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I know, debt pay down/default is money destruction... that's why when the government incurs debt (ie, creates government notes/debt, tax holidays, stimulus checks, etc.) and gives it to the people and the people pays down debt then essentially it's a transfer of debt from the people to government.
The government can try to replace the destroyed money, but this doesn't automatically occur as your comment indicated. Also, how much money has the government given you? $1,500? I imagine its going to take much more than that to correct your balance sheet.
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Originally Posted by chuck22b
A zero interest rate situation where people still don't borrow means that the Real rate of borrowing is actually negative (deflationary - which makes holding cash better than borrowing). So, fiscal stimulus and monetary policy aims to combat this situation.
Yes, this stuff is all nice and cute in theory. But were the Japanese just stupid? Or perhaps, its a bit more difficult to avoid deflation than talk of "fiscal stimulus" and "monetary policy"?
The government can try to replace the destroyed money, but this doesn't automatically occur as your comment indicated. Also, how much money has the government given you? $1,500? I imagine its going to take much more than that to correct your balance sheet.
Man, don't have to get all personal here . Anyhow, our balance sheets are fine... although income was greatly impaired with the cut backs. We don't carry much debt... and worst case scenario you already know what we'd do
The US savings rate increased like 2 points from 1% to 3% mainly because of the stimulus checks of earlier this year. Although not a huge difference, it adds up and as a result of savings/cutbacks and debt repayments the Household sector has greatly reduced household debt. I think a little to everybody has a higher aggregate effect on the economy than a lot of something to only a few (like the bank bailouts).
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Yes, this stuff is all nice and cute in theory. But were the Japanese just stupid? Or perhaps, its a bit more difficult to avoid deflation than talk of "fiscal stimulus" and "monetary policy"?
True, no body knows for sure what is going to happen or if it's going to work. But, something has to be done, and the only agency capable at the moment to do anything is the government. And it's really not just our government. Governments, central banks, throughout the world are stimulating their respective economies and debasing their currencies. At the end, pumping money at the expense of the government (ie, the people), will get somebody or some group rich. We're hoping it'll be the Country as a whole.
Why does something have to be done? It is only a particular school of economics that says "something has to be done".
Because we have politicians and lobbyists. If nothing was done, their funders and other constituents would not be pleased.
Also, one of the primary purposes of the Fed is to keep price levels stable or relatively stable. Rapid price disruptions either up or down aren't desirable in an economy. If anything, the goal is to slow down the downfall so it'd be relatively controlled compared to doing nothing.
Part of the Feds Mission Statement: "conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates" http://www.federalreserve.gov/aboutthefed/mission.htm
So, combating deflation and rapid price fluctuations is their job as well as fostering a monetary environment to keep people employed.
Deflation does not exist, why does anyone think it can? Has the money supply decreased, NO!!! The ripoff called the US economy only works with inflation, debt. There has not been and never will be deflation under the Federal Reserve. Got it!
Deflation does not exist, why does anyone think it can? Has the money supply decreased, NO!!! The ripoff called the US economy only works with inflation, debt. There has not been and never will be deflation under the Federal Reserve. Got it!
No, I don't got it. Firstly deflation has existed under the watch of the FED, namely during the great depression. Secondly, you need to look at more than the money supply to determine what is going on. Basic econ 101 tells you that:
MV = PT
M, the money supply is just one variable. The others are equally important in determining P, the aggregate price of goods.
No, I don't got it. Firstly deflation has existed under the watch of the FED, namely during the great depression. Secondly, you need to look at more than the money supply to determine what is going on. Basic econ 101 tells you that:
MV = PT
M, the money supply is just one variable. The others are equally important in determining P, the aggregate price of goods.
Where'd you learn this? I don't remember this in my econ class, but maybe I should have paid attention more!
So money supply is based on the number of transactions occurring and how much money is being spent or borrowed in a particular time period?
Today there are less transactions and less money being exchanged.
Also, why do others assume delfation can't exist?
Say, a bank creates $1000 from $100. So the money supply is $1100.
Bank loans $500 to a homeowner.
Homeowner defaults and now owes $400 to the bank.
But the house is worth $100 (no one will buy it for $400, but will buy it for $100), now $300 is gone from the money supply.
Where'd you learn this? I don't remember this in my econ class, but maybe I should have paid attention more!
It should be in any intro to macroeconomics text book. Its not exactly a new observation, over a hundred years old. I think Irving Fisher popularized it though.
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Originally Posted by sheenie2000
So money supply is based on the number of transactions occurring and how much money is being spent or borrowed in a particular time period?
No, rather what happens to prices (P) depends on 2 other variables not just one (M, the money supply). Obviously with the given identity you have:
P = MV/T
P can go up or down by changes in any 3 of these variables.
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Originally Posted by sheenie2000
Also, why do others assume delfation can't exist?
Probably because they've made bets on "hyper-inflation" coming to the US and need to make themselves feel better about it?
The fact that people believe things that aren't even historically accurate, is a bit odd....
Somehow I don't see Americans "saving" IF they pay off their debts.. they have an image to live up to and expect it... as spendthrifty people who act like they have more money than they actually have...
I really disagree with you. I really think people are FINALLY getting it.
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. Anyhow, our balance sheets are fine... although income was greatly impaired with the cut backs. We don't carry much debt... and worst case scenario you already know what we'd do 
