[Rich Toscano]

[quote=Arraya]
Differences:

-Though, their basic definitions are the same, deflationists expand their definition of money

-Power of the bond market to curtail serious “printing”

-effectiveness of printing
[/quote]

That is an excellent summary of the differing assumptions between me and the long-term deflationists. As you might expect given where I land on this issue, I think their assumptions are incorrect.

1. They have actually radically changed the definition of money to include all money AND credit. Money and credit are two completely different factors and summing them into one monolithic statistic makes no sense (not to mention hopelessly muddying up the debate by unilaterally fabricating new definitions of terms).

2. So far, the Fed has printed about a trillion and a half dollars, and the bond market has not objected at all.

3. If the Fed monetizes assets, that can get money into the real economy (eg, if it buys Treasuries, that gives new money to the govt which then spends it into the economy). Also, as with #2, the data says otherwise: they printed money in 09 and the consumer price deflation ended. Printing money isn’t “effective” in terms of making things better, but it can most certainly be “effective” in terms of ending deflation.

[Rich Toscano]

[quote=Arraya]
Differences:

-Though, their basic definitions are the same, deflationists expand their definition of money

-Power of the bond market to curtail serious “printing”

-effectiveness of printing
[/quote]

That is an excellent summary of the differing assumptions between me and the long-term deflationists. As you might expect given where I land on this issue, I think their assumptions are incorrect.

1. They have actually radically changed the definition of money to include all money AND credit. Money and credit are two completely different factors and summing them into one monolithic statistic makes no sense (not to mention hopelessly muddying up the debate by unilaterally fabricating new definitions of terms).

2. So far, the Fed has printed about a trillion and a half dollars, and the bond market has not objected at all.

3. If the Fed monetizes assets, that can get money into the real economy (eg, if it buys Treasuries, that gives new money to the govt which then spends it into the economy). Also, as with #2, the data says otherwise: they printed money in 09 and the consumer price deflation ended. Printing money isn’t “effective” in terms of making things better, but it can most certainly be “effective” in terms of ending deflation.

[Rich Toscano]

[quote=Arraya]
Differences:

-Though, their basic definitions are the same, deflationists expand their definition of money

-Power of the bond market to curtail serious “printing”

-effectiveness of printing
[/quote]

That is an excellent summary of the differing assumptions between me and the long-term deflationists. As you might expect given where I land on this issue, I think their assumptions are incorrect.

1. They have actually radically changed the definition of money to include all money AND credit. Money and credit are two completely different factors and summing them into one monolithic statistic makes no sense (not to mention hopelessly muddying up the debate by unilaterally fabricating new definitions of terms).

2. So far, the Fed has printed about a trillion and a half dollars, and the bond market has not objected at all.

3. If the Fed monetizes assets, that can get money into the real economy (eg, if it buys Treasuries, that gives new money to the govt which then spends it into the economy). Also, as with #2, the data says otherwise: they printed money in 09 and the consumer price deflation ended. Printing money isn’t “effective” in terms of making things better, but it can most certainly be “effective” in terms of ending deflation.

[Rich Toscano]

[quote=Arraya]
Differences:

-Though, their basic definitions are the same, deflationists expand their definition of money

-Power of the bond market to curtail serious “printing”

-effectiveness of printing
[/quote]

That is an excellent summary of the differing assumptions between me and the long-term deflationists. As you might expect given where I land on this issue, I think their assumptions are incorrect.

1. They have actually radically changed the definition of money to include all money AND credit. Money and credit are two completely different factors and summing them into one monolithic statistic makes no sense (not to mention hopelessly muddying up the debate by unilaterally fabricating new definitions of terms).

2. So far, the Fed has printed about a trillion and a half dollars, and the bond market has not objected at all.

3. If the Fed monetizes assets, that can get money into the real economy (eg, if it buys Treasuries, that gives new money to the govt which then spends it into the economy). Also, as with #2, the data says otherwise: they printed money in 09 and the consumer price deflation ended. Printing money isn’t “effective” in terms of making things better, but it can most certainly be “effective” in terms of ending deflation.

[Rich Toscano]

Huckleberry – Thanks for clarifying, but I didn’t take it that way. The hint of exasperation in my answer has nothing to do with you or your question in specific; it’s more a general bafflement that this has become such a hot topic lately. We’ve had a couple months of falling headline (but not core) CPI, but as far as long term prospects are concerned nothing has changed — so the sudden fascination with deflation, and the rehashing of the same old arguments, is pretty puzzling to me and sometimes I get a bit impatient with the topic. Nothing personal!

[Rich Toscano]

Huckleberry – Thanks for clarifying, but I didn’t take it that way. The hint of exasperation in my answer has nothing to do with you or your question in specific; it’s more a general bafflement that this has become such a hot topic lately. We’ve had a couple months of falling headline (but not core) CPI, but as far as long term prospects are concerned nothing has changed — so the sudden fascination with deflation, and the rehashing of the same old arguments, is pretty puzzling to me and sometimes I get a bit impatient with the topic. Nothing personal!

