Reuters reports that the European Union is preparing to freeze withdrawals and ATMs when banks are "failing or likely to fail", in an effort to "save creditors' money". Of course, this ignores the fact that the people trying to withdraw their own money are, by definition, such creditors to the bank.
The European and American banks have both been stated to live on borrowed time. The Euro is fundamentally on shaky ground, after trying to combine economies with as fundamentally different characteristics but without the fiscal policy instrument to enforce conformity. Meanwhile, the US dollar has been printing as much money as it can since August 15, 1971, when the United States defaulted on its loans and obligations. (It wasn't worded like that, of course, but the net effect was still that the US cancelled payment on its international loans.) Both of these spheres of economic influence can be predicted to undergo serious disruption as bubbles burst in rapid succession, when they burst: the precise time is impossible to predict, just as it is impossible to predict the precise point in time of an avalanche or a volcano eruption, but at the same time completely possible to say that such an outcome will happen at some point.
Related:
http://xbtnews.net/2017/07/eu-proposes-account-freezes-to-prevent-bank-runs-bitcoin-to-the-rescue/
https://news.bitcoin.com/european-union-proposes-account-freezes-to-protect-failing-banks/
http://xbtnews.net/2017/07/eu-proposes-account-freezes-to-prevent-bank-runs-bitcoin-to-the-rescue/
(Score: -1, Troll) by Anonymous Coward on Monday August 07 2017, @05:37AM (2 children)
I bet the faceless unelected bureaucrats who voted in that one really have the public's best interests at heart.
(Score: 2) by Kilo110 on Monday August 07 2017, @05:59AM
Implying elected officials would've cared more about the common man.
(Score: 5, Informative) by isostatic on Monday August 07 2017, @06:08AM
This is a proposal. To be passed it will need a majority (and then some) of the commissioners (one appointed by each head of state - I guess equivalent of US secretaries of state) and the parliament (voted in by the population) to pass it.
As for faceless, here's a list of commissioners with photos: https://en.wikipedia.org/wiki/European_Commissioner [wikipedia.org]
And a list of MEPs: http://www.europarl.europa.eu/meps/en/full-list.html [europa.eu]
If you don't like the commissioners, just like if you don't like a secretary of state, complain to your government, ultimately you can vote out your government (in the US this is ever 4 years, in the EU it varies on a similar timescale)
If you don't like the MEPs, complain to them directly, and vote them out in 2019 (every 5 years)
(Score: 0, Troll) by Kunasou on Monday August 07 2017, @05:41AM (10 children)
Another stupid idea of the Soviet European Union...
How many days until they start to talk to us about comrades?
Now they want to have even more control over our money. If we need to eat and they close the ATMs because of "insolvency" we have to die of starvation like in the Soviet Union.
(Score: 3, Informative) by isostatic on Monday August 07 2017, @05:54AM (8 children)
So what happens in the US when a bank goes bust? People queue round the block and empty the cash machine, fine. Then what? Anyone who's watched A Wonderful Life knows that a bank can't refund everyone's deposits.
(Score: 0) by Anonymous Coward on Monday August 07 2017, @03:08PM
I think that is what the FDIC is for.
(Score: 1, Informative) by Anonymous Coward on Monday August 07 2017, @03:31PM (3 children)
Like the other AC said that's what the FDIC is for. The point of shutting access to the ATMs is mostly that 3rd party ATMs can create new debt that has to be resolved.
Also for those foolish enough to have so much money on a bank to go over the insured limit, it would allow them to get money that they aren't covered for at the same time that the FDIC is having to pay out.
But, this is rare as when they take over a bank nobody else knows they're going to do it. They'll go so far as to travel separately with covered stories.
(Score: 2) by darkfeline on Tuesday August 08 2017, @03:34AM (1 child)
The FDIC only covers $250k USD. That's enough for five years of retirement and decreasing.
Join the SDF Public Access UNIX System today!
