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Old Yesterday, 04:46 AM
 
Location: Southern Most New Jersey
1,242 posts, read 876,801 times
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Will smarter minds please explain the inflation / deflation cycle.

But please relate the impact of low labor cost manufacturing counties.
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Old Yesterday, 12:22 PM
 
Location: Ohio
20,431 posts, read 14,517,323 times
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Quote:
Originally Posted by NJBoy3 View Post
Will smarter minds please explain the inflation / deflation cycle.

But please relate the impact of low labor cost manufacturing counties.
Monetary Inflation occurs when money supply is excessive. You have too many Dollars chasing too few goods and to offset that prices rise.

Not only do prices rise, but wages/salaries also rise.

Why do you think there are only 542,000 people in the US earning the federal minimum wage?

Because Monetary Inflation drives up the price of everything, including wages/salaries. Remember that Cost-of-Living varies wildly in the US, as high as $22.90/hour in some places and as low as $6.92/hour in other places. Those 542,000 people are likely to live in an area where the real minimum wage should be $6.92/hour. Once the Cost-of-Living rises from $6.92/hour to $7.25/hour their wages will start to be affected by Monetary Inflation.

The options to control Monetary Inflation are: Congress raises taxes or cuts spending or the Federal Reserve raises interest rates or reduces the money supply, or any combination of those actions. Reducing the money supply is the most effective fastest way to reduce Monetary Inflation.

Your two periods of Monetary Inflation in the 20th Century were 25%-35% annually in the 1920s and 10%-15% annually in the 1970s and early 1980s (to about 1982).

For any number of valid reasons, the government usually over-corrects, and that results in Monetary Deflation.

The rate of Monetary Deflation never approaches the rates of Monetary Inflation, meaning if you have an inflation period where annual rates are 25%-35% you don't get Monetary Deflation at rates of 25%-35%.

It's usually 2%-5%.

Why? Because things cost what they cost. While Monetary Inflation does increase wages/salaries, Monetary Deflation does not decrease wages/salaries, although it can stagnate wages or actually depress wages/salaries for new hires.

That 20-year lease you signed for you manufacturing facility? The rent doesn't drop.

If you bought land to develop or land that was already developed for your manufacturing facility or retail shop or restaurant, your mortgage does not decrease (unless perhaps you refinance assuming interest rates decrease).

All that equipment you bought on credit for your business? Well, your bank loan payment is still the same.

What's changed? The cost of the materials you buy, but it doesn't automatically mean you can pass those cost-savings onto your consumers. Maybe you can, maybe you can't, or may you can pass a small amount on.

During the period of Monetary Deflation in the 1930s, you didn't really have any foreign competition, but you did in the 1980s from Taiwan and Japan.

The existence of Monetary Deflation does not necessarily decrease the value of the US Dollar on global markets.

In fact, just the opposite.

Remember Monetary Deflation is too few Dollars chasing too many goods.

That caused the US Dollar to rise in value against other currencies.

As an example, I profited selling gray-market BMWs.

The Deutschmark jumped to $1 = 3.18 DM. I was buying BMWs for $3,000 then shipping them from Bremerhaven to Bayonne for $450 and my friend was selling them for $15,000 to $20,000 (the were on the show room floor going for $42,000).

Sadly, that was before the internet existed, so it was word-of-mouth only and all cash.

While a stronger Dollar makes imports cheaper, it doesn't really have any effect on the economy. No one is going to be moving factories off-shore, and unless the price difference in currency is such that it is less than the rate of Monetary Deflation, it won't significantly increase the volume of imports.

Overall, Monetary Deflation is a non-event. A big nothing-burger. It's only a few years, 3-8 at most, negligible at 2% to 5%, and under the current circumstances, Demand-pull Inflation for certain goods, services and resources will negate any Deflation. No one is harmed and few if any people can even remember it.

Everyone remembers the "stagflation" of the 1970s but no one remembers the Monetary Deflation that followed, just like no one remembers the Monetary Deflation in the 1930s, probably because if you don't have any money, it doesn't matter how low prices drop.
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Old Yesterday, 01:29 PM
 
8,631 posts, read 9,335,501 times
Reputation: 7025
Quote:
Originally Posted by Mircea View Post
Monetary Inflation occurs when money supply is excessive. You have too many Dollars chasing too few goods and to offset that prices rise.

