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from the should-not-embrace-deflation-either dept.
Currently we can observe a general slowdown in the annual growth rate in price inflation across major countries around the world. [...] Most commentators are of the view that deflation generates expectations for a decline in prices. As a result, it is held, consumers are likely to postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. This weakens the overall flow of spending and in turn weakens the economy. Hence, such commentators believe that policies that counter deflation will also counter the economic slump.
Inflation is not about general increases in prices as such, but about the increase in the money supply. [...] For instance, if the money supply increases by 5% and the quantity of goods increases by 10%, prices will fall by 5%. A fall in prices however, cannot conceal the fact that we have inflation of 5% here because of the increase in money supply. The reason why inflation is bad news is not of increases in prices as such, but because of the damage inflation inflicts to the wealth-formation process.
The economic effect of money that was created out of thin air is the same as that of counterfeit money — it impoverishes wealth generators. The money created out of thin air diverts real wealth towards the holders of new money. [...] So, countering a falling growth momentum of the CPI by means of loose monetary policy (i.e., by creating inflation) is bad news for the process of wealth generation and hence for the economy. [...] Furthermore, if a fall in the growth momentum of prices emerges on the back of the collapse of bubble activities in response to a softer monetary growth, then this should be seen as good news. The less non-productive bubble activities the better it is for the wealth generators and hence for the overall pool of real wealth.
https://mises.org/wire/central-banks-shouldnt-fight-deflation
(Score: 4, Insightful) by Anonymous Coward on Thursday March 28 2019, @01:30PM (32 children)
Money is about transactions, not about "wealth generation". If your entire capital is cash, then fuck you. The entire complaint is that you want your money pile to appreciate without doing anything about the money pile. But this defeats the purpose of CURRENCY. CURRENCY is about facilitation of TRANSACTIONS. It's not meant as some magic "wealth generation". If you want wealth generation, buy something with that CURRENCY that is not a CURRENCY. Buy something that will generate money. Like precious metals, non-precious metals, land, a pile of shit, whatever. It's called "investment". You don't invest in currency.
Complaining that your pile of money is not safe because someone added a 0 to end of money supply .... talk about getting wool pulled over your eyes.
Frank Shostak sounds like he got paid by some rich people to spin deflation in their favour. Because the rich need another leg-up on the indebted.
(Score: 3, Insightful) by khallow on Thursday March 28 2019, @01:50PM (16 children)
This is probably the main reason for the complaint. Inflation is a hidden tax on everyone who holds an asset valued in that currency and paid for in taxes of the currency, will be paying more, just due to inflation.
Inflation also hides the future. A dollar of cost 50 years in the future will be significantly less than a dollar of cost in the present, just due to inflation. The higher inflation is, the less incentive there is to pay attention to the future.
Finally, it creates a logistical burden above and beyond what was already mentioned. Prices of everything has to adjust over time to compensate for inflation. Many games have been played when that doesn't happen, like in the US the Alternate Minimum Tax threshold (which keeps getting more and more people) and the threshold for the "Cadillac" tax on health insurance threshold (which eventually will get low enough that everyone with insurance will be taxed so).
(Score: 4, Insightful) by Immerman on Thursday March 28 2019, @02:46PM
> savings accounts can lose money if the interest rate is lower than
You say that like there's saving accounts that beat inflation. I had one as a kid 30 years ago that almost matched inflation, but it's been a couple decades since I've seen a bank offer rates higher than about 1% - at least to normal customers. Even CDs typically pay well below inflation rates.
(Score: 5, Interesting) by bzipitidoo on Thursday March 28 2019, @03:04PM (6 children)
> Inflation is a hidden tax on everyone who holds an asset
Inflation is also a way to discourage hoarding. Use it, or lose it. That's not a bad thing. Another effect is that it also reduces the value of debt, as well as savings, and that rebalances wealth. I am unsure if it's a good way. Better to stop the various unfair practices that so many wealth hoarders use, stuff like cheating their employees of pay, dumping the costs of cleanup on the public, bribing politicians and officials to give them sweetheart deals and go easy on enforcement, and to tinker with the laws yet again to favor them a little more, and a little more. Nip that problem in the bud, rather than resort to high inflation to make up for the cheating.
> Inflation also hides the future.
