the Inflation thread

[FormLetter]

Originally Posted by Regular Joe

See, Formletter? Not a strawman.

Ok. You got that one.

I can't follow and recall everyone's posts and arguments.

[Regular Joe]

Originally Posted by ShebaPoe

I don't think JUICE's reply had anything to do with hoarding cash.

I think he was pointing out that deflation makes some debts harder to pay (vs inflation, which ensures there is always "enough money" to pay debts), and as some debts go unpaid, banks must draw down reserves, which then impairs their ability to make new loans.

Is that right, JUICE?

Wouldn't a run on banks imply that people are hoarding cash? It might be a different mechanism that would lead to a run on the banks, but the outcome would be same.

And if that is the logical progression of the situation where inflation suddenly goes away, then what is the alternative that would avoid it? I think it's fine to have the view that our monetary policy is a subversive tax, but we would need an alternative that wouldn't throw everything into chaos. And while you may be fine with many years of chaos, the majority of the population never will be. Even an army of Ricksons calling people JSAs wouldn't change that.

[Rickson]

Originally Posted by Regular Joe

Wouldn't a run on banks imply that people are hoarding cash? It might be a different mechanism that would lead to a run on the banks, but the outcome would be same.

And if that is the logical progression of the situation where inflation suddenly goes away, then what is the alternative that would avoid it? I think it's fine to have the view that our monetary policy is a subversive tax, but we would need an alternative that wouldn't throw everything into chaos. And while you may be fine with many years of chaos, the majority of the population never will be. Even an army of Ricksons calling people JSAs wouldn't change that.

I've laid it all out before, it's not hard to get there with no chaos.

[ShebaPoe]

Originally Posted by Regular Joe

Wouldn't a run on banks imply that people are hoarding cash? It might be a different mechanism that would lead to a run on the banks, but the outcome would be same.

I also never said there would be a bank run.

I think people would use banks, and banks would charge low interest rates, and do less lending. Remember, also, I am not calling for permanent deflation, just deflation that occurs to correct excesses. It's not as if I want the market to deflate until all the money is gone. I just want deflation back on the table of permissible outcomes.

In our central bank world, banks lend to each other short term to make the whole pyramid balance out, and when banks can't get loans from each other, they go to the discount window at the Fed. In a bout of deflation, banks might hoard cash and poorly managed banks might be unable to borrow; in this case it can be said that there is a "run" on a bad bank. But healthy banks would be subject to none of this.

And if that is the logical progression of the situation where inflation suddenly goes away, then what is the alternative that would avoid it? I think it's fine to have the view that our monetary policy is a subversive tax, but we would need an alternative that wouldn't throw everything into chaos. And while you may be fine with many years of chaos, the majority of the population never will be. Even an army of Ricksons calling people JSAs wouldn't change that.

I just don't understand where "many years of chaos" comes from. It seems like that is something that people say over and over but it isn't well supported. It's like Paulson and Bernanke saying there would be martial law and no food on the shelves: pure bullshit.

This entire discussion is way over the head of "the majority"; remember that this board is on balance smarter, better educated and wealthier than the overwhelming majority of Americans

Also, monetary policy is not a tax. A tax is levied by government, and in this country that happens after a vote. Monetary policy is the taking of money by both government and non-goverment entities without voting. That's stealing, plain and simple.

[Regular Joe]

Originally Posted by ShebaPoe

I also never said there would be a bank run.

I just don't understand where "many years of chaos" comes from.

JUICE was the one who made that statement about the run on banks. I was extrapolating based on on that. Chaos might be a strong word, but it would be a hard time for lots of people if that event did occur.

[Regular Joe]

Originally Posted by ShebaPoe

In our central bank world, banks lend to each other short term to make the whole pyramid balance out, and when banks can't get loans from each other, they go to the discount window at the Fed. In a bout of deflation, banks might hoard cash and poorly managed banks might be unable to borrow; in this case it can be said that there is a "run" on a bad bank. But healthy banks would be subject to none of this.

What do you mean when you say there is a "run" on a bank here? Would the outcome be people trying to get their money out as quick as possible?

If so, at what point would a run on bad banks lead to similar runs on good banks? What percentage of bank customers do you think are with bad banks right now? If a bunch of people start pulling money out of their bank, I doubt that most of other banks' customers are going to wait and do an analysis of their bank to see whether it's good or bad. I suppose the FDIC might alleviate some people's concerns here.

[Regular Joe]

Originally Posted by Rickson

I've laid it all out before, it's not hard to get there with no chaos.

I must have missed it. Do you have a link?

[Rickson]

Originally Posted by Regular Joe

I must have missed it. Do you have a link?

probably page 20 or so?

I contend that people are worse off w/ this system and keeping it going vs. it collapsing.