Yes.

Yes.

Yes.

*nsfw for cussing.

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The Ben Bernank.

*quality *doublepromote

Boosting this quality contribution up in the Hot Listing - declared quality by blankfist.

Double-Promoting this video back to the front page; last published Sunday, November 14th, 2010 12:35am PST - doublepromote requested by blankfist.

This video makes it seem like there are no good reasons to want to avoid deflation. But the vast majority of economists recognize that it's a bad thing. And they're probably right.

The lower costs of deflation are good for consumers in the short term, for certain. But lower prices means less production--companies just aren't going to be able to afford to pump out as many goods or provide as many services. That means companies can't afford to hire as many people. There will probably be layoffs.

The result of this would likely be that, since people have less money, companies will yet again have to lower prices in order to sell their goods. Which means more layoffs, which means lower prices, and so on. A downward spiral as deflation increases.


I wish the people who make these kinds of videos would at least take Economics 101 at their local college--heck, a community college would probably do.

Inflation gets a bad rap, the Fed's job is to maintain yearly inflation of about 1-2%. Deflation is really bad because it means that my money is more valuable sitting in my pocket/under mattress/etc today than it will be tomorrow. So why would I buy a large item (car, house, etc) if my ability to purchase increases the more I hold onto my money? In essence, the economy stops because consumers earn more by spending less and companies must lower prices, which leads to layoffs which leads to decreased earnings which leads to less spending which leads to lower prices which leads to layoffs which...

Investors want MOAR Cocaine!

>> ^HadouKen24:

This video makes it seem like there are no good reasons to want to avoid deflation. But the vast majority of economists recognize that it's a bad thing. And they're probably right.
The lower costs of deflation are good for consumers in the short term, for certain. But lower prices means less production--companies just aren't going to be able to afford to pump out as many goods or provide as many services. That means companies can't afford to hire as many people. There will probably be layoffs.
The result of this would likely be that, since people have less money, companies will yet again have to lower prices in order to sell their goods. Which means more layoffs, which means lower prices, and so on. A downward spiral as deflation increases.

I wish the people who make these kinds of videos would at least take Economics 101 at their local college--heck, a community college would probably do.


Mild inflation and deflation aren't really cause for alarm though. More over, the entire point of the video was that the prices for almost everything, except houses, are on the rise. Food inflation is the most drastic area it can affect. You can live anywhere, but if you can't eat, it's over. And so, to form an entire economic position around housing instead of food is a bit off the mark. You can look back to the depression for statistics one spending trends. The percent people spend towards housing is so marginal, it isn't even a full percent.

And lower prices don't mean lower production per say. If you are getting 1 dollar of profit instead of 100, but the dollar buys more it balances out. The problem is when things inflate or deflate rapidly. The total money supply dictates the price of things in conjunction with their demand. If the money supply shifts to rapidly, it becomes either to risky to save(inflation), or to risky to consume(deflation). Both have meltdown thresholds. Most assuredly, we are running a greater risk of a hyper inflation. Hyper inflation is par for course on a fiat central banking model, it has hit the world hundreds of times. Hyper deflation is more rare, and the only real famous case is our own depression...most depressions are hyper inflation.

In other words, you can have the spiral either way, which you correctly point out. But fiat hyper inflation is more common and the current direction of financial policy. A time will come, however, when we can no longer finance the purchase of new bonds to drive down interest rates. Interests rates on bonds will rise rapidly. This will cause the interest rate on the national debt to rise, most likely it will have to go up to 20% to make up for all the 0% we have had. At that time, the government budget of today will be the same value as needed to pay the interest on the national debt, alone. At that moment, people will find American bonds and treasuries a weak investment. This will cause a sell off of bonds, which has an effect of raising interests rates even more. This will force the government to print more money to buy more bonds from itself to lower rates so the debt can be payed off. This causes a massive devaluation of the currency (hyper inflation), which is the death of that currency.

This is our path, it has been walked by many. Only drastic and serious actions can whip out of a hyper inflation once it starts, and it is very painful indeed.

Comment hidden because you are ignoring dag.(show it anyway)

Love the overuse of the definite article for comic effect. That's a real internet/linguistic phenomenon.