Nonsense. If inflation is guaranteed to be some fixed amount, whether 0%, 2%, or 10%, for a long time, that makes certain aspects of the future extremely predictable.
One of the biggest cheats of the American public is the gas tax. That should have been a percentage amount. Instead it is a fixed amount per gallon. Been that way since gas was first taxed. Every so often it was raised, to adjust for inflation. But now, federal gas tax has been 18.4 cents per gallon since 1993. Hasn't changed in 25 years. So of course inflation has been steadily eroding the real value of the gas tax. The oil companies and policy makers knew very well what they were doing. Big Oil counted on inflation to give them a huge tax break that they should not have had. And they got it.
(Score: 2) by FatPhil on Thursday March 28 2019, @03:46PM
Eww, the value of debt? Debt is of no value to you unless you can beat the system, or at least out-play the banks, and in that case you probably don't need the debt anyway.
Better wording would be: Inflation reduces the cost of debt.
Except it doesn't, because banks will always increase the cost of your debt more than inflation decreases it - that's their role.
Economics is a whole load of interconnected feedback loops attempting to find[*] equilibria. Thinking that pushing something in one direction makes it move in that direction is naive, as something else that resists that change will cause the rest of the world to also move, so your intended movement doesn't happen how you intended it.
Yes, as you can probably tell, I'm mostly a disciple of Keen's school, which I know will trigger everyone from Austria to Chicago.
[* No, I'm not anthropomorphising, there's no agency in these things, I just think the English that people use is more useful than something more precise and verbose. For example - I just boiled the kettle to make a cup of coffee. No, there aren't metal vapours all over my flat now; the procedure did not create a drinking vessel; and the vessel was ceramic, not coffee. ]
Great minds discuss ideas; average minds discuss events; small minds discuss people; the smallest discuss themselves
(Score: 4, Insightful) by mhajicek on Thursday March 28 2019, @03:59PM (2 children)
Inflation helps employers to cheat employees of pay. All they have to do is keep pay constant and it's continually decreasing in value.
The spacelike surfaces of time foliations can have a cusp at the surface of discontinuity. - P. Hajicek
(Score: 0) by Anonymous Coward on Friday March 29 2019, @12:14AM (1 child)
> All they have to do is keep pay constant and it's continually decreasing in value.
All they have to do is keep pay constant and their employees will soon start looking for another employer.*
ftfy
*this assumes a working economy, all bets are off if the employer is the only game in town...
(Score: 1, Touché) by Anonymous Coward on Friday March 29 2019, @10:51AM
Good luck finding one.
(Score: 1) by khallow on Thursday March 28 2019, @11:29PM (1 child)
The point is that you're losing wealth even on stuff that is used well.
Unless, of course, it is a bad thing.
Why should we "rebalance" wealth?
I don't know about your country, but in my country, there's be a lot more dead bodies in the workplace, if they could get away with a lot of this stuff. And not seeing how inflation will help even a little with that (particularly, "making up for the cheating").
Inflation is not guaranteed to be anything for most countries. Supposedly the EU central bank tried using a formula, but they were having trouble with people anticipating their moves.
Well, I did note that the logistics of inflation was a problem.
(Score: 2) by Reziac on Sunday March 31 2019, @02:43PM
All I've ever seen inflation do is raise my costs faster than I can raise my prices (and since I'm at the discretionary-spending end of the market, also results in fewer customers), and degrade the value of my savings, so I have less future purchasing power (that's what savings are, really). IOW, inflation makes me poorer, both now and in the future.
That's the realworld effect on this sample of one, regardless of what gibberish banks and economists use to explain it.
And there is no Alkibiades to come back and save us from ourselves.
(Score: 4, Interesting) by Thexalon on Thursday March 28 2019, @03:07PM (5 children)
So your complaint is "Math is hard"? Although you admit that the math is just as hard if there's deflation going on, which means this objection can be dismissed outright.
Yes it can. The reason this isn't a problem is that you aren't supposed to store your wealth in savings accounts, you're supposed to invest it in something. If you have several thousand dollars lying around and don't need it in the short term, you'd do far better buying a S&P 500 index fund or some relatively stodgy and risk-free business investments. Keeping that money in a savings account just means that your bank receives the benefit of those investments instead of you receiving the benefit of those investments.
