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posted by janrinok on Saturday February 21 2015, @08:30AM   Printer-friendly
from the what-me-worry? dept.

Some time ago we discussed negative interest rates here on Soylent News. At that time there was some discussion of deflation and why it is such a mixed bag for consumers, companies, and countries.

The Economist has an article that explains deflation rather succinctly.

It turns out that deflation is bad because we are all so burdened with Debt. Not only personal debt, but corporate debt, and national debts. You end up paying debts with money that is more and more dear as time goes on.

Deflation poses several risks, some well-understood, one not. One familiar danger is that consumers will put off spending in the expectation that things will get even cheaper, further muting demand. Likewise, if prices fall across an economy but wages do not, then firms’ margins will be squeezed and employment will stagnate or decline. (Neither of these dangers is yet visible; indeed, America and Britain are seeing strong employment growth.) A third, well-known risk is debt deflation: debts become more onerous because the amount that is owed does not fall, even as earnings do. This is a big worry in the euro zone, where many banks are already stuffed with dud loans.

But in addition, all tools of Monetary Policy become useless.

The least-understood danger is also the most serious, because it is already here. Deflation makes it harder to loosen monetary policy. All of which means that policymakers risk having precious little room for manoeuvre when the next recession hits.

While some have been eager to see monetary policy reigned in, we did see the effects of this during the height of the recent depression, (which some claim we are still suffering from).

The US Federal Reserve had run out points it could cut when lending money to large banks. There were periods in 2010 where the Fed was lending money to banks at Zero Interest Rate. The link explains a number of serious risks with this policy.

 
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  • (Score: 5, Insightful) by c0lo on Saturday February 21 2015, @12:52PM

    by c0lo (156) on Saturday February 21 2015, @12:52PM (#147749) Journal

    The difference here is under capitalism, the more you contribute to society the more you have.

    Oh, fuck off, don't regurgitate the stupidity you've been fed with; digest and shit it the way nature intended when it gave you a brain. How much that HFT is contributing to society? What about these banksters too big to fail?
    If this was true, the middle class in US would still be strong instead of being almost extinct.

    --
    https://www.youtube.com/watch?v=aoFiw2jMy-0
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  • (Score: 2, Troll) by The Mighty Buzzard on Saturday February 21 2015, @12:58PM

    That you dislike the fringe cases where a few game the system is your problem. It harms you not at all, it is simple envy on your part that you don't get to do the same.

    As for the middle class, what makes you think the US has anything like capitalism? We are second place in spending on social programs as a percent of GDP on the entire planet. We routinely sell favors and protection to businesses specifically so they will not have to compete. That is not capitalism.

    --
    My rights don't end where your fear begins.
    • (Score: 5, Informative) by c0lo on Saturday February 21 2015, @01:26PM

      by c0lo (156) on Saturday February 21 2015, @01:26PM (#147755) Journal

      That you dislike the fringe cases where a few game the system is your problem.

      Fringe cases you say... too bad those fringe cases control the entire American society: if they get in trouble, the society must jump through hoops to save their ass and take a hit on their pocket; if they make profits, tax avoidance is a moral duty, n'est pas?

      As for the middle class, what makes you think the US has anything like capitalism?

      Yeah, I know... true Scotsman and all that. By this measure, neither USSR had anything like communism.
      If you truly want to go this way, I'll say that both pure communism and pure capitalism are both utopia that won't ever function in their pure form. So, stop whinging, get over it: we are going to live this life the way it falls on us, forget the angelic purity of social philosophies.

      We are second place in spending on social programs as a percent of GDP on the entire planet.

      Really now... are you? I'm afraid 2014 stats show US on 25th place (of 34 considered) expenditure in social and welfare as percent of GDP [oecd.org].

      --
      https://www.youtube.com/watch?v=aoFiw2jMy-0
      • (Score: 4, Informative) by The Mighty Buzzard on Saturday February 21 2015, @01:33PM

        Fringe cases you say... too bad those fringe cases control the entire American society: if they get in trouble, the society must jump through hoops to save their ass and take a hit on their pocket; if they make profits, tax avoidance is a moral duty, n'est pas?

        Hell no we don't have to, and absolutely shouldn't. Failure is an essential part of the capitalism I would like to see us living under again.

        true Scotsman and all that.

        True Scotsman my ass. Again, we are second in the world [theregister.co.uk] in social spending as a percent of GDP, first if you want to go straight dollars. We have all the corruption and protection the former soviets had as well. Face it, we are socialist and that is precisely why we are failing.

        --
        My rights don't end where your fear begins.
        • (Score: 4, Insightful) by c0lo on Saturday February 21 2015, @02:10PM

          by c0lo (156) on Saturday February 21 2015, @02:10PM (#147764) Journal

          Hell no we don't have to, and absolutely shouldn't. Failure is an essential part of the capitalism I would like to see us living under again.

          Not going to happen. The pure capitalism as you'd like it would have absolute respect for private property. That's both pure capitalism and communism problem: both of them can't coexist with appropriation by force or cheating. For the time being, humanity is too close to apes, so you'll have theft and you'll have wars, you'll need both police and army. Which... require the socialization of cost, someone/something that will need to manage it, thus have power over it, something which in time will be corrupted by this power.
          You get it now why pure capitalism is as utopian as pure communism?

