U.S. CitiesCity-Data Forum Index
Covid-19 Information Page
Go Back   City-Data Forum > General Forums > Economics
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 09-29-2010, 10:08 AM
 
Location: Portland, Oregon
7,090 posts, read 11,188,975 times
Reputation: 4118

Advertisements

Quote:
Originally Posted by Pequaman View Post
I think OP worded it incorrectly. The gov't should not be mandating higher wages. But they can effectively increase working/middle class wages by cutting taxes for lower income earners. By letting them expire on the upper earners, you balance out and keep inflation in check. If they let all of them expire or if they keep all the tax cuts, it does nothing for the working class. By keeping tax cuts for the upper earners, the extra inflation this causes voids any gains the lower earners will see through their meager tax cuts.
Still, if you are in a deflationary environment, debt will only increase in real value (the principal doesn't change as currency value changes) while real wages stay the same. Since taxes are a percent of value of wages, houses, goods, etc...tax revenue will match it going down in deflated value. As the value of debt increases, even if taxes stay level, the country would be screwing itself just as much as anyone with high amounts of debt in a deflationary environment.

This would mean people would need to be spending, with everyone in debt going bankrupt even more often then now people would hoard currency. People would need to have free credit, which isn't going to happen as cash is increasing in value so it's cheaper to keep the hard currency around then risk it lending to people who would just go bankrupt (no reason to invest either). The only people who could spend are those who have cash now, and why spend it on any depreciating asset that is worth more now new then it would be in a year new (since money is becoming worth more every year)?

Cutting taxes would do the same for the government as mandating a company pay high wages in the end. It would mean massive cuts in revenue (where mandating wages would increase costs in real terms) as the principal balance of debt and interest payments go up in real terms.

That's a good double screwing of everyone. This is still a basic college level economic concept.
Rate this post positively Reply With Quote Quick reply to this message

 
Old 09-29-2010, 04:48 PM
 
Location: Sinking in the Great Salt Lake
13,145 posts, read 20,425,877 times
Reputation: 14042
Quote:
Originally Posted by jimhcom View Post
For almost 3 decades we substituted debt for wage increases among the working class. The debt itself was perpetrated on artificial asset values in the equity and real estate markets. Meanwhile the wealthy are the only ones whose income was truly increasing. At some point this ponsie scheme does not work any more, the economy collapses because people cannot service their debts. The result is high unemployment that exasperates the situation. The problem cannot be solved without increasing wages for the working class, which is nearly impossible in an environment of high unemployment. Or the second solution would be for massive deflation to bring down prices to what the people can afford.
Sure, because employers certainly wouldn't decrease wages if the the value of the dollar relative to goods went sky high.

So how does one get a dollar based on nothing to deflate to 1930 levels anyway?
Rate this post positively Reply With Quote Quick reply to this message
 
Old 09-29-2010, 09:09 PM
 
1,719 posts, read 3,875,644 times
Reputation: 1279
Quote:
Originally Posted by jimhcom View Post
For almost 3 decades we substituted debt for wage increases among the working class. The debt itself was perpetrated on artificial asset values in the equity and real estate markets. Meanwhile the wealthy are the only ones whose income was truly increasing. At some point this ponsie scheme does not work any more, the economy collapses because people cannot service their debts. The result is high unemployment that exasperates the situation. The problem cannot be solved without increasing wages for the working class, which is nearly impossible in an environment of high unemployment. Or the second solution would be for massive deflation to bring down prices to what the people can afford.
Deflation would be a disaster for the U.S. economy. It would encourage a spiral of no growth because everybody would hold onto their money in hopes of even lower prices (look up Japan's "lost decade"). Economic growth grinds to a halt. People get laid off because nobody is buying and everybody just hoards cash. The poor suffer even more. Also, the U.S. debt would become bigger than it already is. Increase the value of the dollar (deflation) and 12 trillion becomes even bigger.

The Fed and the government are desperately trying to avoid deflation and for good reason.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 09-30-2010, 08:22 AM
 
Location: San Diego California
6,797 posts, read 6,642,738 times
Reputation: 5180
Quote:
Originally Posted by iwonderwhy2124 View Post
Deflation would be a disaster for the U.S. economy. It would encourage a spiral of no growth because everybody would hold onto their money in hopes of even lower prices (look up Japan's "lost decade"). Economic growth grinds to a halt. People get laid off because nobody is buying and everybody just hoards cash. The poor suffer even more. Also, the U.S. debt would become bigger than it already is. Increase the value of the dollar (deflation) and 12 trillion becomes even bigger.

