Is deflation truly that bad for an economy?

[johnyj]

Wealth is not money

This is the common statement trying to hide the truth. Money is wealth, and it is the most liquid form of wealth, because it can exchange any kind of wealth at any time, anywhere (Domestically)

Those who claim that money is not wealth are usually banks, since they don't want others to be suspicious about the fact that they create wealth by just writing numbers and printing. If money is not wealth, then their money creation seems not a big deal

Do you really believe that "it can exchange any kind of wealth at any time, anywhere"? It is certainly a far cry from reality. Say, you have a home (where you live and which you love for its uniqueness), and someone suggests you sell it, and gives a higher price than the average on the market for that type of house at that. Would you sell it? There are a lot of things that can be bought and sold, but which people may not want to sell for whatever reason and whatever money...

And I don't even say about things that are commonly considered as wealth of top quality, but simply not for sale (in fact, being more valuable than money itself)

What you talked about is price. Let's raise the price to 100 times of your house's worth, wouldn't you sell your existing house and move to a better new house? The reason that you don't sell your house is because the market price does not indicate its true value, when the price is higher than its value, it will get sold. Value is a subjective measure, the reason that you don't sell your house is because the price is not high enough to reach your valuation, not because money is not wealth.

If money is not wealth, donate all your money, since you don't lose any wealth 

[1714286917]

1714286917

[1714286917]

1714286917

[johnyj]

You say that most of the people had been robbed off of their wealth long before the bubble burst, but this alone would immediately cause the instantaneous collapse of the bubble (right after people had lost their wealth), since the bubble can only exist as long as new money is flowing in it, and in ever increasing amounts at that.

The bubble only collapse when people find out that their wealth on paper start to drop, and they rush to sell it. As long as that paper wealth is rising or keep flat, people will just hold into it or buy more, thus the sell pressure on market is not enough to trigger a downfall, however those who drove the bubble has already cashed out long before the crash, because they know in advance, when they stop injecting more credit into the market, the bubble will burst inevitably

How can they buy more if by that time they had long been stripped of their wealth (as you said earlier)? Also, if they had been robbed off of their wealth, wouldn't it be natural that they would try to cash out immediately, thus causing the bubble to pop? Your arguments lack a proper timing between events (namely, complete stripping of wealth and bubble collapse), thereby rendering you whole point dubious (that withdrawing of all fiat from an economy won't stall or crash it)...

Suppose that you have used 90% of money to bought stock at $500, and you use the rest to buy them at $600, then it rise to $800 and you anticipate it will rise to $2000, then you have exchanged all of your money to some paper which trades at $800, so you feel you are richer. When price start to fall, you panic sell, the price will immediately drop back to $400 since there is almost no buyer. In fact, sell it or not sell it, your money has already been lost, it is just a matter of taking a large loss or a small loss. The wealth shifting by assets bubble takes years, but when it is finally done, people will realize it in a couple of weeks

[deisik]

Wealth is not money

This is the common statement trying to hide the truth. Money is wealth, and it is the most liquid form of wealth, because it can exchange any kind of wealth at any time, anywhere (Domestically)

Those who claim that money is not wealth are usually banks, since they don't want others to be suspicious about the fact that they create wealth by just writing numbers and printing. If money is not wealth, then their money creation seems not a big deal

Do you really believe that "it can exchange any kind of wealth at any time, anywhere"? It is certainly a far cry from reality. Say, you have a home (where you live and which you love for its uniqueness), and someone suggests you sell it, and gives a higher price than the average on the market for that type of house at that. Would you sell it? There are a lot of things that can be bought and sold, but which people may not want to sell for whatever reason and whatever money...

And I don't even say about things that are commonly considered as wealth of top quality, but simply not for sale (in fact, being more valuable than money itself)

What you talked about is price. Let's raise the price to 100 times of your house's worth, wouldn't you sell your existing house and move to a better new house? The reason that you don't sell your house is because the market price does not indicate its true value, when the price is higher than its value, it will get sold. Value is a subjective measure, the reason that you don't sell your house is because the price is not high enough to reach your valuation, not because money is not wealth.