>> ^nock:

Inflation gets a bad rap, the Fed's job is to maintain yearly inflation of about 1-2%. Deflation is really bad because it means that my money is more valuable sitting in my pocket/under mattress/etc today than it will be tomorrow. So why would I buy a large item (car, house, etc) if my ability to purchase increases the more I hold onto my money? In essence, the economy stops because consumers earn more by spending less and companies must lower prices, which leads to layoffs which leads to decreased earnings which leads to less spending which leads to lower prices which leads to layoffs which...


The same logic could be applied for the purchase of technology; why buy today, when something awesome will come out in 6 months. In reality, people do not operate like that. Most people buy object A for X dollars in whenever X dollars is achieved.

Like I said in my comment before, when you start to swing money supply extreme in either direction, that is where the danger starts. Mild deflation or inflation is nothing to troubling. The real problem is there is no objective mathematical principle in which the fed operates the money supply. Minor inflation is smart when considering a continual rise in the population, but there is no standard metric that they follow for this because they ALSO try and heat and cool markets, something they shouldn't be in the business of doing.

Saying inflation is bad or good isn't really viable. Inflation is good for some, bad for others. Deflation is the same bed, good for some, bad for others. Most notably, it is bad for big business. It is in big business's best interest to have cheap money they can spend before it inflates to fill their coffers. Deflation places its power to individuals financing slower endeavors. What is "better" is a matter of taste of lifestyle, one that I don't think the government has any business regulating per say. And I say that in spite of the fact that, most likely, the decisions people would make would tend us towards a lifestyle that I don't enjoy as much (living in perpetual debt...house, car, cards, chrismas!!)...but so be it.

In short, debt as a source of wealth favors those that save money for others. Savings as a source of wealth favors those that save their own wealth for themselves and those they chose to share it with. Both work, but for whom and to what degree sways largely, and in our case, largely on the decisions unelected quzi-public servants make...unacceptable.

No.

Boo, this would be funny if it weren't perpetuating the existing complete and total ignorance of how the Fed actually works.

Does anybody making this video understand how the fed works?

Apparently not.

>> ^bcglorf:

Boo, this would be funny if it weren't perpetuating the existing complete and total ignorance of how the Fed actually works.
Does anybody making this video understand how the fed works?
Apparently not.



How does the fed work that contradicts this video?

GeeSussFreek, it is generally accepted in mainstream economic theory that deflation is a bad thing for a developed economy... I can't say much more than to invest in a basic economics book and read up on "deflationary spiral".

>> ^nock:

GeeSussFreek, it is generally accepted in mainstream economic theory that deflation is a bad thing for a developed economy... I can't say much more than to invest in a basic economics book and read up on "deflationary spiral".


Are you saying that all cases of deflation result in deflationary spiral? If so, I refer you to this from the Federal reserve bank of Minneapolis. Why do you not have the same fear of the ever prevalent hyper inflation hand in hand with deflationary spiral. Money systems blowing up, or breaking down is really the same thing...bad. And controlled by people you don't vote for.

Yes, evidently I said deflation by definition = deflationary spiral... NOT. Also, you found a single article that says that the link between deflation and depression is "not closely related", written by 2 guys no one would consider economics titans by any means. They couldn't even support an argument saying it was not related. The preponderance of evidence supports deflation as a bad thing - I don't deny that there are people who suggest it's not related to bad things, but then again there are people who believe in Dianetics and Jeebus...

If you'd like to ignore the evidence, that's your choice. Doesn't make it right.

>> ^nock:

Yes, evidently I said deflation by definition = deflationary spiral... NOT. Also, you found a single article that says that the link between deflation and depression is "not closely related", written by 2 guys no one would consider economics titans by any means. They couldn't even support an argument saying it was not related. The preponderance of evidence supports deflation as a bad thing - I don't deny that there are people who suggest it's not related to bad things, but then again there are people who believe in Dianetics and Jeebus...
If you'd like to ignore the evidence, that's your choice. Doesn't make it right.


Unrelated personal attacks. If reports from the Fed itself aren't evidence, then it is a mirror on yourself I point your comment at me at. Here is a corresponding phot
o of inflation cycles that have non-corresponding "Great Depressions" in American history.


As to a fallacy of an appeal to authority has been invoked, I site their qualifications.

