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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: 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