(Score: 0) by Anonymous Coward on Tuesday August 08 2017, @04:19AM
That's 250k per bank and you're an idiot if you're using a bank to save your retirement money. The correct place is an investment account which is covered by SIPC that has a $500k per type of account with each firm. It won't protect against decreases in the value, but you can do that by ensuring that the assets are stored in forms that are resistant to losses. For example, you can make sure that the bonds portion is stored in US savings bonds. If those ever get defaulted on, you're going to have a lot of other things to worry about.
The correct thing to do is to not have that much cash in a bank, and if you have reason to have more, spread it amongst multiple banks.
(Score: 0) by Anonymous Coward on Tuesday August 08 2017, @06:19PM
if the banks don't have money how would the fdic? they don't have enough to cover what they supposedly cover right now. much less if the SHTF. don't be naive.
(Score: 1, Informative) by Anonymous Coward on Monday August 07 2017, @03:51PM (1 child)
A Wonderful Life came out before FDIC insurance was a thing, and when this nation was still using a fractional gold standard, which was entirely ended in the 60s. When a bank goes bust, everyone gets their money back, provided they had less than or equal to the maximum that FDIC insurance covers in that bank. If that means the Fed prints more money, then the Fed prints more money. Sure, that's inflationary, and technically the act of printing more money is akin to taxing everyone else who is currently holding money, but that's exactly how fiat currency works in the first place, and in fairness, the alternative is at best bipolar swings between inflation and deflation; at worst you get long term deflation, where nobody spends any money that isn't pried out of their hands because it'll always be worth more tomorrow.
(Score: 2) by isostatic on Monday August 07 2017, @07:05PM
And the EU has a similar system, and the actual proposal from the EU government is that this would only apply to banks that don't have such insurance for whatever reason (usually because they're actually gambling banks rather than deposit banks)
So I don't see what the EU has proposed (rather than just one lobbyist group in a small country - the equivalent of delaware proposing something) that deserves the statement "Another stupid idea of the Soviet European Union..."
(Score: 2) by tibman on Monday August 07 2017, @05:48PM
Almost all US Bank accounts are FDIC insured up to 100,000$. So as long as you have less than that in your account, you won't lose money.
SN won't survive on lurkers alone. Write comments.
(Score: 2, Touché) by Anonymous Coward on Monday August 07 2017, @09:28AM
Wait.
When European countries put (poor) people first, they're socialist.
When they put companies and the rich first, they're... communist? Or is that still socialist?
...
Eh, whatever. Long live the United Soviet States of America!
(Score: 5, Informative) by isostatic on Monday August 07 2017, @05:42AM (18 children)
This summary implies that reuters wrote such crap. They didn't.
Yes, people are creditors, but the banks have many many creditors, more than they have money. Allowing one creditor to take value out of an insolvent business does not sound like a good thing - the money goes to paying secured creditors first. Personally I'd rather employees came first, then secured creditors, but that's not how it works.
When you deposit money in a bank you are accepting the risk of that investment, just like when you purchase shares. The banks are part of an insurance scheme which means that individual deposits upto €100k are protected by the entity that can simply print 1000x €100 notes if it wants, so it's a pretty low risk.
Also note that this proposal is from a lobby group, who probably planted this press release into reuters' system in the first place. The EU 'government', the commissioners who are appointed to run the EU by the heads of the 28 states, would not include normal banks which are insured as above.
By all means invest in bitcoin, or zimbabwe dollars, or whatever, but you're taking a far bigger risk, both from currency fluctuations, the fact that barely anyone uses it, and in a collapse of a central economy national currencies will be accepted for far longer than bitcoin and other toys (when you have no power, how will your bitcoin USB help?)
(Score: 0, Redundant) by Anonymous Coward on Monday August 07 2017, @05:47AM (5 children)
On one hand I understand your points, on the other they are utter crap.
That is absolutely not what you are accepting. Banks are FDIC insured, people expect that up to 250k or whatever their accounts are without risk.
(Score: 4, Informative) by isostatic on Monday August 07 2017, @06:03AM (4 children)
Banks are FDIC insured
EU banks aren't. But yes, as I said:
Clearly there's still a risk -- the insuring entity (the central bank, FDIC, the government, and ultimately the people) can decide to backtrack on that insurance. And if you deposit more than €100k then the excess is at risk - which is an issue if you're between houses, have just sold, then your bank goes bust before you buy. Not sure how the eurozone scheme works, but in the UK the insurance is per financial institution, so you are best off hedging your risk by depositing across multiple banks.
