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Author Topic: Beware of the deflation monster!!!1 (not really..)  (Read 4576 times)
Vladimir
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May 30, 2011, 01:47:13 AM
 #21

sorry my bad, let's delete last few posts

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kjj
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May 30, 2011, 02:19:33 AM
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The problem with inflation, is that if you ask 5 different economists to define it, you'll get 13 different answers.

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May 30, 2011, 05:23:02 AM
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Personally, I don't think monetary inflation is a reasonable metric at all.  It's a second-order effect which has been given more importance than it deserves.  Price inflation tells us much more about the actual state of the economy than the total number of dollars, which is almost completely arbitrary, given the amount of credit, fractional reserves, derivatives, quantitative easing, etc. 

Well, I'm in complete disagreement. Mathematically speaking price deflation is just a weighted sum of individual prices. Well, one can include all prices if weights are equal to zero for most of them. And the problem?

The weighting is completely arbitrary, that's the problem. The can be lots and lots of price inflations depending on distribution on weights, but somehow one of them is picked and called The Inflation. (Of course, there already are inflation and core inflation)

Say what you want about the old definition of inflation, but it wasn't arbitrary.

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The important thing to pay attention to is the price of basic goods and commodities. 

Yes, but, I'd rather have supply and demand take care of it not the Central Banks, thank you very much. Also there are more than just monetary reasons why the prices of basics can go up/down. Bad/good weather, technological progress/regress, resource availability, new goods, shifts in preferences. Choosing price deflation as The Measure you just choose to ignore all those factors.
Anders
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May 30, 2011, 06:00:55 AM
 #24

One tricky thing with knowing if it's inflation or not is to know whether the currency has been diluted or that the commodity has increased in actual value.

For example, here are the prices for a Big Mac from 1986 to 2011:



Most of that price increase must be dollar inflation, but is it ONLY inflation that has caused the increase in price?  Huh
dgamer5000
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May 30, 2011, 06:48:45 AM
 #25

It is completely irrelevant what some of you believe what inflation/deflation are. They are what they are regardless of your belief (that you learned from someone else). And wishing them to be as you want them to be will not make them so.

Are you saying that "deflation," a word made up by man, has an immutable, wholly correct definition?

Also, it seems to me that you are the one wishing that the definition of "deflation" be changed to what you agree with.
Anders
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May 31, 2011, 08:54:17 AM
 #26

One tricky thing with knowing if it's inflation or not is to know whether the currency has been diluted or that the commodity has increased in actual value.

For example, here are the prices for a Big Mac from 1986 to 2011:



Most of that price increase must be dollar inflation, but is it ONLY inflation that has caused the increase in price?  Huh

Different products have different change in price. The Big Mac is probably a fairly good reflection of inflation. Flat screen TVs are not. Then there is the quadrillion dollars of derivatives floating around in the financial markets having problem 'landing'. Now, THAT's inflation! Cheesy
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May 31, 2011, 09:39:31 AM
 #27

This is just a matter of definition. Originally the words inflation and deflation were used only for the monetary offer, but eventually people started to confuse it with price changes, and today it is the most common meaning of the word.
Trying to fight that is like trying to fight the distortion the word "liberal" has suffered in US, saying that leftists are not liberals.

Just specify "monetary inflation" when you're talking and avoid issues.

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