the Inflation thread

[ShebaPoe]

Originally Posted by JasonScandopolous

Most companies are debtors; some are very highly leveraged. If the real $ cost of repaying debt (or financing operations) increases due to deflation, and wages have also increased due to stickiness+deflation, layoffs would be one effective way to regain profit or prevent losses. These losses would occur due to what I mentioned in the above post, if we're talking about companies with physical goods.

I don't understand why the bold is assumed true. But I see what you're saying. However, companies having the wrong capital structure for the market is no different than having the wrong product for the market. Mismanagement of a business isn't the central authority's concern. Businesses that are cash-rich (apple, google) would be the winners. Some win, some lose, these are markets.

[JohnLocke]

Originally Posted by Westley

Yes, it's almost like they're comelling you to hand your cash over to the finance industry.

Well, anyway, I'm sure that's fine and won't have any adverse consequences.

A country needs to walk a fine balance between having the right amount of savings and the right amount of investment. I'm not going to claim I know what the perfect balance is--I don't. I never claimed we have it right in the US. either. Actually, I think we favor investment too much, but I'd rather not have the pendulum swing too much the other way either.

[JohnLocke]

Originally Posted by Rickson

John Locke is a full on economics retard.

What's the point of having political discussions if not to have people with different views? What point then does it serve to insult someone just because they don't hold your views? Shouldn't you be trying to convert me? Or do you want me to be a JSA?

[ShebaPoe]

Originally Posted by JohnLocke

Why is deflation destructive?

1. Contracts are written in nominal terms with inflation expectations embedded

Negative numbers were invented to contemplate scenarios like this; the market will react. Some will win, some will lose...but that's why they call it "competition".

Originally Posted by JL

2. Buying a house or loaning money in a deflationary time period -- it would be crazy. Your mortgage payments would stay constant as you watch your wages shrink.

Interesting to think about this in terms of banks. However, you seem to be considering indefinite deflation. Nothing is indefinite. Fractional reserve banking produces inflation AND deflation, if the government stays out of the game. Deflation is usually the period of correction for excess money and credit creation. So yes, in these time periods, asset prices would fall, at times sharply. Again, this is why they call it a "correction".

4. Discourages savings and investment -- why should I risk my money to make 5% when I can stuff it in my mattress and make 3%? Just as high inflation over encourages overconsumption, deflation over encourages too much savings

When there is "too much savings", lending will begin again. Markets are fantastic at working this sort of thing out.

Originally Posted by JL

As I have said before, monetary base inflation should be low (2-3%), stable, and track well with the growth in the economy as a whole.

You did say it, but you haven't really supported it.

[JohnLocke]

Originally Posted by ShebaPoe

I don't understand why the bold is assumed true. But I see what you're saying. However, companies having the wrong capital structure for the market is no different than having the wrong product for the market. Mismanagement of a business isn't the central authority's concern. Businesses that are cash-rich (apple, google) would be the winners. Some win, some lose, these are markets.

How is it mismangement when interest rates are dictated? They have the capital structure that made sense at the time. The rules got changed on them.

[ShebaPoe]

Originally Posted by JohnLocke

A country needs to walk a fine balance between having the right amount of savings and the right amount of investment. I'm not going to claim I know what the perfect balance is--I don't. I never claimed we have it right in the US. either. Actually, I think we favor investment too much, but I'd rather not have the pendulum swing too much the other way either.

I said it already but I'll say it again: markets are fantastic at working this out. Interest rates (when not set by central planners appointed by government) will function as a mechanism to optimally allocate capital between savings and investment.

[ShebaPoe]

Originally Posted by JohnLocke

How is it mismangement when interest rates are dictated? They have the capital structure that made sense at the time. The rules got changed on them.

Same goes for homeowners who bought from 2004-2008. Are you opposed to foreclosures on people in that time period?

[Baron Von Raschke]

Originally Posted by JohnLocke

Why does anyone buy anything? Cuz I wanted to. Getting a better one in a year doesn't matter that much considering I turn them over pretty quickly. Its not a long term asset nor is that expensive.

What's an example of something you buy now because it will be more expensive in a year? In "normal" circumstances, a house comes to mind. But most things you simply buy when you want or "need" a new one.

[FormLetter]

Originally Posted by Rickson

John Locke is a full on economics retard.

Don't be a jerk Rickson.

[FormLetter]

Originally Posted by JohnLocke

A country needs to walk a fine balance between having the right amount of savings and the right amount of investment. I'm not going to claim I know what the perfect balance is--I don't. I never claimed we have it right in the US. either. Actually, I think we favor investment too much, but I'd rather not have the pendulum swing too much the other way either.

This is kind like that 66kent person who arrived here recently.

You assume there is some knowable right answer.