If money is not wealth, donate all your money, since you don't lose any wealth 

You are juggling with words here. I say that you can't buy all the wealth there, no matter how much money you might have. You can't buy power, since real power is not bought with money, but taken with force (ultimately), though money can be of great help there. If you already have enough money for a decent living, a home that you are quite satisfied with, you would not care for a true market value of it, since you were not going to sell it at all. I'm really curious why such things amaze you. Would you sell your kidney if someone offered twice the price for it?

There are things that you may personally value higher than all the money in the world, and there are things that most people value higher than all the money out there...

[sdp]

 

Too much economic theory is based on the false assumption that everyone owns things for speculation rather than utility.  There are people who say nothing would be sold if everyone knew the true value of something.  That is based on the idea that things are only bought for speculation.

Value is not even absolute.  You could probably offer someone enough money to sell his first kidney, but you couldn't do the same to buy someone's second kidney.  A milk farmer can only use so much of his own milk as milk.  If he converts it into something else he eventually has to sell what he makes with it.  In this case, he can consume as much as he can himself, and then sell at a tiny price what he cannot.  Nobody is going to come with his truck to a remote farm to buy milk by the cubic meter at retail prices.

sdp

[manwithat]

Deflation decreases velocity, and an economy without velocity is a dead economy, like eurozone.

Eurozone has a great future.

[GreenStox]

Deflation decreases velocity, and an economy without velocity is a dead economy, like eurozone.

Eurozone has a great future.

TROLL ALERT!

The eurozone is made up by countries that are full of debt and 1-2 export countries that facilitate the debt for them.

Portugal,Spain,Italy,Greece,Malta,Cyprus,and are almost near a debt crisis. While a few of them stand good like Finland ,Germany and to some extent France.

So the solution to this is to hyperinflate the euro so that those indebted countries can pay their debt later. See it's always free stuff now, and pay later, like all socialist dumbasses are doing right now.

Because of this only 2 possible outcomes could exist:
1) Germany gets tired of those lazy socialist countries and kicks them out of the EU or they'' leave on their own once they see that they wont get cheap euro
2) Germany will play along, hyperinflating the euro (because let's be honest Greece will never pay it's debt) causing pre WWII. hyperinflation, 1929 style financial depression

I think option 2 is more likely. So put your seatbelts on because prices will skyrocket in the near future (2-5 years)

[V for Varoufakis]

The other members of E.U. must kick out Germany.

[GreenStox]

The other members of E.U. must kick out Germany.

Then there is nobody left to rob from and it will immediately collapse. The whole point of the current ongoing european QE is to rob a wealthy country and then give that money into loan to : Portugal,Spain,Greece,Italy,Cyprus and other socialist countries who can then give it to lazy fat TV-watcher welfare dumbasses.

Jobless rate is going higher and higher even with the stimulus that they are so proud of that it works, no it doesnt, it will go up until eventually the hard working people will be taxed 99.99% and the lazy welfare leftists will enjoy free meal and other free stuff.

[V for Varoufakis]

Actually, Germany is the most lazy country. They dont work, they use immigrants to do their works. The whole Germany builded by immigrants.

[GreenStox]

Actually, Germany is the most lazy country. They dont work, they use immigrants to do their works. The whole Germany builded by immigrants.

I would disagree with that, but there are certain elements of power there that made them be the "kings of europe".

First of all they got huge aids after WW2 whereas nobody else got that, so they are the favorite country of the banking class.

Also since their economy is heavily subsidised (yet not from their own taxes in a socialist manner, but from the levy they take from other EU contries), so basically it's socialism without high taxes and moderate debt.

Of course this has roots from the Deutsche Mark when it was backed by gold, and it was deflationary, so it became a big target for global investment.