Patrick J. Kehoe - Patrick received his B.A. in Mathematics and Russian from Providence College in 1978 and his Ph.D. in Economics from Harvard University in 1986. A prolific researcher, Patrick has published in numerous prestigious publications, including Journal of International Economics, Econometrica, International Economic Review, and Journal of Economic Theory. He currently serves on several editorial boards and is a Fellow of the Econometric Society.

Throughout his career, Patrick has advised numerous Ph.D. students. He has been awarded several grants, including six from the National Science Foundation. His research focuses on monetary policy, time consistency and financial crises.

Andrew Atkeson - Ph.D. Economics, 1988 Graduate School of Business, Stanford University. Grants and Awards:
National Science Foundation Grants
1991-1993 with Robert E. Lucas, Jr.
1992-1994 with Masao Ogaki
1995-1997 with Patrick Kehoe
1997-2000
2000-2004 with Fernando Alvarez
2005-2008 with Ariel Burstein
2006-2009 with Harold Cole

More scholarly than you or I in the field I would wager. Accepting only main stream editorials (this source was actually a wiki article source) tends to fuel a group think which I never like to completely engage in, which is why I frequently view posts from Netrunner and the like. A healthy dose of life from a different perspective keeps ya honest. Anyway, please take this as it was meant, a nice conversation about a subject we both find interesting and controversial. Take the teeth off your comments as I wasn't meaning to make anyone's blood boil.

The authors themselves state that there is a direct link between the Great Depression and deflation. They then go on to say that besides that unfortunate link, there is only a small connection between the two.

Anyways, like I said, not necessarily titans of the field. They have a few grants, most university PhD's get those now and then.

Also, I wouldn't go around saying that the linked article is a report from the Fed. As best I can tell it was a research paper with one of the authors being employed by the Fed at the time, not an officially accepted Fed position.

Thinking outside the box is fine, just as long as it's not just for the sake of thinking outside the box.

>> ^nock:

The authors themselves state that there is a direct link between the Great Depression and deflation. They then go on to say that besides that unfortunate link, there is only a small connection between the two.
Anyways, like I said, not necessarily titans of the field. They have a few grants, most university PhD's get those now and then.
Also, I wouldn't go around saying that the linked article is a report from the Fed. As best I can tell it was a research paper with one of the authors being employed by the Fed at the time, not an officially accepted Fed position.
Thinking outside the box is fine, just as long as it's not just for the sake of thinking outside the box.


I was never arguing that there was no link to the Great Depression and deflation. My point was that minor cases of either deflation or inflation are negligible mirco and macro economically speaking. It may well be that deflation in a population that is growing isn't optimal, but that isn't what I was ever saying in the first place (and is debated even by those that work for the fed). My main topic of interest was that as far as it concerns all the things that I buy, prices are rising steadily, and in other cases, rapidly. That holds to all but loans, of which abound with new, cheaper offers of refinancing, and mortgages.

And your right, it would be more correct to say a report from people of the fed, not "the fed" itself, thought that would be self evident...we all know the Ben Bernanke position on the Great Depression. And in this case, I don't believe I am thinking outside the box without merit. More like not handing the keys to the guy who either A...didn't see it coming or B...flat out mislead people. Either way, the Ben Bernanke's interpretation of our current financial position is about what I come to expect from most appointed government officials, lacking.

>> ^GeeSussFreeK:

>> ^bcglorf:
Boo, this would be funny if it weren't perpetuating the existing complete and total ignorance of how the Fed actually works.
Does anybody making this video understand how the fed works?
Apparently not.


How does the fed work that contradicts this video?


Right from the start:
"What does it mean?"
"It means they are going to print a ton of money."
...
"Because the printing money is the last refuge of failed economic empires and banana republics and the fed doesn't want to admit this is their only idea."

The fed doesn't just print off money for fun. It doesn't just hand out the money to it's friends. It doesn't even arbitrarily add value into the economy. Any money it prints is generally traded for asset backed loans. The effect is to take some assets out of the economy, and insert an equivalent amount of money in it's place. The most significant effect simply being the relative deflation of the value of the dollar.

Oh, and it has been continually doing this through out it's existence, so it's nothing "brand new" or "last refuge".

The whole video basically just tries to reinforce the ignorant "the fed printing money is bad and mysterious" conspiracy. What we really need is many, many more videos explaining how the fed actually goes about printing money and what the impact is.

Fanning people's fears from something they don't understand by playing on their ignorance sickens me.