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In Fed and Out, Many Now Think Inflation Helps

nytimes.com

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Re: In Fed and Out, Many Now Think Inflation Helps

#21

Post by nerfhammer »

netpenthe wrote: post #17
thaumasiotes wrote: post #12

Earlier quoted context omitted.

Well, deflation sounds like it would be good for anyone with a positive net worth, but the empirics are awful.

a small amount of inflation (2-3%) is generally seen as good and the target of reserve banks around the world... you think they have this target because inflation is BAD? inflation encourages investment (better invest to beat inflation) deflation is bad unless you already have a lot of money. it discourages investment (why invest? i can just sit here and the value of my money goes up) you can call inflation bad, but…

not just any kind of money -- cash. It's good if you have a lot of liquid assets laying around, neutral or bad for every other type of asset.

Re: In Fed and Out, Many Now Think Inflation Helps

#22

Post by jswinghammer »

yetanotherphd wrote: post #15
jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

Your theory lacks predictive power. There is huge debate about what inflation should be, and all you can say is "all the bad guys like inflation". The argument for inflation is very old, and goes back to Milton Friedman at least (who was no Keynesian).

Friedman was a Keynesian heretic. Instead of looking at aggregate demand he was looking at the total money supply. The basic problem is that he lacked an understand of the boom itself and focused entirely the bust's mechanics.

The argument for inflation goes back much further than Friedman. Emperor Diocletian tried it and failed. Despots throughout history have attempted it as well and failed (eventually). Inflation "works" in the short term but eventually you pay the price for it in the form of a bust.

I guess that the bad guys liking something isn't entirely sufficient but it should be fairly damning evidence.

Re: In Fed and Out, Many Now Think Inflation Helps

#23

Post by pasbesoin »

My personal opinion going into this mess was that, sooner or later, the U.S. was going to inflate its way to a lesser impact of existing obligations.

As it became clear that the big banks would remain... "sacrosanct", I figured that the inflation would start once they were out from under their own balance sheet woes with particularly with respect to lower performing loans and paper built thereon.

Et voilà.

TL;DR: They've given the "big boys" time to prepare and position themselves. Now the screws get put to everyone else.

P.S. By the by, have you been watching e.g. the price of many staples in the supermarket? (Not to mention gasoline, and a few other things.) For many "everyday" folks, inflation showed up already some years ago.

Re: In Fed and Out, Many Now Think Inflation Helps

#24

Post by oakwhiz »

jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

I never thought of inflation in that way. That's rather interesting. I guess a simple way of describing this would be to say that if you are the sole printer of money, and existing money becomes worth less over time, then you can simply continue to print more money every year in order to cement yourself as the person with the most money.

Re: In Fed and Out, Many Now Think Inflation Helps

#25

Post by Mikeb85 »

Inflation encourages spending, rewards investment, and discourages hoarding of cash.

Inflation leads to all the positive outcomes that economists want.

Not to mention, inflation is necessary in a society with a growing population, since there needs to be enough currency to spread amongst the population, otherwise it will be held in a finite amount of hands, and increase inequality.

Re: In Fed and Out, Many Now Think Inflation Helps

#26

Post by drakaal »

thaumasiotes wrote: post #12
drakaal wrote: post #4

If the value of the dollar buys less stuff, that is only good for the economy if the economy benefits from this. While that may be a "well-duh" statement it is counter intuitive in cases where it also means that it means that "Stuff" becomes more expensive than "Labor". Often inflation means more people do things because it becomes cheaper to do things that are labor intense than it is to do things that are material…

Well, deflation sounds like it would be good for anyone with a positive net worth, but the empirics are awful.

Deflation is actually bad for people with positive net worth, it helps most the people who live pay check to paycheck because their money goes farther.

People with lots of networth are usually hurt by deflation which is the reason it is seen as bad. Deflation means houses and capital assets are worth less than they were before, so people with a positive net worth are "hurt".

Now if you are totally liquid, then deflation only helps if you want to spend that money.

If you entirely bound in something that is not liquid and you need to liquidate it, then you get less dollars, but those dollars go farther.

Basically Deflation narrows the gap between the rich and the poor, Inflation increases it.

Re: In Fed and Out, Many Now Think Inflation Helps

#27

Post by jswinghammer »

nhebb wrote: post #20
jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

> Given that the entire point of the Federal Reserve is to promote inflation I can't tell if you're being sarcastic, but the Fed has three mandates [1], one of which is to stabilize prices: "maximum employment, stable prices, and moderate long-term interest rates." [1] http://www.law.cornell.edu/uscode/text/12/225a

I am not. The real purpose is to inflate the monetary supply for the benefit of the large banks. On those supposed goals they have entirely failed anyway.

Re: In Fed and Out, Many Now Think Inflation Helps

#28

Post by jellicle »

nhebb wrote: post #20
jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

> Given that the entire point of the Federal Reserve is to promote inflation I can't tell if you're being sarcastic, but the Fed has three mandates [1], one of which is to stabilize prices: "maximum employment, stable prices, and moderate long-term interest rates." [1] http://www.law.cornell.edu/uscode/text/12/225a

And even a minimal knowledge of history would suggest that the Federal Reserve works very hard to minimize inflation, even at the expense of high unemployment.

Poster's statement is along the lines of "Given that the entire point of firefighters is to promote fires".

It's nonsense.

Re: In Fed and Out, Many Now Think Inflation Helps

#29

Post by jswinghammer »

dwrtz wrote: post #19
jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

Higher inflation also means that it's cheaper for the U.S. government to borrow money. In fact, higher inflation is good for anyone who borrows money (people with mortgages, student loans, etc.) because they're effectively paying back less than they borrowed.

Except that the risk is asymmetric in that the bank gets bailed out if you can't pay and you don't. They loaned out the phony money and you paid it back with your labor.

Re: In Fed and Out, Many Now Think Inflation Helps

#30

Post by nerfhammer »

ams6110 wrote: post #18
greenyoda wrote: post #7

"Rising prices help companies increase profits" I don't see how that could be true. If prices are rising, all of a company's expenses rise along with their revenues: raw materials, salaries, benefits, rents, etc. (Unless the company wants to screw their employees and give them raises that are less than the rate of inflation.) Inflation does benefit debtors, the biggest being the U.S. government: they can repay their…

Exactly. Inflation is a painless (for the government) way out of the debt problem the government itself has created. That's why they favor it, nobody has to make any hard choices, and the middle and lower income families get screwed, again, because everything now costs more.

The price of labor is a price and should rise with everything else. Average income should track inflation.
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