>> ^Psychologic:
I've never seen Paul or Schiff talk about the inherent deflationary nature of information technologies in the context of Austrian Economics, despite their constant talk of inflation. The price of a given amount of processing power or data storage drops by a fairly consistent percent per year (on average)... the same is true for dna sequencing, solar power, or many other high-tech devices.
Maybe they don't think it's a big deal, but I've never even seen them mention it. Austrian Economics were formulated well before the information age, so I'm curious how these new trends fit into it.


Metal melt values are always a good indicator about inflation over the long history of time. Let us look at penny melt values. This would be a relation of the fiat value of a penny vs the market value of the copper.

http://mises.org/images4/3069figure1.jpg

The worst part of this is that the penny has been changed every so often with less and less copper (other coins as well). Soon, pennies will be filled with steal as that is one of the cheapest metals you can have. After that, it is the end of the line for a penny. What graphs and graphs like this show ( you can look it up for gold, silver, and nearly any other rareish earth metal) and the trend is the same, metal is more highly prized over time than US dollars. This eats away until the system snaps (like back in the currency crunch of 33 when the government outlawed gold...forced you to sell gold so the treasury could have something real to give dollars value after the failed works projects of the 30s.). Fiat currencies and currency under control of central bankers tends to eventually undermine itself. The world is complex and full of players and vested interests and various other things that make prediction along a specific time frame hard. You could have massive investment of a foreign saver nation rescue a monetary system from collapse (IE China to the USA). But when the music stops for debt, the game is up, you have to face the monster your created. And like most things, the longer you wait to fix it, the worse it will be at that time if finally needs mending.

You are also talking about two different ideas. Because tech gets cheaper doesn't mean there isn't inflation. Technology is fairly different from things like, say food, or metal. New processes make something more efficient to produce over its life cycle. Chips become cheaper because of size. The smaller it gets, the cheaper it can be produced and as consequence, more of them can be sold per unit of silicon wafer. If you ever wandered why smaller is better it is because silicon wafers have to be manufactured circular, it is part of the physic's of aligning the silicon molecules properly. However, chips are usually rectangular. This means that you have to throw away all the edge pieces that don't line up to make squares out of the main circle. This doesn't just scale linearly; the smaller you make a chip, the more of the silicon you use.

The same is kind of true of other techs. Hard drives use a similar shrinking so that less can do more. But a building isn't going to use much less material than it did 20 years ago. Also, inflation is really hard to place effectively when you have the government interfering with prices. When you distort prices by government hand out, it is hard to know what the value of something is. Lets take houses for starters. When the government was handing out nearly free money for housing stuff, the market inflated. House prices when up by 50% a year in some areas. This bubble finally burst along with some other bad lone stuff. The prices of homes have fallen dramatically in most areas, but this isn't "deflation", this is a market readjustment.

In other words, the ideas of metals and stuff still apply to tech. Tech is neat in the way that new advancements mean you can do more with less. (same for DNA stuff, as tech gets more advanced, the less you have to play people and computer time to do the same amount of work).

As for their predictions, Shiffs has been saying for years watch out for the bubble burst. He also predicted that the stock and gold values would merge before we saw the end of the stock tumble, which it pretty much did.

In reply to this comment by Psychologic:
I've never seen Paul or Schiff talk about the inherent deflationary nature of information technologies in the context of Austrian Economics, despite their constant talk of inflation. The price of a given amount of processing power or data storage drops by a fairly consistent percent per year (on average)... the same is true for dna sequencing, solar power, or many other high-tech devices.

Maybe they don't think it's a big deal, but I've never even seen them mention it. Austrian Economics were formulated well before the information age, so I'm curious how these new trends fit into it.

This may help.
http://mises.org/story/1040
tl;dr Increases in efficiency and productivity outweigh increase in money supply. If that can be believed!

I've never seen Paul or Schiff talk about the inherent deflationary nature of information technologies in the context of Austrian Economics, despite their constant talk of inflation. The price of a given amount of processing power or data storage drops by a fairly consistent percent per year (on average)... the same is true for dna sequencing, solar power, or many other high-tech devices.

Maybe they don't think it's a big deal, but I've never even seen them mention it. Austrian Economics were formulated well before the information age, so I'm curious how these new trends fit into it.

Paul's and Schiff's prediction of the end of civilization as we know it unless we all become fans of freshwater economics doesn't look very likely. They better hope for something like a meteor strike to help bring civilization down, because it's a drain on your credibility if your 100% certainty predictions don't pan out.

