The U.S. Economy: Stand by for more worse news

Discussion in 'Business & Economics' started by Brian Foley, Nov 28, 2010.

  1. billvon Valued Senior Member

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    12,805
    Yes, but that helps repay the debt. It (inflation) is also very damaging to economies.
     
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  3. joepistole Deacon Blues Valued Senior Member

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    Yeah, you keep deluding yourself. You are so good at it. The fact is Russia is and has always been a backwater 2 bit wannabe nation. It lags in everything and leads in nothing worthwhile.

    And I previously explained why your "reasons" were bullshit.

    I have explained this to you several times and as recently as a few hours ago, are you that dense? I said, if what you believe were true, then how to you explain the dramatic increase in US money supply which occurred since 2009 with virtually NO inflation? As has been recently and repeatedly explained to you, it's because increasing the money supply alone does not cause inflation and a recent example is the US.

    The typical lay definition of inflation goes like this, "too much money chasing too few goods and services". As previously and repeatedly pointed out, your money supply notion ignores the demand requirement. People like yourself get the too much money part, but that's all they get. If you have too much money and a too many goods and services you don't get inflation. You get economic growth. That's why the US economy was able to expand its money supply by 2 trillion dollars without an iota of inflation.

    As I have repeatedly explained to you, printing money in and of itself doesn't necessarily result in inflation. There are multiple factors at work. It takes more than just an increased money supply to cause inflation. That's why a bunch of ignorant folks bought gold at 1,900 dollars and ounce just before the price collapsed to just above a 1,000 an ounce. They didn't understand inflation.
     
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  5. joepistole Deacon Blues Valued Senior Member

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    The answer is no, "printing" or expanding the money supply over time doesn't in and of itself cause inflation. There are many other factors at work. It's kind of like fire. You can have a fuel and an ignition source, but if you don't have oxygen you won't get a fire. The same applies to inflation.

    Moderate inflation isn't damaging to economies. Excessive or excessive inflation spikes are damaging to economies because it facilitates an inefficient allocation of investment capital. But a moderate inflation rate isn't at all damaging to the economy. In fact it's helpful. That's why the US Federal Reserve has targeted a 2% inflation rate. In an ideal world, the US Federal Reserve wants to see 2% inflation.

    Depression, the antithesis of inflation, is always damaging to the economy, that's one reason why the US Federal Reserve wants to maintain a 2% inflation rate.
     
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  7. Bowser Life is Fatal. Valued Senior Member

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    Would that be the hidden tax that people claim?
     
  8. Bowser Life is Fatal. Valued Senior Member

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    That might be true for a short time, but doesn't the price structure adjust itself to compensate for the devalued currancy?
     
  9. billvon Valued Senior Member

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    12,805
    That is one of the "taxes" of inflation, yes. It hits people with savings hardest.
     
  10. joepistole Deacon Blues Valued Senior Member

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    Well, it's true for all time, not just a short period of time. As long as the currency is devalued, it will remain true. Again, there are a number of factors at work here.

    But, all things being equal, i.e. ceteris paribus, the increased sales and production resulting from the devalued currency will eventually cause the currency value to rise.
     
  11. joepistole Deacon Blues Valued Senior Member

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    22,875
    That's not true. You are conflating fiscal policy with inflation. The two are very different. Inflation is in no way a tax or even related to taxation. Words have meaning, so we should use them appropriately in order to avoid confusion. Unfortunately, demagogues, routinely misuse words, and I'm not saying you are a demagogue. I'm just trying to clear things up.

    There are disadvantages associated with inflation. But there are also some advantages associated with inflation. That's one reason the US Federal Reserve has targeted a 2% inflation rate for the country.

    Actually, inflation increases interest rates, and it doesn't erode savings if savings are earning a sufficient interest rate. Deflation erodes interest rates. That's why we are seeing some negative interest rates in Europe. There are 5 components of interest rates. One of those components is inflation.

    • Real Risk-Free Rate - This assumes no risk or uncertainty, simply reflecting differences in timing: the preference to spend now/pay back later versus lend now/collect later.


    • Expected Inflation - The market expects aggregate prices to rise, and the currency's purchasing power is reduced by a rate known as the inflation rate. Inflation makes real dollars less valuable in the future and is factored into determining the nominal interest rate (from the economics material: nominal rate = real rate + inflation rate).


    • Default-Risk Premium - What is the chance that the borrower won't make payments on time, or will be unable to pay what is owed? This component will be high or low depending on the creditworthiness of the person or entity involved.