So what? Capital gains income is taxed at a substantially lower rate than most other kinds of income, and that difference is "justified" by this very concern about the effects of inflation. Look, I understand that you've never met a tax rate higher than 0% that you approve of, but this objection is pure nonsense.
It gets even sillier when you see people seeing a 15% tax rate on income from not working, a 30% tax rate on income from working, and then saying we need to lower the 15% number because "people respond to incentives". Well, if you get taxed substantially less for not working than for working, what exactly are you incentivizing people to do?
Yes, it is true that the real goal of the Mises Institute and the people funding them is to lower taxes for rich people to zero. They'll make up whatever they need to in order to justify this goal. That doesn't make what they're saying correct.
1. "In the long run, we're all dead."
2. Everyone who has a need to calculate 50 years into the future includes inflation in their calculations. In short, we're back to "math is hard".
And we're back to "math is hard".
1. The AMT starts affecting people who are earning $500K a year, requiring them to pay at least 20%. Boo hoo! How ever will I live on only 8 times the income of the average American household? I'm sorry, I can't feel a lot of sympathy for these people. And again, a lot of other people who make less money are paying more than that.
2. Nobody has paid the "Cadillac" tax yet, because it hasn't been implemented yet and won't be for at least 3 more years. So I guess it's technically true that more people will get affected by it in the future, but that's because zero people are affected by it now.
The only thing that stops a bad guy with a compiler is a good guy with a compiler.
(Score: 3, Interesting) by FatPhil on Thursday March 28 2019, @04:03PM
OK, in Jan 1 2000, I put 142500 into an SP500-linked fund. Using your "easy" maths, explain when I will have made a net profit compared to the person who put 142500 into a bank account. If you come up with an answer before 2013, you're deluding yourself. Now imagine that I needed a few tens of thousands for a house extension, or a car, or a child's education, or healthcare bills in 2009.
What you're talking about is not "investing", it's "gambling".
That's not necessarily a negative, I detected a peak and sold 30% of my holding of one particular asset at 441 yesterday and BTFD at 432 today, I'd just hate to be considered as someone deluded enough to call any of the markets "investing". They're all "speculating".
Great minds discuss ideas; average minds discuss events; small minds discuss people; the smallest discuss themselves
(Score: 2) by toddestan on Friday March 29 2019, @02:34AM (2 children)
This is by design. No better way to prop up the stock market than to force people to "invest" into it if they just want to keep what they have because traditional safe investments now lag well behind inflation and barely beat the stuff-it-into-a-mattress method of storing your money.
(Score: 1) by khallow on Friday March 29 2019, @03:55AM (1 child)
It's not design, it's just a standard bias against risk in investors. Suppose you have a choice between a very safe investment and a very risky one which both pay the same when they work out. Why would you ever put money into the crap shoot? Naturally, the riskier investment will have to offer a higher return in order for investors to consider it.
(Score: 2) by toddestan on Sunday March 31 2019, @06:24AM
Of course I don't expect a big return from a completely safe investment like a savings account or a CD, but historically a safe investment more or less keep up with inflation. That hasn't been the case for some time. It really boils down to the Fed's policy of keeping the interest rates as low as possible. The banks really have no reason to entice depositors to keep money in savings accounts when they can just borrow the money they need to balance their sheets from Uncle Sam for almost nothing.
(Score: 1) by khallow on Friday March 29 2019, @12:49PM
Which let us note is a valid complaint. "Math is hard" caused the development of a massive accounting industry for tax avoidance and similar schemes.
"Aren't supposed to" for what reason? What is the virtue here of forcing people out of savings accounts?
Ok, you just answered your "so what?" Because inflation is an excuse to tax rich people at lower rates. Glad you could help yourself answer that one.
I notice that point 1. runs counter to morality you've expressed elsewhere, such as [soylentnews.org]:
And "math is hard" is missing the consequences of throwing large amounts of dirt into the gears of society. Moving on:
The threshold is much lower than that. While it is rare, there are cases of people earning less than $75k being subject to the AMT due to the peculiar nature of their income sources (sounds like income that is extremely low tax by normal means).
Well, the future was what I was speaking of. I'll note that the above four years of delay happened after one of the "architects" bragged about the synergy of inflation and the Cadillac tax.