I wouldn't want to say that the growth from the 1940s to the 1970s was bad (if I did, I apologize). I just meant that it's not very impressive given the long stretch of the great depression.
The rebuilding in Europe boosted our economy as well, it doesn't really matter that our industry was intact, we were still involved in rebuilding elsewhere and "benefited".

As for the crash of 1973, this is what happened just a few years prior (1971):

"Nixon and Connally announced new economic policies on August 15, 1971 in a televised speech to the nation. The Democratic Congress passed the Economic Stabilization Act of 1970, giving Nixon power to set wages and prices; it did not believe he would use it and felt this would make him look indecisive.[69] While opposed to permanent wage and price controls,[70] Nixon imposed the controls on a temporary basis[71] in a 90 day wage and price freeze.[72] The controls (enforced for large corporations, voluntary for others) were the largest since World War II; they were relaxed after the initial 90 days, although unemployment did not decrease.[73] On a Sunday night in August Nixon spoke to the American public: "Working together, we will break the back of inflation."[74]"
source: http://en.wikipedia.org/wiki/Richard_Nixon#First_term

Well, long story short Nixon's economic policies before and during the crash weren't right of anyone. Now I'm not saying you support any of these policies, but you can't blame that particular crash on a lack of regulation.

As for the "huge turn to the right" post Carter, I don't doubt that many of the economic actions taken by Reagen were ill advised. However it's also worth noting that one of them was "controlling inflation" and the fed has been operating though this entire period.

You want to assert that it was a lack of regulation that caused at least the last few crashes, yet regulation has been up and down all over the place with seemingly no effect. A constant has been the fed. We've also yet to see a new Great Depression, crashes not withstanding. (Not to say that we won't).

As for the monetary policy, all I suggest is that we don't change the interest rates, inject or remove money from the supply in response to deflation/inflation, a crash, or any related measure. Fractional reserve banking makes this a bit tricky (banks themselves create money by lending more money then they have in reserve), but the solution probably isn't for the fed to create yet more money in the form of checks to banks in accordance with some economic voodoo.

Now let's examine the idea of regulation as a way to price risk. How many people in congress, the senate, president, mainstream economists, central bankers or anyone else in a position to regulate CDOs or CDSs knew they were a problem? None that I know of. Schiff did though. A lot of people who knew what these things were saw the crash ahead of time. I'm don't remember any one of the people predicting this ahead of time saying that regulation would help.

On the other hand, there are a lot of people -including pretty much everyone in congress or the senate- that didn't know what a CDO or CDS was until after the crash, at which point they suddenly know what a CDO and CDS is, and they also suddenly know they need to be regulated.

Remember, Schiff was the only person to effectively predict the economic hardship.

I beg to differ.

And if Schiff did so well to predict what was going to happen to the economy, why is it that his portfolio underperformed? Recall Schiff predicted $2000/oz to happen this year, in effect betting on inflation but what ultimately happened was that deflation became the greater danger -- this sent the dollar to unrealistic heights against most major currencies, and even against gold while US treasury yields went negative -- all signs of a deflationary market. This year, gold returned to mid $900 but has gone sideways ever since -- just 4 months left for gold to double in price for Schiff to be proven right.

When judging prognosticators one must be aware of one's tendency to only remember the hits and forgetting the misses.

Schiff predicts inflation as a consequence of the massive bailout money that was created by the fed. I'm not convinced that he's wrong just because it isn't happening right now - the money sitting with the banks is going to have to leave sometime. They can do so slowly, so as not to shock the economy, but the amount that has to eventually leave is massive. This isn't to say I'm sure he's right either, though even if he's wrong it may not matter (read past the next paragraph for why).

The article mentions Japan creating a lot of yen to deal with the Asian economic crisis, but what it doesn't mention is that the Japanese government and people save money and have savings, compared to the American governments, and American consumers spending and debt.

One reason for why we shouldn't have a fed controlling the money supply, is that controlling inflation and deflation is not desirable in and of itself. It's only the effects on the economy that are good or bad.

The federal reserve bank has shown time and again that it can keep the currency relatively steady (with a slight increase in inflation every year), and yet we regularly have these economic crises fairly often, about once every decade. This did not happen with nearly the frequency it does now under more naive economic systems, pre 1913. Yes, the federal reserve act was created in response to just one such incident in 1907, but that's the problem with government acts. They're passed in response to rare events, so when the events become significantly more common, it isn't obvious that the frequency increased rather than decreased. By the time the next rare undesirable event happens (a little sooner than it otherwise would have), people conclude that the act is working, but we need to do more of it.