    • Liquidity Premium- Some investments are highly liquid, meaning they are easily exchanged for cash (U.S. Treasury debt, for example). Other securities are less liquid, and there may be a certain loss expected if it's an issue that trades infrequently. Holding other factors equal, a less liquid security must compensate the holder by offering a higher interest rate.


    • Maturity Premium - All else being equal, a bond obligation will be more sensitive to interest rate fluctuations the longer to maturity it is.


    Read more: The Five Components Of Interest Rates - CFA Level 1 | Investopedia http://www.investopedia.com/exam-gu...-value-money-interest-rates.asp#ixzz4MocP6BiJ
    Follow us: Investopedia on Facebook

    The only way inflation would erode savings is if you took your cash savings and stuffed it in your mattress or buried it in your backyard, etc. As long as your savings are earning a fair interest, any inflation should be accounted for in the interest rate received.
     
    Last edited: Oct 11, 2016
  12. Bowser Life is Fatal. Valued Senior Member

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    Are the banks currently offering interest on deposits that keep up with inflation. Just asking because my personal experience has been negative. There's really little advantage in stuffing money into a savings account.
     
  13. joepistole Deacon Blues Valued Senior Member

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    I'm saying interest rates are determined by all of the previously referenced 5 components and one of those components is inflation. Interest rates are tough. Most people don't understand interest rates or debt securities. Most people take debt securities as simple and without risk and clearly they are not. When interest rates begin rising there will be a lot of debt investors who will be hurt and wondering what happened.

    You can lose money on debt, but not all of those reasons are attributable to inflation. Deflation lowers interest rates, inflation raises interest rates. If you invest in risk free or relatively risk free debt, e.g. bank deposits, you will get a very low rate of return that may be below the inflation rate owing to risk. If you want higher returns you will need to take on more risk. Riskier investments are out there. You can buy into some nice municipals which pay 5% interest.
     
    Last edited: Oct 12, 2016
  14. Bowser Life is Fatal. Valued Senior Member

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    Yep, agreed.
     
  15. Schmelzer Valued Senior Member

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    Why do you think I'm obliged to explain something more, given that I had in my original piece derived the conclusion "So, prices for donuts do not rise"? And after this given yet another point, namely "They buy firms, shares, property all over the world." So, the effect is distributed over the whole world. And the other point is that inflation in stock prices are considered evidence for prosperity, and nothing bad, and do not go into the inflation index anyway.
     
  16. joepistole Deacon Blues Valued Senior Member

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    22,875
    I asked to you explain a gaping hole in your assertion. Replaying your assertion isn't a proof of your assertion. If your assertion where true - which it isn't for the previously explained reasons - you need to explain the previously pointed out holes in your story comrade. Now stop obfuscating and answer the question which was put to you.

    Please Register or Log in to view the hidden image!

     
  17. Schmelzer Valued Senior Member

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    Which hole? You have made a claim - actually no inflation - which agrees with my conclusion.
     
  18. iceaura Valued Senior Member

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    When one must assume risk in order to earn interest rates commensurate with inflation, inflation will on average erode savings.
     
  19. Michael 歌舞伎 Valued Senior Member

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    Thank the Gawds the Central Bankers bailed out their criminal banker buddies to the tune of trillions - selling Government enforced T-Bonds on what's left of the middle class.

    Greenshoots - everywhere.
     
  20. Bowser Life is Fatal. Valued Senior Member

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    You might enjoy this video...
     
  21. iceaura Valued Senior Member

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    Because that is a video, it is difficult to critique (that's why the wingnut crowd relies on videos) - but overall, one can easily note that its representation of US history is bullshit: the length of the timeline is wrong, the nature and order of events it presents is wrong, the description of the colonists and political history of the US is wrong, the the final description of Trump is idiotic.

    Perhaps the peak absurdity is about three minutes in, when the narrator says the following: "Welcome to the stage for your Civil War, America".

    The fuckwit is not talking about 1860 (his account spends ten minutes drawing parallels between alleged Rome (with slavery key to its downfall) and fantasy America without ever mentioning American slavery at all ) - he's talking about 2016, and the candidacy of Trump. He has Trump taking over from JFK as the new leader of populist revolution. No joke. He's serious. Donald Trump is taking over JFK's role, which was to lead a populist rebellion against the wealthy and powerful.

    He sounds English - some kind of accent - maybe he doesn't know anything about the US or its history. But why watch?
     
    Last edited: Oct 15, 2016
  22. Bowser Life is Fatal. Valued Senior Member

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    It's a take on the historical, political and present economic situation with which you disagree. And I respect your opinion. From my perspective, he nailed it on the head.
     
  23. iceaura Valued Senior Member

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    24,443
    He got all his facts wrong, about the US. How is that "nailing it on the head"?
     

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