Also they are heavy exporters, their companies conquered literally, europe, and using their government and EU henchmen to fabricate legislation that prevent competition.

Basically they are a combination of mercantilism and socialism, and they use the less fortunate EU members are collateral for the EU debt.

If's like if you feed the cattle before you eat it sort of tactics, it's disgusting, but its mutual. The other socialist contries need that  debt, otherwise they would not be socialists.

[Erdogan]

According to the laws of economics, the amount of banknotes in circulation, must correspond to the quantity of goods and services in the market. So, deflation and inflation are always bad for an economy.

The amount of banknotes in circulation ALWAYS corresponds to what you buy with it
If there are less bank notes, then you can buy more with a single bank note.  If there are more bank notes, then you can buy less with a single bank note.  In the end, with all the bank notes, you can buy everything.  No matter how many bank notes there are.

If there's 1 kg of gold in circulation, then that 1 kg of gold will buy the whole world economy.  If there is 1 ton of gold in circulation, then that 1 ton will buy the whole world economy.  In the latter case, you will be able to buy exactly 1000 times less with 1 kg than in the former case.

No no. The total amount of money is not able to buy everything in the economy. There is no such relation. It is neither equal to the available consumer goods, or any subset of what is on the market.

The total amount of money is equal to what value the population want to have in reserve, in money form, for short or long time, aggregated.

Take the aggregated value of what people want to have in reserve, divide it by the total amount of money unit, and you have a starting point for the value of the unit of money. So more money therefore means less value per unit. But the rate of change of the volume of money is also of great importance for savers (an loaners)(not so much for people in a situation where they spend as they earn, or save in other assets), and also the expectation of future devaluation. Add the errors of this future expectation (which is speculation). I think that is about it.

[johnyj]

The other members of E.U. must kick out Germany.

Then there is nobody left to rob from and it will immediately collapse. The whole point of the current ongoing european QE is to rob a wealthy country and then give that money into loan to : Portugal,Spain,Greece,Italy,Cyprus and other socialist countries who can then give it to lazy fat TV-watcher welfare dumbasses.

Jobless rate is going higher and higher even with the stimulus that they are so proud of that it works, no it doesnt, it will go up until eventually the hard working people will be taxed 99.99% and the lazy welfare leftists will enjoy free meal and other free stuff.

Banks robs everyone, if other countries left, then German government will be debt-laden, just like in US. If other countries stay, people could blame some countries like Greece or Spain. In fact, without debt-laden countries buying lots of things from Germany, German people can not make a net profit

Anyway, they will all be robbed by ECB, working hard or not working, does not matter. It seems the southern European people are much wiser and they know how to live like bankers: Only consume, no work

[dinofelis]

No no. The total amount of money is not able to buy everything in the economy. There is no such relation. It is neither equal to the available consumer goods, or any subset of what is on the market.

You're right of course that the total amount of money only buys 1/V the aggregate demand.  But it does buy it, right ?

The total amount of money is equal to what value the population want to have in reserve, in money form, for short or long time, aggregated.

This is a very smart point at first sight.  However:
The point is that that is the VALUE of the total amount of money times the holding time, not the amount of money itself !

Whether there is 1 kg of gold in circulation, or 1 ton, that doesn't change anything.  It is not because there is 1 ton of gold in circulation, that people want to hold 1000 times more value !  Whatever is the aggregate demand of holding value, it will be "diluted" over the amount of money in existance.  So any amount will do !

Of course, the aggregate demand for holding value is essentially T x M with T the harmonic average of 1/V.

In fact, you can look at the value of money in two ways: on the spending side, which is given by V x M, and related to the aggregate demand of goods and services (what I loosely called "the economy"), and on the holding side, which given by T x M.

However, you need the link with goods and services even to assign any "value" to it.  After all, value is only expressed as a function of goods and services in the end.  If there weren't goods and services to be bought with money, it wouldn't have any value in the end !