          --
          https://www.youtube.com/watch?v=aoFiw2jMy-0
          • (Score: 2) by The Mighty Buzzard on Saturday February 21 2015, @02:26PM

            I never said pure. I'd settle for something resembling capitalism in a good light. What we currently have resembles the former Soviet Union more closely than the US when it could pass for capitalistic though.

            --
            My rights don't end where your fear begins.
            • (Score: 3, Interesting) by c0lo on Saturday February 21 2015, @03:05PM

              by c0lo (156) on Saturday February 21 2015, @03:05PM (#147772) Journal

              I'd settle for something resembling capitalism in a good light.

              Where do you draw the line between the good and the bad light? (you know, you'll need that line, just to make sure you aren't chasing an utopia)

              the US when it could pass for capitalistic

              When was that? (it also depends on the position of that line I mentioned above)
              I remember stories (maybe for you is history, for me not being American is just-story; as such I may not know/remember it well enough, my apologies) - with the choice of republic and representative democracy motivated by the avoidance of the "mob rule". Do I remember correctly? If so, just from the beginning as a nation, you had the idea of "the elite know better than the mob" Even if that "elite" can be theoretically changed over time, practically, you reached a political duopoly (vague traces of competition, in spite of the appearances); who exactly makes it up to the "elite" level doesn't matter, the respect for the rights/individual citizens is all time low (NSA, militarized police, etc) no matter who's winning the election

              What do you expect in regards with the individual property when the respect for the citizens is low?

              --
              https://www.youtube.com/watch?v=aoFiw2jMy-0
              • (Score: 2) by The Mighty Buzzard on Saturday February 21 2015, @03:34PM

                Right about where we were after Teddy Roosevelt did his trust busting, personally. You'd probably think I'd be opposed to that but no, trusts lead to a lack of competition and competition is absolutely required for capitalism to thrive. Teddy, I dug. Franklin, not so much. His New Deal was pure, unvarnished socialism.

                --
                My rights don't end where your fear begins.
                • (Score: 0) by Anonymous Coward on Monday February 23 2015, @07:54AM

                  by Anonymous Coward on Monday February 23 2015, @07:54AM (#148337)

                  Teddy, I dug. Franklin, not so much. His New Deal was pure, unvarnished socialism.

                  So, by your own standard, a majority of US people wanted to stablish socialism in the USA. How's that 'democracy' thing you say you have going on?

        • (Score: 4, Informative) by shortscreen on Saturday February 21 2015, @07:27PM

          by shortscreen (2252) on Saturday February 21 2015, @07:27PM (#147860) Journal

          In the article you linked they are counting private insurance as social spending. By that logic I'm surprised they didn't count the entire military as well, then we would be the undisputed king of social spending (a.k.a. corporate welfare)

    • (Score: 3, Insightful) by Anonymous Coward on Saturday February 21 2015, @04:12PM

      by Anonymous Coward on Saturday February 21 2015, @04:12PM (#147788)

      That is not capitalism.

      Crony capitalism is still capitalism, and its the only form of capitalism that exists in the real world. Claiming otherwise is stating that capitalism is more of a religion for you than anything, believing dogma and putting faith over of facts.

    • (Score: 3, Insightful) by Fauxlosopher on Saturday February 21 2015, @08:31PM

      by Fauxlosopher (4804) on Saturday February 21 2015, @08:31PM (#147881) Journal

      It is broadly illegal to place into the market an order that one does not intend to execute

      HFT involves fraud and frontrunning. Fraud, because orders are placed into the system that the owner does not intend to execute. Front-running, because HFT outfits spend a fortune to set their gear physically closer to exchanges' computers so their money-making orders can beat traditionally-placed orders to the punch to take advantage of the price information sussed out by their fraudulent bulk "trades".

      Markets are a zero-sum game. For every winner, there is a loser. The money HFT outfits are raking in is coming out of someone else's pocket. Do you have a 401k account? Perhaps your parents have a pension? Those are the people who are losing to HFTs' winnings.

      More commentary by someone heavily involved on this topic for years: http://www.financialsense.com/contributors/karl-denninger/hft-still-dancing-around-the-issue [financialsense.com]

      • (Score: 1) by khallow on Sunday February 22 2015, @02:06PM

        by khallow (3766) Subscriber Badge on Sunday February 22 2015, @02:06PM (#148085) Journal

        HFT involves fraud and frontrunning.

        Actually, no it doesn't. It involves high frequency trading, hence the name.

        Fraud, because orders are placed into the system that the owner does not intend to execute.

        But the owner will honor those orders, if they do execute. So not fraud. If a greasy spoon has a challenge that they'll give you a 96 ounce steak for free, if you eat it all, they expect most such people will not be able to finish the challenge. That doesn't mean the challenge is fraudulent as long as they do provide the meal for free in the rare cases where someone does complete the conditions of the challenge.