(Score: 2, Insightful) by Anonymous Coward on Thursday March 28 2019, @03:53PM (1 child)
Yes, and?
If you invest your money into an asset that actually generates value, then your ROR is just that. No need for any capital gains or whatever until you actually want to sell your asset.
You are thinking in terms of income from financial instruments. I was talking in terms of transactions to facilitate trade - the purpose of money. Financial instruments are suppose to enable economic functions of a society and increase opportunity. They are not meant to idly generate income. Sadly, that's what they've become because some people are better with numbers than others and use math to leech even more from the ones that don't know (or the ones that have little knowledge but think they are experts). And now comes TFA that wants to lie about its intentions to skew the table even more against the little people.
(Score: 1) by khallow on Friday March 29 2019, @12:51PM
Ok? Who again is paying for idly generated income? Aside from taxpayers, that is.
(Score: 5, Insightful) by urza9814 on Thursday March 28 2019, @01:56PM (7 children)
I don't disagree with the general sentiment...but I'm really curious as to how you think buying precious metals and just sitting on them is any better than taking a stack of cash and just sitting on it. Metals, land, a pile of shit...none of these things that you mentioned actually generate any wealth either. They are not productive. They are merely a loophole that allows one to bypass inflation. Gold and other precious metals are the original currency, and "investing" in those is still just using them as a form of inflation-resistant currency. If you use gold to create jewelry or something, fine, but if you're just buying and selling bars of the stuff then that's still just currency.
The way of generating wealth is to invest in *productive* assets. Like loaning money to a start-up so they can hire staff or buy machines which will be used to take raw materials and create products of increased value. Or buying land and building a house or a restaurant on it which then increases the value of that land. Just buying something cannot possibly generate value; you have to actually do something with it.
(Score: 1, Interesting) by Anonymous Coward on Thursday March 28 2019, @03:45PM (1 child)
Sorry, I meant as means of not falling pray to inflation of fiat currencies. Instead of "investment", should have said "debasement protection" or "inflation protection"
Gold is not a currency - it's a different asset class. It cannot be inflated or deflated. It is governed by supply-demand, more or less. That's why gold backed currencies were such a limitation. They central banks from applying monetary policies and were the reason for Great Depression.
Yes, TFA talks about "wealth generation", but that's weasel words because how to do define wealthy? Owning 2 cars? Or having a happy family? Or taking a vacation once a year? Or not needing to work? Monetary policy needs to accommodate society, not 0.01%
But in case of TFA, "wealth generation" means simply trustfunders generating income from lending money on bond market with zero risk of default and debasement (money supply increase). That's not the purpose of money or capital.
(Score: 2) by urza9814 on Friday March 29 2019, @11:59AM
Inflation is also governed by supply and demand. They print more money, supply goes up, the value decreases. Granted, increasing the supply of dollars requires a bit less effort, but it's the same general process. And if people are using gold as currency, then it's subject to similar forces and can bubble or crash just as easily. People see the market doing badly, so they buy a bunch of gold thinking that will protect them. Then if the crash doesn't happen, or after it recovers, everyone starts selling. Or if the crash *does* happen, and people need money, they start selling. And the resulting increase in supply leads to a drop in the price. There was a gold bubble in the early 2000s, then between 2012 and 2015 gold prices dropped by more than 40%. In late 2011 prices were up to nearly $1900/oz, by 2016 it was down below $1100/oz, and today it's around $1300/oz. If you bought gold in 2011 thinking it would protect you from inflation, you got screwed. You would have been far better off putting that money in a bank.
Traditional currency has the value moderated by a (sometimes incompetent) central bank; gold has its value moderated by a (sometimes panicky) mob.
(Score: 1) by khallow on Friday March 29 2019, @04:30AM (4 children)
I disagree. It's trade. You buy from one person and are trying to sell to someone in the future at a higher price. It might not work out for you at all because you guessed wrong on the market directions, but it'll generate perceived value for the two other parties to your pair of transactions.
(Score: 3, Insightful) by urza9814 on Friday March 29 2019, @11:26AM (3 children)
I can *maybe* buy that argument if you're actually providing some kind of transportation service -- buy it in New York and sell it in Paris. That's the only *productive* kind of trade. Otherwise it's just a currency exchange, no different from buying Pesos and hoping those inflate slower than dollars.