Bitcoins have value because:
1) you can exchange them for dollars or euros or .... with which you can buy stuff
2) you can buy stuff directly with bitcoin (as of now yet a very small fraction of the market, except the black market).

A "monetary unit" that could never be exchanged, directly or indirectly, for goods or services, would not have much value (only its intrinsic value, which is then purely collector's fun).

[GreenStox]

The other members of E.U. must kick out Germany.

Then there is nobody left to rob from and it will immediately collapse. The whole point of the current ongoing european QE is to rob a wealthy country and then give that money into loan to : Portugal,Spain,Greece,Italy,Cyprus and other socialist countries who can then give it to lazy fat TV-watcher welfare dumbasses.

Jobless rate is going higher and higher even with the stimulus that they are so proud of that it works, no it doesnt, it will go up until eventually the hard working people will be taxed 99.99% and the lazy welfare leftists will enjoy free meal and other free stuff.

Banks robs everyone, if other countries left, then German government will be debt-laden, just like in US. If other countries stay, people could blame some countries like Greece or Spain. In fact, without debt-laden countries buying lots of things from Germany, German people can not make a net profit

Anyway, they will all be robbed by ECB, working hard or not working, does not matter. It seems the southern European people are much wiser and they know how to live like bankers: Only consume, no work

Yea banks do rob everyone right now at this moment through inflation. The problem is that they are only opportunists, they adapt to the system. It's the central bank that's the king-pin , they are the ones that destroy the economy.

Yes the problems are mutual in the EU, i guess Germany doesnt care if they go bankrupt, and shouldnt. I mean let them leave the EU zone, go bankrupt and then join again after they recovered...
Because if they stay, they will just destroy the EURO,which when it comes to hyperinflation, will hurt Germany too.

[johnyj]

Banks robs everyone, if other countries left, then German government will be debt-laden, just like in US. If other countries stay, people could blame some countries like Greece or Spain. In fact, without debt-laden countries buying lots of things from Germany, German people can not make a net profit

Anyway, they will all be robbed by ECB, working hard or not working, does not matter. It seems the southern European people are much wiser and they know how to live like bankers: Only consume, no work

Yea banks do rob everyone right now at this moment through inflation. The problem is that they are only opportunists, they adapt to the system. It's the central bank that's the king-pin , they are the ones that destroy the economy.

Yes the problems are mutual in the EU, i guess Germany doesnt care if they go bankrupt, and shouldnt. I mean let them leave the EU zone, go bankrupt and then join again after they recovered...
Because if they stay, they will just destroy the EURO,which when it comes to hyperinflation, will hurt Germany too.

No, banks do not rob everyone through inflation, that is the old style. Now they rob everyone through QE, which is magnitudes larger than inflation. Take FED for example, they created 5x more money since 2008, that's 40 years of GDP increase at 4% per year. All that went into banker's pocket in 5 years, this scale of robbery was never seen in human history. By keeping those money in their pocket, they will easily avoid any kind of inflation

Similarly, ECB is going to use the same trick to rob whole European by 60 billion euro per month, all those money will belong to ECB. If Greece quit, other countries will be robbed, they might discover that the problem is not Greece, but a systematic one. So they must keep Greece in to cover the scheme and blame everything on PIGS countries

Greek people might understand these bank's scam much better than anyone else, so they go the same route as those banks, like those investment banks gambling with customer money and collapsing and asking for bailout, both opportunists

[louisLavery]

Like others have said, deflation, like inflation, is neither good or bad in and of themselves.

Inflation favours those with debt while penalising savers.
Deflation penalises those with debt while favouring savers.
For every argument for/against deflation there's a symmetric argument against/for inflation. So it seems to me 0% is best as it favours neither.

As for the argument that deflation is bad because there is so much debt, that's just poor reasoning. What's bad is that there is so much debt.
If 0% inflation/deflation was targeted by an economy then the inevitable mild deflation would be offset by inevitable mild inflation.

Of course those who are both in debt and able to print dosh like to promote the idea that inflation is good, as it's to their benefit.