Not only do prices rise, but wages/salaries also rise.

Why do you think there are only 542,000 people in the US earning the federal minimum wage?

Because Monetary Inflation drives up the price of everything, including wages/salaries. Remember that Cost-of-Living varies wildly in the US, as high as $22.90/hour in some places and as low as $6.92/hour in other places. Those 542,000 people are likely to live in an area where the real minimum wage should be $6.92/hour. Once the Cost-of-Living rises from $6.92/hour to $7.25/hour their wages will start to be affected by Monetary Inflation.

The options to control Monetary Inflation are: Congress raises taxes or cuts spending or the Federal Reserve raises interest rates or reduces the money supply, or any combination of those actions. Reducing the money supply is the most effective fastest way to reduce Monetary Inflation.

Your two periods of Monetary Inflation in the 20th Century were 25%-35% annually in the 1920s and 10%-15% annually in the 1970s and early 1980s (to about 1982).

For any number of valid reasons, the government usually over-corrects, and that results in Monetary Deflation.

The rate of Monetary Deflation never approaches the rates of Monetary Inflation, meaning if you have an inflation period where annual rates are 25%-35% you don't get Monetary Deflation at rates of 25%-35%.

It's usually 2%-5%.

Why? Because things cost what they cost. While Monetary Inflation does increase wages/salaries, Monetary Deflation does not decrease wages/salaries, although it can stagnate wages or actually depress wages/salaries for new hires.

That 20-year lease you signed for you manufacturing facility? The rent doesn't drop.

If you bought land to develop or land that was already developed for your manufacturing facility or retail shop or restaurant, your mortgage does not decrease (unless perhaps you refinance assuming interest rates decrease).

All that equipment you bought on credit for your business? Well, your bank loan payment is still the same.

What's changed? The cost of the materials you buy, but it doesn't automatically mean you can pass those cost-savings onto your consumers. Maybe you can, maybe you can't, or may you can pass a small amount on.

During the period of Monetary Deflation in the 1930s, you didn't really have any foreign competition, but you did in the 1980s from Taiwan and Japan.

The existence of Monetary Deflation does not necessarily decrease the value of the US Dollar on global markets.

In fact, just the opposite.

Remember Monetary Deflation is too few Dollars chasing too many goods.

That caused the US Dollar to rise in value against other currencies.

As an example, I profited selling gray-market BMWs.

The Deutschmark jumped to $1 = 3.18 DM. I was buying BMWs for $3,000 then shipping them from Bremerhaven to Bayonne for $450 and my friend was selling them for $15,000 to $20,000 (the were on the show room floor going for $42,000).

Sadly, that was before the internet existed, so it was word-of-mouth only and all cash.

While a stronger Dollar makes imports cheaper, it doesn't really have any effect on the economy. No one is going to be moving factories off-shore, and unless the price difference in currency is such that it is less than the rate of Monetary Deflation, it won't significantly increase the volume of imports.

Overall, Monetary Deflation is a non-event. A big nothing-burger. It's only a few years, 3-8 at most, negligible at 2% to 5%, and under the current circumstances, Demand-pull Inflation for certain goods, services and resources will negate any Deflation. No one is harmed and few if any people can even remember it.

Everyone remembers the "stagflation" of the 1970s but no one remembers the Monetary Deflation that followed, just like no one remembers the Monetary Deflation in the 1930s, probably because if you don't have any money, it doesn't matter how low prices drop.
Where are you coming up with this stuff? In econ. being about 50% right means you are 100% wrong.

Reading your posts is very frustrating because you are very close to having an unusually good understanding across this subject but you blow it over and over by posting the same few false claims.

To wit......general price deflation is a nightmare scenario. Who is going to invest when s/he believes his widget for sale will be worth less in the future. Deflation strongly indicates very severe recessions (depressions if you like).

And yes I know the years don't track precisely, but these are the years over the last 100 with deflation.
1921 and '22. Severe recession.
1927 and '32. Catastrophic recession, first of The Great Depression.
1938 and '39. Second severe recession of The Great Depression.
1949 - recession.
1955 - recession.
2009 - recession.

________________________

There was no deflation just after the 1970s and early '80s recessions. It simply didn't occur. In fact there were 0 deflationary years between 1955 and 2008 and not many deflationary months.