In the long term I see little reason to conclude that the federal reserve has a stabilizing effect on that economy, or that it's even desirable to control the amount of inflation or deflation.

We would be better off not worrying not so much about inflation and deflation, and instead wonder why our economy crashes every 10 years. Which isn't to say I'd like to utterly disband the fed immediately, the effects on our economy would be terrible. I submit to you that our economy wouldn't crash more often or be any worse if we never had a central bank.

Actually, I've been picking on Schiff for a lot longer than he'd even been thinking about trying to challenge Dodd.

Check it out.

The recent uptick is because there was a spate of videos of him that got sifted, and a couple people brought him up in comments.

Dodd's not in any danger from Schiff. If anything, a three-way race might help Dodd get re-elected, especially if Schiff starts ranting about socialism.

In any case, I think this guy here does a pretty good job of opposing Schiff's theory, by predicting a bout of deflation with some pretty solid economic reasoning. It's too bad he then just repeats Schiff-sourced predictions without seeming to sense the contradiction between what he concluded using his own real-estate experience, and what he was told by a self-proclaimed expert.

^Ha! I knew it! I've noticed you've been picking on Peter Schiff recently in your comments, and I couldn't put my finger on why until just now. It's because Schiff is running on a Republican ticket in Connecticut against Dodd, right?

Towing them party lines, boss!

>> ^gtjwkq:
Oh yes, Bernanke is definitely a genius and has been right so often that whatever he predicts must come true one way or another.

Who said that? Certainly not me.

Other people are making that assertion about Schiff though, which is just as silly as someone attributing superhuman powers to Bernanke.

All I said was that Bernanke has tremendous credentials in precisely the area that matters for being a Fed chairman during a Great Depression-style crisis. That doesn't mean he's incapable of making mistakes (or just being plain wrong), it just means he's less likely to utterly screw the pooch on the narrow topic of monetary policy than most people.

>> ^NetRunner:
^ A currency's value is determined by what it can buy, not based on how much of it there is in existence.

What. The. Fuck. The currency's value is driven specifically by its supply. Never in history has it not. In any economy! Stop spreading your partisan misinformation, please!



>> ^NetRunner:
^ ...and Bernanke is one of the top minds on that subject.

For that statement, you should be punched in the dangles while QM sucks you left and right, holmes.



>> ^NetRunner:
^...Austrian economists like Schiff believe a different story. Mostly the theory is that what I said is quackery, and that any meddling by a central bank will cause more problems than it solves. Why? In my opinion, that's because Austrian economics is just libertarianism dressed up to look like an economic theory, and they don't like that both mainstream schools believe that central banks perform an important role in the economy.

Because Austrian economics is just libertarianism? Well, in that case, I'm glad you recognize people like Thomas Jefferson to be Libertarian in nature. Though, I doubt you could consider Andrew Jackson, the racist father of your Democratic party, to be Libertarian. Obviously neither studied Austrian Economics, but both were adamantly against a centralized bank system. What does that do for your bullshit hypothesis that Austrian Economics is thinly veiled Libertarianism? Probably nothing good, right? Yeah, what I figured.

Actually, being against an elitist, big money, powerful central bank is not an idea solely indicative of Austrian Economics. It's a universal idea most agree with... except those who tow their Democratic party lines so blindly and carefully.

^ A currency's value is determined by what it can buy, not based on how much of it there is in existence.

The two are related of course, but the way you devalue the dollar is to see prices increase because there's enough "extra" money circulating in the economy to drive prices up.

Generally speaking when you have companies slacking off production, and laying off workers "extra money" won't increase prices, instead it's likely to drive demand back up, and get those idle resources to be employed again.

Eventually you will need to worry about the extra money causing inflation, but only once the economy has gotten into a solid recovery. At that stage you want to start contracting money supply again, and get things back into a general equilibrium.

Most modern economic theory is geared towards trying to find accurate tools for judging when and at what speed the Fed should do such a thing, and Bernanke is one of the top minds on that subject.

I suppose I should add the caveat that that's just what mainstream economists believe, Austrian economists like Schiff believe a different story. Mostly the theory is that what I said is quackery, and that any meddling by a central bank will cause more problems than it solves. Why? In my opinion, that's because Austrian economics is just libertarianism dressed up to look like an economic theory, and they don't like that both mainstream schools believe that central banks perform an important role in the economy.

