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posted by martyb on Thursday March 28 2019, @01:05PM   Printer-friendly
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


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  • (Score: 2) by HiThere on Thursday March 28 2019, @04:40PM (5 children)

    by HiThere (866) Subscriber Badge on Thursday March 28 2019, @04:40PM (#821398) Journal

    Unfortunately, many of the terms are not well-defined. That makes sound argument impossible. Even more unfortunately, many of the terms are presumed well-defined, but actually have wildly different definitions in different people's minds. This makes arguments that can appear to be sound reach ridiculous conclusions when many people are making different pieces of the argument.

    E.g. "wealth". "debt".

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  • (Score: 2) by FatPhil on Thursday March 28 2019, @05:13PM (4 children)

    by FatPhil (863) <pc-soylentNO@SPAMasdf.fi> on Thursday March 28 2019, @05:13PM (#821411) Homepage
    You have to remember that these people are heavily influenced by Central Europe in the first half of the 1900s.

    So we're all agreed on what "war", "freedom", and "ignorance" mean, then?
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    • (Score: 2) by HiThere on Thursday March 28 2019, @06:05PM (3 children)

      by HiThere (866) Subscriber Badge on Thursday March 28 2019, @06:05PM (#821427) Journal

      I would have thought that "war" and "ignorance" were well-defined, but events during my lifetime have proven me wrong. I never thought "freedom" was well-defined.

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      • (Score: 2) by FatPhil on Thursday March 28 2019, @07:45PM (2 children)

        by FatPhil (863) <pc-soylentNO@SPAMasdf.fi> on Thursday March 28 2019, @07:45PM (#821479) Homepage
        Did you get my reference, citizen?
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        • (Score: 2) by HiThere on Friday March 29 2019, @03:50AM (1 child)

          by HiThere (866) Subscriber Badge on Friday March 29 2019, @03:50AM (#821655) Journal

          No, I didn't really get your reference. You could be referring to something in "1984", but if so I missed it, because it just made enough sense as it was.

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          • (Score: 2) by FatPhil on Friday March 29 2019, @08:58AM

            by FatPhil (863) <pc-soylentNO@SPAMasdf.fi> on Friday March 29 2019, @08:58AM (#821713) Homepage
            Yup.

            War is peace
            Freedom is slavery
            Ignorance is strength

            A vast proportion of the "great" economists of the 1900s were brought up in the context of what it's like being a Jew in Eastern Europe at the time of Mein Kampf. Some emigrated at a very early age, some were born to emigrees (mostly to the US, one noteable one to the UK). It's hardly surprising that they had a slightly distorted view of how the world works. Ayn Rand also ticks this box, for those who are keeping count.
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