(Score: 4, Insightful) by sjames on Monday August 07 2017, @03:08PM (3 children)
You're missing an important point. Money deposited into a bank isn't treated as an investment, it's a LOAN. That is, they actually owe you 100% of that money back plus interest. There is some risk that they will default, and even some risk that the insurance against default will also default, but the money is still owed( including amounts over the insurance limit). That is as opposed to an investment where if the business fails, you are owed nothing.
(Score: 2) by isostatic on Monday August 07 2017, @06:54PM (2 children)
So you have $1m in a bank. So do 39 other people. Total $40m owed.
The bank has total assets of $50m, but $49.2m of that is in loans to other people, and $800k is in the vault.
Then these other people default. You go to withdraw your $1m, you're stuck, they don't have that.
Everyone gets $100k from FDIC insurance. What hapens to the $800k in the vault?
1) First come first served
2) Evenly split amongst the 40 people, $20k each.
What if the bank itself owes it's employees wages? What if it owes it's suppliers for outstanding invoices. What if it owns property, but has loans secured against that property? Where does that $800k go?
Sure you're owed the money, you're a creditor, but there's no guarantee you'll get your money back, just as if you're a supplier, or an employee. The loans secured against the property are secured loans, the rest of it is. You're gambling that the bank will stay solvent. It's a risk.
(Score: 2) by sjames on Monday August 07 2017, @08:28PM
It is a risk, sure. I was clear that the bank could default. That doesn't mean the money isn't owed.
But you are NOT accepting the risk of an investment, Not at the paltry interest banks pay out.
(Score: 2) by kaszz on Tuesday August 08 2017, @04:31PM
Don't print money. That way if account holders wants to withdraw more money than is held in cash it can be paid back over time.
The core of the problem is that banks print money and get interest on money.. they didn't have to begin with.
(Score: 1) by fustakrakich on Monday August 07 2017, @06:01AM (6 children)
When you deposit money in a bank you are accepting the risk of that investment
You're absolutely right! [youtube.com]
But seriously, the weather... If you're depositing government coin in the bank, every penny should be backed up by the government. It that means nationalization, great. The government has that right to protect its currency so that the depositors don't pay for corruption and mismanagement.
Their announcement should serve as a simple warning that your money is not secure in the banks, and you should move it somewhere where it is.
La politica e i criminali sono la stessa cosa..
(Score: 2) by isostatic on Monday August 07 2017, @06:06AM (5 children)
Their announcement should serve as a simple warning that your money is not secure in the banks, and you should move it somewhere where it is.
This is a press release from a lobbying firm, not an announcement. The most likely way forward is this will only apply to banks that have chosen to not take the insurance, and their depositors who have chosen a high risk investment.
However I'm interested, where is more secure than a government insured bank?
(Score: 2, Interesting) by fustakrakich on Monday August 07 2017, @06:25AM (4 children)
I would rather have actual government banks [wikipedia.org] to avoid these risks entirely.
La politica e i criminali sono la stessa cosa..
(Score: 2) by maxwell demon on Monday August 07 2017, @07:06AM (3 children)
And give your government total control over your personal money? Yeah, that's surely without any risk.
The Tao of math: The numbers you can count are not the real numbers.
(Score: 2, Touché) by ewk on Monday August 07 2017, @07:39AM (2 children)
Well... personally I welcomed my governmental overlord when it stepped in and saved 'my' bank from defaulting... :-/
I don't always react, but when I do, I do it on SoylentNews
(Score: 2) by maxwell demon on Monday August 07 2017, @07:53AM (1 child)
That's not total control. That's the government saving a private bank that got into trouble. It didn't give the government any additional power over the money you had on your bank account.
Imagine you were a Jew and had your money on a government-owned bank when Hitler came into power … good luck taking your money out in order to pay for your escape.