>> ^Enzoblue:

Talk about black and white. They didn't deregulate everything, not even close. They selectively removed very specific barriers to a very select number of companies so that they could rape at will. All laws that prevented or hindered anyone hurt by these changes to fight back, (plus many new ones), were kept very much in place. The deregulated the fat cats and over-regulated the rest.
Another example of what I'm getting at:
Why do I have to have that bulky stupid baby car seat? Why can't car companies make a built in the middle of the back? Because the select few companies that make a fortune off the overpriced buggers have paid government officials a lot of money. Those officials make sure that any advances in baby seats never make it out of government inspection. Now we have the same design we got in the 80's.
This is what I'm talking about.
P.s.
I am a closet anarchist.


you are joking. They did deregulate major laws which had been in place for years - google Glass Steagall act, for one.
In this country you had a financial services authority who turned a blind eye to the cdo's that were being traded, and/or didn't even know what these new banking derivatives were, not even the bank of England had a clue.
Because there was no control, bankers would simply sell these loans on, making their huge sums of money+bonuses, and not caring for the consequences.

And how many times have we seen this process in history? Speculation causing bubbles, which then burst.

I don't understand your car company example..... car manufacturers give the option for an ISOFIX standard implementation in the back seat so parents can put any kind of seat they want in the back. They could sell the seat as an option as well...but why bother when there's already a huge market out there for babyseats.

What.
But yeh, your point is basically corruption. Well, you think the government stops progress, what about corporations? Surely the corporations are as much to blame for paying off government officials as the government is for accepting them? it takes two to tango.

And why can they pay? Because they are ridiculously rich in the first place. All thanks to the lovely free market. As I said in my previous post, im not saying free market is bad. You just need a good mix of both, erring on the side of Control that benefits the nation, not wealthy individuals. Also I did acknowledge corrupt politicians in my previous post - what are you gona do about it? We're living in democracies aren't we? Just vote these politicians out right???

Democracy my ass. But. thats a whole different matter.

>> ^blankfist:
>> ^dag:
If we're talking about pure unfettered capitalism, BF - the paradoxes around ethics, the commons, monopolies and ecology are real problems. I don't think you or your libertarian buddies have good answers for it.
IMO, the Libertarian slogan should be "fuck you jack, get your hand off my stack". The rest of the world has the freedom to die from starvation or lack of healthcare any way they want. At least we won't have government intervention.

You're right. To some degree the Libertarian answer is "fuck you, jack, get your hand off my stack." But, if I broke into your house because I needed something, wouldn't that be your answer? Why is it okay if the crime is organized using the guise of government?
I like to help people, dag, and I think the ethical direction is voluntary help, not stealing. You'd disagree?


Anyone who thinks humanity voluntarily cares for the weak, poor, starving, and sick ought to read the wikipedia page on "The Great Depression". Then we'll talk.

In reply to this comment by siaiaiaaaaaa:
Enzoblue


'Self Regulation' is exactly what the Bush administration, and here in Britain, did. They said 'the free market knows best, knows more than us. Let them get on with it'.

And they deregulated everything. And look what happened.

All you people ever seem to understand is black and white. The fact is for most things in life to work, especially in economics, there's always a compromise that needs to be found.
You americans have all been brainwashed by the red army propaganda from way back when, and anything remotely to do with government you cry of communism. How absurd.

Deregulation played a major part in the financial meltdown. As westy says, business fundementally is about exploiting people. If you make a profit on something, you are exploiting. If you were to leave Healthcare to the private world, their fundamental concern is to maximise shareholder wealth - not to maximise the nations health.

You can go on deluding yourselves about glorious capitalism - history and evidence has shown.........it doesn't work. You need a bit of both. You need free markets to keep prices down and generate competition, but you also need governments to not let companies get too huge, create barriers to entry into markets (which is the current situation, thus suppressing competition) and have taxes which benefit people who aren't rich (i.e. 99% of the world population.....)
I advise you to read some books on this myth of 'free market is best'.
The cost of capitalism: robert j barbera
The myth of the rational market: justin fox
House of cards: william d cohan

The last one especially talks about the greed of wall street you hear so much about, but don't seem to acknowledge. When youve got money as a motivating factor, all ethical concerns and welfare of others go straight out the window. If you want your perfect free market - that is the exact mentality that will take place - which would be fine if everyone was starting off on an even plate, with the same amount of assets - but they're not. The inequality between poor/average/rich is so huge it would never be fair to begin with.

The problem of course now is politicians see their positions as careers, rather than civil servants. But with a good government, with good people, if that will ever happen, proper regulation and control of the markets has to take place to ensure the equality gap doesn't become even more wide than it is at the moment. Oil company profits anyone?


good answer.
that would have taken me..oh....a small novella to get my idea across.
well said brother.