[Rich Toscano]

Huckleberry – Thanks for clarifying, but I didn’t take it that way. The hint of exasperation in my answer has nothing to do with you or your question in specific; it’s more a general bafflement that this has become such a hot topic lately. We’ve had a couple months of falling headline (but not core) CPI, but as far as long term prospects are concerned nothing has changed — so the sudden fascination with deflation, and the rehashing of the same old arguments, is pretty puzzling to me and sometimes I get a bit impatient with the topic. Nothing personal!

[Rich Toscano]

Huckleberry – Thanks for clarifying, but I didn’t take it that way. The hint of exasperation in my answer has nothing to do with you or your question in specific; it’s more a general bafflement that this has become such a hot topic lately. We’ve had a couple months of falling headline (but not core) CPI, but as far as long term prospects are concerned nothing has changed — so the sudden fascination with deflation, and the rehashing of the same old arguments, is pretty puzzling to me and sometimes I get a bit impatient with the topic. Nothing personal!

[Rich Toscano]

Huckleberry – Thanks for clarifying, but I didn’t take it that way. The hint of exasperation in my answer has nothing to do with you or your question in specific; it’s more a general bafflement that this has become such a hot topic lately. We’ve had a couple months of falling headline (but not core) CPI, but as far as long term prospects are concerned nothing has changed — so the sudden fascination with deflation, and the rehashing of the same old arguments, is pretty puzzling to me and sometimes I get a bit impatient with the topic. Nothing personal!

[Rich Toscano]

[quote=Huckleberry]It appears like this may be a good thread to restart.

Many well known economists (and even a few dissenting members of the Fed) are now starting to become highly interested/worried about the US economy becoming deflationary over the next year.

What are Piggs experiences and thoughts regarding what they’re seeing and reading?

Rich, I know you recently wrote an article expressing your view and the low probability of this. Do you still stand by your assessment/analysis?
[/quote]

Yes.

But I want to clarify something, since this debate is so fraught with misunderstanding. Your post, as I read it, implies that the article makes some statement about short-term deflation risk. It does not; the article examines the huge difference in policy response between the US and Japan, as well as arguing that the differing policy responses will lead to different results. In my other Jan 09 article (not linked), I argued that a long-term Japan-like deflation was pretty much impossible in the US unless there is a radical change in leadership and economic policy theory. Neither articles ruled out the possibility of shorter term deflationary periods.

Just wanted to clarify what I had actually said. With that said, I’ve seen nothing to change my mind. In fact the policy response and the lack of deflation since I put those articles up has strongly supported my analysis. (Check today’s admission that the FOMC will engage in further QE for the latest exhibit).

I have to admit that I am kind of surprised to be asked such a question. Both policy response and outcomes since I wrote those articles has overwhelmingly supported my thesis that the authorities will not allow a long term deflation, even if they have to openly and massively debase our currency to achieve this goal. So of course I stand by it — why wouldn’t I?

[Rich Toscano]

[quote=Huckleberry]It appears like this may be a good thread to restart.

Many well known economists (and even a few dissenting members of the Fed) are now starting to become highly interested/worried about the US economy becoming deflationary over the next year.

What are Piggs experiences and thoughts regarding what they’re seeing and reading?

Rich, I know you recently wrote an article expressing your view and the low probability of this. Do you still stand by your assessment/analysis?
[/quote]

Yes.

But I want to clarify something, since this debate is so fraught with misunderstanding. Your post, as I read it, implies that the article makes some statement about short-term deflation risk. It does not; the article examines the huge difference in policy response between the US and Japan, as well as arguing that the differing policy responses will lead to different results. In my other Jan 09 article (not linked), I argued that a long-term Japan-like deflation was pretty much impossible in the US unless there is a radical change in leadership and economic policy theory. Neither articles ruled out the possibility of shorter term deflationary periods.

Just wanted to clarify what I had actually said. With that said, I’ve seen nothing to change my mind. In fact the policy response and the lack of deflation since I put those articles up has strongly supported my analysis. (Check today’s admission that the FOMC will engage in further QE for the latest exhibit).

I have to admit that I am kind of surprised to be asked such a question. Both policy response and outcomes since I wrote those articles has overwhelmingly supported my thesis that the authorities will not allow a long term deflation, even if they have to openly and massively debase our currency to achieve this goal. So of course I stand by it — why wouldn’t I?

[Rich Toscano]

[quote=Huckleberry]It appears like this may be a good thread to restart.

Many well known economists (and even a few dissenting members of the Fed) are now starting to become highly interested/worried about the US economy becoming deflationary over the next year.