The Tao of math: The numbers you can count are not the real numbers.
(Score: 2, Insightful) by ewk on Monday August 07 2017, @08:11AM
I wouldn't call Hitler c.s. anything close to a government, but for the sake of argument, I'll humor you.
However... your imagination is flawed in as much that even privately-owned banks would have had the same problem. They would also have been forbidden to pay out any Jewish-owned money.
After all, in fascism, citizens (and by extension all citizen/privately-owned businesses) are there to support the the state.
The Jew is screwed either way.
I don't always react, but when I do, I do it on SoylentNews
(Score: 0) by Anonymous Coward on Monday August 07 2017, @06:47AM (3 children)
And here I thought I was paying transaction fees and monthly maintenance fees for the service of accessing my money. If I've accepted risk of investment, then the bank should be paying me dividends, eh? Otherwise, If I'm losing money constantly in this deal that means my "investment" has always been a bad one.
Fortunately I have a mattress full of bitcoins.
(Score: 1, Insightful) by Anonymous Coward on Monday August 07 2017, @07:34AM (2 children)
I don't pay maintenance fees, I get paid interest on my deposits. Interbank transactions cost a few cents.
Perhaps you need to find a new bank, or if all your banks get to do stuff like that (e.g. even the credit unions) perhaps you'd have better luck taking your cash out and buying the best bank's shares, since they get to squeeze profits out of their creditors ( depositors) and not only from those taking loans from them.
(Score: 0) by Anonymous Coward on Monday August 07 2017, @03:23PM (1 child)
Speaking from my experience in the US, most organizations that call themselves banks, and especially large ones such as BofA or Wells Fargo, do not look at the majority of their account holders as creditors. Their account holders are profit centers. Any fee that can be charged, will be charged and their system is organized in a fashion to increase the number of fees charges not to provide service to their account holders. Wells Fargo recently got a wrist slapped because for years they were signing up current account holders for new accounts, charging them fees, and all without the account holder's permission or knowledge. At least 10's of thousands of account holders affected and they had to pay a penalty that was less than the profit they made. There is no reason to think that this kind of behaviour will not continue. Credit unions have different regulations to follow and generally treat there account holders better.
(Score: 0) by Anonymous Coward on Monday August 07 2017, @04:09PM
Yes, and that's why people are better off having their accounts with Credit Unions where the CU's interests are more aligned with the depositors. The depositors own the CU, so they try to maximize what's given to the depositors. Some do a better job of others, that's slightly against their own self-interest as their wages come out of the money they make, but it's a much, much better situation than you'd get at a commercial bank where they've got that, plus investors they have to keep happy.
(Score: 0) by Anonymous Coward on Monday August 07 2017, @03:51PM
If you don't allow the depositors to take their money back, you wind up with them taking money out of other banks that aren't yet failing. If you've got a healthy banking system that's not that big of a deal, but if you've got a number of banks that are going bankrupt, then you've got a major problem.
Plus, the actual depositor money is only one asset that banks have to compensate creditors. You're not realistically going to cut up mortgages to hand out to hundreds of people as compensation. Most depositors are not in a position to do anything with that. Other creditors are likely to be able to manage those assets. They're also much more likely to be in a position where they factored in their estimation of the bank failing and received a premium to cover the risk.
(Score: 4, Informative) by fleg on Monday August 07 2017, @06:02AM (1 child)
could we get this fixed? at the moment it looks like reuters wrote all of the summary.
they didnt. they wrote something like the first sentence (i think), the rest is from some blog.
the summary is also missing ....
which is from the reuters article.
(Score: 2) by captain normal on Monday August 07 2017, @06:45PM
Also the blogs are mostly xbtnews, or BitCoin fronts. Trying to scare up some business it seems.
Everyone is entitled to his own opinion, but not to his own facts"- --Daniel Patrick Moynihan--
(Score: 0) by Anonymous Coward on Monday August 07 2017, @06:04AM (3 children)
The bank went under - it's got no money. Duh?! Does money grow on tree in EU? Oh, I forgot, it's euro.