The Fed and the government are desperately trying to avoid deflation and for good reason.
Japan lost decade is actually now 30 years. The reason they have suffered for 30 years is because they implemented the same type of monetary easing and refusal by banks to write off debt that we are currently practicing here in the US. It clearly did not stop deflation, and it will not stop it here. It only drags it out for decade after decade as private debt is converted to public debt and eventually results in sovereign default. (Google Japan default) The preferred course is to let markets dictate asset values. This will make the deflation swift and set the stage for recovery. The FED and the government work for the banks and the wealthy, and are protecting their interests at the expense of the people. When asset prices fall to reasonable levels, and people can obtain a return on investment, they will return to investing, and the economy will recover. So long as asset prices remain inflated, people will sit on their money, and the recession will continue.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 09-30-2010, 08:23 AM
 
Location: San Diego California
6,797 posts, read 6,642,738 times
Reputation: 5180
Quote:
Originally Posted by Chango View Post
Sure, because employers certainly wouldn't decrease wages if the the value of the dollar relative to goods went sky high.

So how does one get a dollar based on nothing to deflate to 1930 levels anyway?
You allow the market to dictate asset values.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 09-30-2010, 08:57 AM
 
Location: 3rd Rock fts
749 posts, read 1,006,335 times
Reputation: 304
Deflation is the solution
Quote:
Originally Posted by iwonderwhy2124
Deflation would be a disaster for the U.S. economy. It would encourage a spiral of no growth because everybody would hold onto their money in hopes of even lower prices (look up Japan's "lost decade"). Economic growth grinds to a halt. People get laid off because nobody is buying and everybody just hoards cash..
Deflation is the punishment/correction for interfering with the natural ebb & flow of inflation (Greenspan’s prolonged low interest rates)! From around 1998-2008 the USA overspent (too much growth, too fast). To counteract that, we need to slow down the spending/growth for a while (possibly a long while). This is what’s happening now.

As long as the Gov’t/people keep interfering with deflation (Real Estate, stimulus, salaries, etc…) capitulation will not occur & the hoarding will not stop.

Hey jimhcom; nice thread title—short but says a lot. I typed this before reading you're last 2 posts but it's worth repeating: Hoarding cash will not stop until the capitulation starts.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 10-01-2010, 12:41 AM
 
Location: Massapequa Park
3,172 posts, read 6,152,009 times
Reputation: 1365
Quote:
Originally Posted by iwonderwhy2124 View Post
Also, the U.S. debt would become bigger than it already is. Increase the value of the dollar (deflation) and 12 trillion becomes even bigger.

The Fed and the government are desperately trying to avoid deflation and for good reason.
Not necessarily. Our (U.s.) interest payments on the $13.5 trillion are ~1% because of the low rates put in place by the FED (to battle the deflation).

edited to note it's 13.5 trillion as of today, not 12 trillion anymore
Rate this post positively Reply With Quote Quick reply to this message
 
Old 10-01-2010, 10:49 PM
 
Location: Los Angeles area
14,017 posts, read 18,912,589 times
Reputation: 32439
Default For whom, exactly, would deflation be the solution?

Deflation would be a good thing for people who have substantial cash savings and for people who receive fixed pensions. For everyone else, it would be a bad thing.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 10-02-2010, 09:11 AM
 
Location: San Diego California
6,797 posts, read 6,642,738 times
Reputation: 5180
Quote:
Originally Posted by Escort Rider View Post
Deflation would be a good thing for people who have substantial cash savings and for people who receive fixed pensions. For everyone else, it would be a bad thing.
Please explain.
Rate this post positively Reply With Quote Quick reply to this message
 
Old 10-02-2010, 01:51 PM
 
Location: Portland, Oregon
7,090 posts, read 11,188,975 times
Reputation: 4118
Quote:
Originally Posted by jimhcom View Post
Please explain.
The basics are available in every introductory economics course found at any local University or Community College. For those who are broke, or simply do not have the algebra required to pass one of those classes, a very high level analysis and explanation is available here for no charge.

What astoundingly baffles me is that some one who does not understand the basics of deflation and inflation starts threads threatening gloom and doom about economic indicators (that apparently are not understood) on a daily basis. Even with high level logical steps provided at previous points in this thread to keep embarrassment of those who studied econ for general education a long time ago to a minimum (which explains this point quite well). Just my opinion though.
Rate this post positively Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Economics
Similar Threads

All times are GMT -6.

© 2005-2021, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Contact Us - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37 - Top