What are Piggs experiences and thoughts regarding what they’re seeing and reading?

Rich, I know you recently wrote an article expressing your view and the low probability of this. Do you still stand by your assessment/analysis?
[/quote]

Yes.

But I want to clarify something, since this debate is so fraught with misunderstanding. Your post, as I read it, implies that the article makes some statement about short-term deflation risk. It does not; the article examines the huge difference in policy response between the US and Japan, as well as arguing that the differing policy responses will lead to different results. In my other Jan 09 article (not linked), I argued that a long-term Japan-like deflation was pretty much impossible in the US unless there is a radical change in leadership and economic policy theory. Neither articles ruled out the possibility of shorter term deflationary periods.

Just wanted to clarify what I had actually said. With that said, I’ve seen nothing to change my mind. In fact the policy response and the lack of deflation since I put those articles up has strongly supported my analysis. (Check today’s admission that the FOMC will engage in further QE for the latest exhibit).

I have to admit that I am kind of surprised to be asked such a question. Both policy response and outcomes since I wrote those articles has overwhelmingly supported my thesis that the authorities will not allow a long term deflation, even if they have to openly and massively debase our currency to achieve this goal. So of course I stand by it — why wouldn’t I?

[Rich Toscano]

[quote=Huckleberry]It appears like this may be a good thread to restart.

Many well known economists (and even a few dissenting members of the Fed) are now starting to become highly interested/worried about the US economy becoming deflationary over the next year.

What are Piggs experiences and thoughts regarding what they’re seeing and reading?

Rich, I know you recently wrote an article expressing your view and the low probability of this. Do you still stand by your assessment/analysis?
[/quote]

Yes.

But I want to clarify something, since this debate is so fraught with misunderstanding. Your post, as I read it, implies that the article makes some statement about short-term deflation risk. It does not; the article examines the huge difference in policy response between the US and Japan, as well as arguing that the differing policy responses will lead to different results. In my other Jan 09 article (not linked), I argued that a long-term Japan-like deflation was pretty much impossible in the US unless there is a radical change in leadership and economic policy theory. Neither articles ruled out the possibility of shorter term deflationary periods.

Just wanted to clarify what I had actually said. With that said, I’ve seen nothing to change my mind. In fact the policy response and the lack of deflation since I put those articles up has strongly supported my analysis. (Check today’s admission that the FOMC will engage in further QE for the latest exhibit).

I have to admit that I am kind of surprised to be asked such a question. Both policy response and outcomes since I wrote those articles has overwhelmingly supported my thesis that the authorities will not allow a long term deflation, even if they have to openly and massively debase our currency to achieve this goal. So of course I stand by it — why wouldn’t I?

[Rich Toscano]

[quote=Huckleberry]It appears like this may be a good thread to restart.

Many well known economists (and even a few dissenting members of the Fed) are now starting to become highly interested/worried about the US economy becoming deflationary over the next year.

What are Piggs experiences and thoughts regarding what they’re seeing and reading?

Rich, I know you recently wrote an article expressing your view and the low probability of this. Do you still stand by your assessment/analysis?
[/quote]

Yes.

But I want to clarify something, since this debate is so fraught with misunderstanding. Your post, as I read it, implies that the article makes some statement about short-term deflation risk. It does not; the article examines the huge difference in policy response between the US and Japan, as well as arguing that the differing policy responses will lead to different results. In my other Jan 09 article (not linked), I argued that a long-term Japan-like deflation was pretty much impossible in the US unless there is a radical change in leadership and economic policy theory. Neither articles ruled out the possibility of shorter term deflationary periods.

Just wanted to clarify what I had actually said. With that said, I’ve seen nothing to change my mind. In fact the policy response and the lack of deflation since I put those articles up has strongly supported my analysis. (Check today’s admission that the FOMC will engage in further QE for the latest exhibit).

I have to admit that I am kind of surprised to be asked such a question. Both policy response and outcomes since I wrote those articles has overwhelmingly supported my thesis that the authorities will not allow a long term deflation, even if they have to openly and massively debase our currency to achieve this goal. So of course I stand by it — why wouldn’t I?

[Rich Toscano]

[quote=jeeman]Money supply + credit = inflation.
[/quote]

No. You cannot sum money and credit; they are two entirely different things. I’ve been over this many times… see the “Credit Deflation” part of this article: http://www.voiceofsandiego.org/toscano/article_8029a8dd-60eb-530f-8f60-25b75ea31527.html

[quote=jeeman]Look at 1996-2008: the money supply was fairly constant, hovering about $800B, but credit was getting looser and looser, increasing money velocity, and we had inflation.
[/quote]

Money supply was NOT constant from 1996-2008. See this graph:

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s%5B1%5D%5Bid%5D=M2&s%5B1%5D%5Brange%5D=5yrs

Broad money supply more than doubled over that period.

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