(Score: 2) by kazzie on Monday August 07 2017, @08:52AM
No, the cotton used in Euro notes is grown in the American South, in Africa or on the steppes of Central Asia [fleur-de-coin.com] instead.
(Score: 2) by soylentsandor on Monday August 07 2017, @05:21PM
As long as the systems are kept running, there's money both in the ATM and in your account, there's nothing in the way of you getting money out of the machine, even if the bank may technically be bankrupt.
(Score: 2) by GreatAuntAnesthesia on Monday August 07 2017, @08:43PM
No, it's only Theresa May with the Magic Money Tree [theguardian.com].
(Score: 2) by mendax on Monday August 07 2017, @06:35AM (7 children)
It's really quite a simple choice: Life, Death, or Los Angeles.
(Score: 5, Insightful) by Anonymous Coward on Monday August 07 2017, @07:44AM (6 children)
It's not utter crap at all. The US monetary base has skyrocketed out of control. This [stlouisfed.org] is a graph of the US monetary base. Under Obama the US monetary base more than quadrupled in quantity. This is a value that for the majority of our nation's lifeline has seen linear growth in value - suddenly in 8 years multipled 400%. The Fed has an interesting article [stlouisfed.org] even acknowledging the absurdity of this all.
There's a surprisingly simple reason that this does not result in absurd levels of inflation. It also explains our seemingly incomprehensible obsession with the mideast. That reason is the petro dollar. The vast majority of oil is still traded in USD. This is thanks to agreements we made going back to the 70s. We offered countries substantial support for something that seemed like nothing. We simply wanted them to trade their oil only for USD and then to use any left over currency to reinvest in US securities. What do we get out of it? Imagine we do something that would result in inflation, like increasing our monetary supply 400% injecting imaginary money to make a troubled economy look much healthier than it is. What happens? Well there is of course some inflation that occurs. What this means is that instead of 10 units of USD for 1 unit of oil, other countries suddenly need let's say 12 units of USD.
These other countries are obligated to obtain more USD. That USD is then spent buying oil. The excess USD (after said oil producing nation purchases whatever they need) is then invested into US securities. The net result of this is that massive amounts of USD is taken out of circulation. And, like magic, the inflation begins to disappear. With less USD in circulation we begin to experience deflation. What do places like Syria, Iraq, Iran, and Libya have in common? They were/are all oil producing countries that the US has tried or succeeded in overthrowing. But why? We're BFF with Saudi Arabia. The reason is that these countries were seeking to start selling their oil in currencies other than the USD.
The petro dollar is of course dying. Russia and China happily trade their oil in currencies outside the USD and have even setup arrangements with a number of countries including Iraq, Iran, Qatar, and others to purchase oil in currencies aside from the USD. But like a caged animal we're nonetheless lashing out to try to keep holding onto it for as long as possible. As an aside this also goes a long ways towards explaining our reluctance to migrate towards renewable energy sources. Have you ever wondered why we are building a pipeline to transit oil, primarily Canadian oil sands derived oil - that is already so close to margin that it was recently selling at a loss? We need to keep oil producing up high to keep the prices low. This is why even nations are like Saudi Arabia are okay with us going insane on oil production. Without low oil prices, oil dies. Saudi Arabia has the world's largest oil reserves, but even there it's only expected to last for 90 years at current production rates. If it they were left to unilaterally flood the market - you could cut that down to a fraction. And the House of Saud has been around and in power since 1744 - 90 years seems like a very long time to an individual, but for a monarchy planning their reign - it's just around the corner.
Anyhow, there are entire books written on this topic - but I think this at least gives a succinct overview of some of the major issues.
(Score: 1, Insightful) by Anonymous Coward on Monday August 07 2017, @11:49AM
The inflation doesn't disappear. It is shared with/exported to those other countries.
Whenever the US Gov creates US dollars it makes the dollar worth less. So the countries around the world who buy/hold huge amounts of dollars (to buy oil, CPUs, grain, milk etc) or are owed huge amounts in dollars, become poorer.