Also, the argument that people put of buying when prices are falling was once the other way round - that is it was argued that inflation put people off buying[1].

[1] http://ftalphaville.ft.com/2015/03/23/2122452/economists-agree-deflation-is-either-good-or-bad-or-irrelevant/

[galdur]

A little less deflationary pressure on America: the dollar is starting to retreat it seems. At least for now. I guess it wants to retest that 2010 top.

[Mr Omorfantras]

The other members of E.U. must kick out Germany.

Then there is nobody left to rob from and it will immediately collapse. The whole point of the current ongoing european QE is to rob a wealthy country and then give that money into loan to : Portugal,Spain,Greece,Italy,Cyprus and other socialist countries who can then give it to lazy fat TV-watcher welfare dumbasses.

Jobless rate is going higher and higher even with the stimulus that they are so proud of that it works, no it doesnt, it will go up until eventually the hard working people will be taxed 99.99% and the lazy welfare leftists will enjoy free meal and other free stuff.

Banks robs everyone, if other countries left, then German government will be debt-laden, just like in US. If other countries stay, people could blame some countries like Greece or Spain. In fact, without debt-laden countries buying lots of things from Germany, German people can not make a net profit

Anyway, they will all be robbed by ECB, working hard or not working, does not matter. It seems the southern European people are much wiser and they know how to live like bankers: Only consume, no work

Work is bad for the skin. 

[tee-rex]

Like others have said, deflation, like inflation, is neither good or bad in and of themselves.

Inflation favours those with debt while penalising savers.
Deflation penalises those with debt while favouring savers.
For every argument for/against deflation there's a symmetric argument against/for inflation. So it seems to me 0% is best as it favours neither.

By this you confirm that you don't understand how deflation impacts an economy, and that you didn't read the previous few pages of this thread where I explained it mathematically why deflation simply cannot be a mirror reflection of inflation.

[GreenStox]

No, banks do not rob everyone through inflation, that is the old style. Now they rob everyone through QE, which is magnitudes larger than inflation. Take FED for example, they created 5x more money since 2008, that's 40 years of GDP increase at 4% per year. All that went into banker's pocket in 5 years, this scale of robbery was never seen in human history. By keeping those money in their pocket, they will easily avoid any kind of inflation

That is inflation. It's called monetary inflation. Dont look at phony government data of CPI showing 0.5% inflation, thats bullshit, thats only because they discounted the USD strenght from it (meaning that they rob not just US citizens but every other citizen who owns USD including other currencies that hold USD reserves, everyone who uses OIL and other commodities as they are all denominated in dollar)

Yes the USD strenghtened alot to hide the 500% inflation, but all that strength got straight into CB's pockets and their henchmen investment banks.

So the real inflation through QE1,QE2,QE3 was then 500% in aggregate, anot definitely not 0.5% or similar. So you can't trust government data because its very misleading.

I measure inflation through the monerary supply (not that they report that number honestly, actually they dont even publish the M3 numbers in the US anymore, i wonder why, maybe because they print so much money now that they are ashamed to show it)

The CPI based inflation is misleading, follow only the money supply and see how much they steal actually, with your own eyes, you'd be amazed.

Similarly, ECB is going to use the same trick to rob whole European by 60 billion euro per month, all those money will belong to ECB. If Greece quit, other countries will be robbed, they might discover that the problem is not Greece, but a systematic one. So they must keep Greece in to cover the scheme and blame everything on PIGS countries

Greek people might understand these bank's scam much better than anyone else, so they go the same route as those banks, like those investment banks gambling with customer money and collapsing and asking for bailout, both opportunists

This is a predatory world, everybody robs everybody as long as there will be a government to force us to use these fiat ponzi scheme scammer money system, and pay taxes.

The free market would instantly make banks obsolete, bitcoin actually does make them, but yes the government requires you to have a bank account with these scammers if you run a formal business, so it's totally fucked up.