(Score: 1) by khallow on Friday March 29 2019, @12:52PM (2 children)
Such as from the past to the future?
(Score: 3, Touché) by urza9814 on Friday March 29 2019, @02:43PM (1 child)
Unless you have a time machine you aren't providing that transportation, the universe is.
(Score: 1) by khallow on Friday March 29 2019, @10:38PM
To the contrary, you own that asset and its attendant risks. Not the universe.
(Score: 2) by FatPhil on Thursday March 28 2019, @04:13PM
Holy jeebus, that's woo-woo talk.
I'm pretty into PMs, and at no point would I consider them to *generate* anything. They are a value store, that is all. In fact, they're mostly indistiguishable from currency itself (apart from the passing of contrived laws that have disabled some of their usefulness in order to favour fiat currencies). In fact, they're still ~15% of the reserve currency in the world (up from 10% a few years ago, and increasing steadily). As money-supply inflation debases fiat currencies' values, like *real soon now*, PMs will turn out to be a better mechanism for storing value than fiat currency. Until their perceived value peaks, and then they'll be a terrible thing to hold.
Great minds discuss ideas; average minds discuss events; small minds discuss people; the smallest discuss themselves
(Score: 0) by Anonymous Coward on Thursday March 28 2019, @07:23PM (2 children)
i thought wealth is about how many slaves you can command not about a fictional number over which you have no control?
on a more serious side note, 95% of people don't understand economics including deflation and inflation
because they are not producers but consumers and "just shovel paper" inside a bubble.
to understand inflation/deflation look at what " physical things" make our form of society work.
lot's of it depends on energy. transport? energy. food? fertilizer thus energy? etc. etc.
of course there's no real value to anything but the value of work. some things we can do alone
and somethings are too cumbersome to do alone thus requiring a extra pair of hands.
how willing are these "extra hands" to be available?
as for value, gold is useless, aluminium is amazing and i am sure on some alien planet the shit is worth more then gold.
ofc only something useless like gold could be called precious because we are vanity animals ...
other things spring to mind that are actually required for our form of society to work but cannot really be precious because
the system would come crashing down: for example oil.
so, we the sheep (tm) cannot really comprehend economy. for me inflation is just a screw in the machine that gets (artificially) tightened if
"the hands required for work that cannot be done with one pair only" are not willing to .. uhm ..err... lend a hand :)
(Score: 1) by DECbot on Thursday March 28 2019, @09:28PM
To be fair, gold has better properties than aluminum or copper as an electrical conductor, but it isn't often used because of its cost.
cats~$ sudo chown -R us /home/base
(Score: 0) by Anonymous Coward on Thursday March 28 2019, @10:00PM
i mean yeah, this monopoly money is just good as long as the slaves keep believing in the economical system
(Score: 2) by darkfeline on Thursday March 28 2019, @10:09PM
> Money is about transactions, not about "wealth generation". If your entire capital is cash, then fuck you. The entire complaint is that you want your money pile to appreciate without doing anything about the money pile. But this defeats the purpose of CURRENCY. CURRENCY is about facilitation of TRANSACTIONS.
The purpose of currency is to stably store value. The ability to facilitate transactions is a secondary attribute of a stable store of value. People used to use various goods that served as a stable store of value (livestock, produce, commodities), then used precious metals, then used fiat currency.
The ability of currency to facilitate transactions DEPENDS on how stable it is. This is why no one trades in hyperinflated currencies like the Zimbabwean dollar; no one wants an instable store of value.
You can see this effect in MMORPGs too. Usually the default gold currency is useless due to hyperinflation, so all the players trade in some kind of premium currency or other limited good.
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(Score: 0) by Anonymous Coward on Friday March 29 2019, @12:24AM
I love these people who claim deflation would lead to an increase in wealth inequality. The world has never seen inequality like today, after a century of inflationary currency: https://nonprofitquarterly.org/2017/11/22/highest-inequality-human-history-societies-ripe-social-change/ [nonprofitquarterly.org]
(Score: 0) by Anonymous Coward on Friday March 29 2019, @02:57PM
"Are you now or have you ever been a member of the Communist Party of the United States?"...