Now if the US Gov gives some of the created dollars to the US citizens, directly or by building useful stuff for them (interstate highways etc), then the US citizens benefit. But if they just only go to a favored few then the US citizens don't. The petrodollar is good for the US people as long as the US Gov is actually helping them.
Why the creation of billions only makes the US dollar worth less but not worthless is because there are actually huge amounts of US dollars: http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization/ [visualcapitalist.com]
(Score: 1) by khallow on Monday August 07 2017, @12:24PM (3 children)
And yet no inflation. That indicates this particular measure of the monetary base is not relevant to the discussion. Remember the usual model of inflation is that its due to both the size of the money supply and the velocity of the money. If you create a bunch of money that doesn't go anywhere, then you're not contributing to inflation.
(Score: 3, Insightful) by TheRaven on Monday August 07 2017, @03:47PM (2 children)
Huh? CPI is 2.6%, RPI is 3.5%. I don't live in the USA, but a quick skim online showed that it's nontrivial to find a short-term savings account with more than 1% interest, so money stored in such an account is still losing value in real terms over time.
sudo mod me up
(Score: 0) by Anonymous Coward on Monday August 07 2017, @03:55PM
Absolutely, it's more or less the norm for banks to pay .1% up to .7% specifically because the Federal Reserve keeps the interbank carry rates so low. If you want more than that, you're stuck with some sort of bonds that don't allow you to access the money as conveniently.
I personally recommend that people only keep the money in the bank that they need to pay their debts for the coming month. Emergency funds just need to be accessible in time to pay the credit card bill, if you've got one. So, you can keep them in US gov I Bonds or TIPS depending upon how much you've got. If you split the total you can arrange to have one of the bonds expiring regularly enough that you pay minimal penalties for accessing it, but are still protected against the worst inflation.
If those go tits up, you're basically fucked anyways.
(Score: 1) by khallow on Monday August 07 2017, @08:53PM
Yes, I was too black and white with my "no inflation" observation. But it's still extremely low inflation given the claimed factor of five increase in the supply of money. The basic model would have inflation proportional to the increase of the money supply. So a factor of five increase in money supply, all else being equal, would be a factor of five decline in the value of that money. I don't see the petrol trade soaking up that much money (and given that the increase actually happened, it didn't soak it up).
(Score: 0) by Anonymous Coward on Monday August 07 2017, @04:00PM
It's crap, that date is rather clear that the gold standard is allegedly the thing that caused this. I don't like Nixon, he's one of my least favorite Presidents, but this was the right thing to do. Even before we went off the standard, we were inflating our way out of debt, where do you think the WWII debt went?
Anyways, at the rate the US economy has grown over the last 70 years, we would have hit a point where deflation was completely inevitable because we couldn't mine gold fast enough to back the dollars. And, quite frankly, the only way that a standard like that works is if you peg the value of gold to a specific value and restrict what people can do with gold.
The reason we've had issues isn't that being a fiat currency is bad, it's because we've had incompetent people running the federal reserve for decades. Purposefully creating inflation is only marginally better than purposefully creating deflation. You don't want there to be an expectation about inflation and deflation into the future. Over the long run, more money should be printed at roughly the rate of the rate of economic activity. Or, perhaps even removed from circulation if the country is in a deflationary period.
The reason for that is that money is not supposed to change value significantly over the long term. That fucks over people who have no money and forces people into investments they don't understand.
(Score: 3, Interesting) by ledow on Monday August 07 2017, @08:06AM
Like all businesses...
You may be a creditor but unless you represent a substantial portion of their income, your money is forfeit to pay off the bigger debts. It's as simple as that.
Now, UK banks have government-backed guarantees up to a certain amount, but in terms of being a creditor in administration terms? Yeah, forget it.
Same if you buy a product (say, a Christmas hamper as one famous example from the UK) from a company that goes bust? Yeah, your money, and the sale of what should be your goods, goes to pay those larger debts (i.e. the suppliers) rather than you. You might see a token payment but that's about it.
Which is one of the reasons that you really should go to jail if your business is put into administration owing those kinds of monies.
(Score: 0) by Anonymous Coward on Monday August 07 2017, @11:48AM
It's not real money, it's just PAPER! PAPER, I tell you!
