.” Right ?

And this is the that starts to brings clarity on the concept: “The problem we have is that debt is being destroyed through default faster than the Fed can get money injected into the system”

Where I lose it is – how is it that debt can be destroyed, and if so, how does that actually reduce the money supply?

Thanks for the education so far …

[sdduuuude]

The concept of money supply vs. prices is crystal clear to me. Has been for a while. I get that part.

You are saying “price increases be damned – we are in a deflationary environment.” Right ?

And this is the that starts to brings clarity on the concept: “The problem we have is that debt is being destroyed through default faster than the Fed can get money injected into the system”

Where I lose it is – how is it that debt can be destroyed, and if so, how does that actually reduce the money supply?

Thanks for the education so far …

[Author]

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