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There is a lot of talk of deflation. The reason is simple, with rates already at zero or close to it what can the FED do to get things moving in the eventuality of a slow down? The short answer is not very much.
One thing that can be done is increasing the minimum wage. The FED may not have the answer this time around. Higher wages and the expectation of them create the expectation of higher future prices and tend to get money spent now. Deflation means that the longer you sit on cash the more it is worth later. Increasing wage means spending money now before the cost of labor will be higher later.
Deflation sucks. High unemployment, loss of equity in Real Estate, Stocks, bonds etc. The loans against commodities are going to have a high default rate, home mortgages may very well follow suet. Underwriting is going to slow way down. Negative interest rates don't make bad loans good. Wages and more of them make bad loans good. If you want to stop the coming deleveraging, up wages.
i am no economist nor do i even take an interest but it seems to me raising the minimum wage won't do much at all . all it does it redistribute the same available dollars a company has for spending .
instead of it being spent one way it would be spent another . if they raise prices to do it then we all have less to spend ourselves
i am no economist nor do i even take an interest but it seems to me raising the minimum wage won't do much at all . all it does it redistribute the same available dollars a company has for spending .
instead of it being spent one way it would be spent another . if they raise prices to do it then we all have less to spend ourselves
That redistribution means this. They are sitting on cash not spending it. A lot of people are doing this. Put it in the hands of those that will spend it and it will move. Moving money grows the economy. Idol money kills it. All the printing the FED did didn't Fix the underlying problem of too much debt and not enough income. With no one to take on more debt, the growth stops and the contraction begins. You think 2008 was bad, the coming contraction will be worse it may be more orderly but it will be longer and deeper. As long as you keep your job you will do OK, but what if your boss asks you to take a pay cut or get laid off? Will you still make your mortgage payment? Will you still have extra money to spend? That pay cut will hurt. Getting laid off will hurt worse.
company's likely will just pull from other areas or put on hold some spending to compensate and odds are i would bet nothing comes out of it .
by the same token increased labor costs increases expenses , hurts profits and in return share prices , so the dollars that get sucked out of shareholder pockets again create less spending money for some and more for others .
also one big factor is lower earning folks may be carrying high debt . increased pay would likely go to pay old debt and not increase spending or new consumption .
that is just what we saw when the stimulus checks were given out . it was a flop . the lower income folks used it for old debt or banked it for a rainy day , it never got spent .
the higher earners like myself who would have spent it never were allowed to receive it .
company's likely will just pull from other areas or put on hold some spending to compensate and odds are i would bet nothing comes out of it .
It would be an interesting experiment.
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Originally Posted by mathjak107
by the same token increased labor costs increases expenses , hurts profits and in return share prices , so the dollars that get sucked out of shareholder pockets again create less spending money for some and more for others .
The FED is likely to make up the losses for the Share holders.
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Originally Posted by mathjak107
also one big factor is lower earning folks may be carrying high debt . increased pay would likely go to pay old debt and not increase spending or new consumption .
And those aren't spending. Too much is going to service existing debts. Not enough for new purchases.
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Originally Posted by mathjak107
that is just what we saw when the stimulus checks were given out . it was a flop . the lower income folks used it for old debt or banked it for a rainy day , it never got spent .
Gorge W's got spent, Obama's came in a little at a time and didn't.
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Originally Posted by mathjak107
the higher earners like myself who would have spent it never were allowed to receive it .
Maxed out on debt. You want more spending you need more income.
After six years of zero prime and not much inflation we can rule out hyperinflation, however. What the FED can do about a slowdown is limited and we are headed into one.
Hold your tongue, Ron Paul and Peter Schfiff are never wrong! They are geniuses.
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