Buy GOLD COINS, the true money of ancient Rome and the Pirates of the Caribbean. I buried mine in a treasure chest in the yard.
(Score: 3, Insightful) by mmcmonster on Monday August 07 2017, @01:29PM (6 children)
So the U.S. dollar had defaulted about the time I was born and I should worry about it now? No thanks.
I'll keep my U.S. dollars in FDIC insured banks (up to $200k per account, unlimited number of accounts) for the little U.S. dollars I have.
The rest I'll invest in low-expense ratio total stock market (TSM) and total bond market (TBM) index funds for long term insurance against inflation (TSM) and market fluctuations (TBM).
As for Europe, the Euro has existed since 2002. While it's future is a bit less certain than the U.S. Dollar, I would certainly say it's got a stronger future than any particular virtual currency (ie: BitCoin).
If you feel otherwise, go ahead and move your money. No skin off my nose. :-)
(Score: 0) by Anonymous Coward on Monday August 07 2017, @04:04PM (4 children)
The US hasn't defaulted on a debt in centuries, if ever. That date refers to when Nixon took the US off the gold standard. The OP is ignorant if he thinks that. It was an unavoidable decision. If NIxon hadn't done it, then Carter, Reagan, Bush, Clinton, Bush, Obama or Trump would have done it. The economy has grown through most of the last 20th century at a rate so fast that we couldn't mine gold quickly enough to keep up. The resulting deflation would have killed what was left of the economy.
The real issue is that the people who are supposed to be monitoring the situation bought into the flavor aid that inflation is healthy in the long term. Which is bogus, in the long term you want there to be roughly no inflation or deflation. Having inflation forces small investors into the market and makes a lot of normally unattractive investments the only place that larger investors can park their money without it losing value.
(Score: 0) by Anonymous Coward on Monday August 07 2017, @04:35PM (2 children)
Everyone, pls ignore parent poster.
Deflation is associated with a contracting economy.
Economists target a small (few percent per annum) rate of inflation as the goal. Inflation means the money supply is growing, and people are using that money in economic activity (economic growth). It's the same reason we went off the gold standard: as parent poster said, relatively fixed money supply (gold, in this case) was restraining economic growth.
(Score: 1) by khallow on Monday August 07 2017, @09:01PM
Except when it's not, of course. The "parent poster" got that right.
No, it just means that money is losing value over time. And economic activity != economic growth.
Via deflation and illiquidity.
(Score: 0) by Anonymous Coward on Monday August 07 2017, @10:14PM
That's not true inflation and deflation are the result in changes in economic activity compared with changes in the supply of money. If the US stopped printing money and just removed it from circulation when the bills became damaged, you'd have deflation whether or not the economy was doing poorly.
Likewise, inflation is created on purpose by printing more money than is necessary for use in the economy. The increase in supply depresses the value as there's more of it to circulate.
As far as the association of deflation and a failing economy, there's a very good reason for that. It's a lot easier to print more money than it is to take money back out of circulation. If you've got a contracting economy, it can be a challenge to get that money back, so there's a tendency to see deflation there.
But, the Great Recession was mostly caused by the practice of guaranteeing that inflation was a constant and that the interest rates were below the rate of inflation. The result was that anybody who didn't have the money necessary to buy stocks was losing money on a continual basis to inflation that was purposefully kept artificially high without being permitted to correct via a short period of deflation.
None of this is particularly new thinking, but the fact that people out there honestly believe that deflation is bad and inflation is good is rather mind blowing. You don't want prolonged periods of inflation or deflation as that affects how people manage their money. Have deflation and people don't want to buy anything because they know they're money will be worth more in the future. Have inflation and people don't want to save anything because they know that the savings will be lost to inflation.
Competent money managers would shoot for a point roughly at zero where there's negligible inflation or deflation over the long term.
(Score: 2) by isostatic on Monday August 07 2017, @06:56PM
Nixon was clearly a commie. Probably got infected when he went to China.
(Score: 2) by linkdude64 on Monday August 07 2017, @06:10PM
Fellow Boglehead?