________________________

I can only guess that you are looking a charts and sometimes mistaking GDP numbers for inflation/deflation numbers.
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Old Yesterday, 06:34 PM
 
Location: Southern Most New Jersey
1,242 posts, read 876,801 times
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So inflation is too few items. Deflation is too many items.

So if there are not enough good paying jobs people have too little money. Deflation.

So how do we get out of this. Should we just shut our borders entirely to imports and work it. How can we ever compete with $2 a day labor..

Last edited by NJBoy3; Yesterday at 06:52 PM..
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Old Yesterday, 08:46 PM
 
Location: Washington Park, Denver
7,200 posts, read 6,779,293 times
Reputation: 7820
Quote:
Originally Posted by NJBoy3 View Post
So inflation is too few items. Deflation is too many items.

So if there are not enough good paying jobs people have too little money. Deflation.

So how do we get out of this. Should we just shut our borders entirely to imports and work it. How can we ever compete with $2 a day labor..
The Fed can cause inflation by introducing more money into the system, but their ability to impact this is lower than they once thought. They dumped a ton of money in during the Great Recession and they are still not hitting their inflation targets.
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Old Today, 02:31 AM
 
Location: Southern Most New Jersey
1,242 posts, read 876,801 times
Reputation: 2134
The Fed scares me. When I was going to college I was fortunate to study at several very good universities. I still remember an economics course at Yale where we were instructed to never attempt to manipulate a market. We were told it can't be done long term. That the markets would set themselves and prevail.
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Old Today, 05:37 AM
 
2,320 posts, read 698,607 times
Reputation: 3283
Quote:
Originally Posted by NJBoy3 View Post
The Fed scares me. When I was going to college I was fortunate to study at several very good universities. I still remember an economics course at Yale where we were instructed to never attempt to manipulate a market. We were told it can't be done long term. That the markets would set themselves and prevail.
You should have taken Political science courses which would have taught you that socially it's considered unconscionable to let everything tank out. Ultimately unless you want civil unrest, you'll need to provide some type of indirect manipulation in the form of public benefits and subsidies or easy money to stimulate the private sector.
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Old Today, 06:37 AM
 
Location: Washington Park, Denver
7,200 posts, read 6,779,293 times
Reputation: 7820
Quote:
Originally Posted by NJBoy3 View Post
The Fed scares me. When I was going to college I was fortunate to study at several very good universities. I still remember an economics course at Yale where we were instructed to never attempt to manipulate a market. We were told it can't be done long term. That the markets would set themselves and prevail.
I have also studied economics at an Ivy League school and find this take to lack any nuance. Saying the Fed scares you means you don't understand their role in the economy.
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Old Today, 09:26 AM
 
8,631 posts, read 9,335,501 times
Reputation: 7025
Quote:
Originally Posted by NJBoy3 View Post
The Fed scares me. When I was going to college I was fortunate to study at several very good universities. I still remember an economics course at Yale where we were instructed to never attempt to manipulate a market. We were told it can't be done long term. That the markets would set themselves and prevail.
Keep in mind on a scale if 1 is no rules conservatism and 100 is iron fisted governmental control I'm about a 30.

______________

Are you sure an economist said that? There are some Austrian Schoolers and libertarians who are for precious little oversight but only the hardest of the hardcore want 100% free banking markets. Further, that economist would be at odds with every great economist of the modern era, even conservatives from Friedman and Knight to Sowell.


What "natural" market mechanism stops a deflationary spiral in the short or medium term? There isn't one until some are dead and nearly everyone is ruined financially. It's nearly certain that Fed. action during and after the '08 bust ended what would have been a severe deflationary spiral.
*The overnight funds market froze.
*People were taking pay cuts.
*Large swaths of the insurance industry nearly failed.
*Banks failed and many more would have failed.

_________________________-

In a world in which the Russians and Chinese are messing with markets daily and Europe in nearly always in an economic malaise and we have a trade deficit (lots of other reasons too) we simply must have a body that makes daily adjustments. The idea of no one running banking markets is unthinkable and silly. Only bested by the idea of congress or the president doing so.
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Old Today, 10:51 AM
 
Location: Southern Most New Jersey
1,242 posts, read 876,801 times
Reputation: 2134
Quote:
Originally Posted by SkyDog77 View Post
I have also studied economics at an Ivy League school and find this take to lack any nuance. Saying the Fed scares you means you don't understand their role in the economy.
So what is their role.
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