        Front-running, because HFT outfits spend a fortune to set their gear physically closer to exchanges' computers so their money-making orders can beat traditionally-placed orders to the punch to take advantage of the price information sussed out by their fraudulent bulk "trades".

        Merely being first to take advantage of new information, knowledge of the market, or of traders on the market is not front running. It has a specific meaning [wikipedia.org].

        Front running is the illegal practice of a stockbroker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers.

        Markets are a zero-sum game. For every winner, there is a loser. The money HFT outfits are raking in is coming out of someone else's pocket. Do you have a 401k account? Perhaps your parents have a pension? Those are the people who are losing to HFTs' winnings.

        Markets are by their nature a positive-sum game. Every trade is or was willingly agreed to by the participants. Even forced trades are due to contracts that the trader agreed to earlier.

        If your pension or 401k account is losing measurable money to HFT then they're trading wrong. It's too bad you can't tell from looking at the prospectus that your fund managers have such problems, but that's not the fault of HFT.

  • (Score: 3, Insightful) by Justin Case on Saturday February 21 2015, @01:04PM

    by Justin Case (4239) on Saturday February 21 2015, @01:04PM (#147754) Journal

    > What about these banksters too big to fail?

    Not capitalism. Government intervention, the exact thing free market people despise. The banksters absolutely should have failed, and failed so hard the pain would reverberate for a century and nobody would ever come close to considering such a stupid stunt again.

    Instead what we got is the taxpayer-backed guarantee that "you gamble, you win, you keep; you lose, everyone else pays". So of course they're going to keep gambling.

    • (Score: 3, Insightful) by c0lo on Saturday February 21 2015, @01:28PM

      by c0lo (156) on Saturday February 21 2015, @01:28PM (#147756) Journal

      Not capitalism.

      You'll never get a pure capitalism, the same way you'll never get a pure communism.

      --
      https://www.youtube.com/watch?v=aoFiw2jMy-0
      • (Score: 3, Insightful) by Justin Case on Saturday February 21 2015, @01:43PM

        by Justin Case (4239) on Saturday February 21 2015, @01:43PM (#147760) Journal

        >> (big bailouts) Not capitalism.
        > You'll never get a pure capitalism

        Well that's kinda like saying murder is not pure pacifism. Indeed, it is the polar opposite. Huge government bailouts -- huge government anything -- is what we've been fighting so hard against since forever. But the socialists in whatever-today's-disguise-is think central control can still work if we can only find an honest controller. How's that search coming along BTW?

      • (Score: 1) by khallow on Saturday February 21 2015, @09:04PM

        by khallow (3766) Subscriber Badge on Saturday February 21 2015, @09:04PM (#147892) Journal

        You'll never get a pure capitalism

        Enlighten us on why using public funds to socialize risk is anywhere near pure capitalism.

        • (Score: 2) by c0lo on Saturday February 21 2015, @10:20PM

          by c0lo (156) on Saturday February 21 2015, @10:20PM (#147909) Journal

          Enlighten us on why using public funds to socialize risk is anywhere near pure capitalism.

          ??? Please rephrase ('cause I can't remember to have said that "using public funds to socialize risk is anywhere near pure capitalism").

          --
          https://www.youtube.com/watch?v=aoFiw2jMy-0
          • (Score: 1) by khallow on Sunday February 22 2015, @07:02AM

            by khallow (3766) Subscriber Badge on Sunday February 22 2015, @07:02AM (#148013) Journal
            Here's the full chain:

            [c0lo]What about these banksters too big to fail?

            [Justin Case]Not capitalism.

            [c0lo]You'll never get a pure capitalism, the same way you'll never get a pure communism.

            [khallow]Enlighten us on why using public funds to socialize risk is anywhere near pure capitalism.

            "Too big to fail" means using public funds to bail out banks when they take really bad risks and fail. That's not even remotely close to pure capitalism.

            • (Score: 2) by c0lo on Sunday February 22 2015, @07:27AM

              by c0lo (156) on Sunday February 22 2015, @07:27AM (#148018) Journal

              I didn't say it's pure capitalism. I only underlined that it happened in a country which proud itself to be closest to capitalism (certainly closer than the "socialist Europe" or Australia).
              If this was possible, it means even the most capitalistic country doesn't run a pure capitalism, an evidence that supports the idea that pure capitalism is an utopia (thus we better get use with the idea and play the best we can the cards dealt to us by life).

              Elsewhere [soylentnews.org], my argumentation on why pure capitalism is as utopic as communism.

              --
              https://www.youtube.com/watch?v=aoFiw2jMy-0
              • (Score: 1) by khallow on Sunday February 22 2015, @02:52PM

                by khallow (3766) Subscriber Badge on Sunday February 22 2015, @02:52PM (#148097) Journal

                I didn't say it's pure capitalism.

                You implied the US economic system was close. Now, you merely say it is "closest". One does not merely bring up "pure capitalism".

                If this was possible, it means even the most capitalistic country doesn't run a pure capitalism, an evidence that supports the idea that pure capitalism is an utopia (thus we better get use with the idea and play the best we can the cards dealt to us by life).

                If anyone paid attention to evidence or reason at the nation level, we wouldn't have too big to fail either through socialist fixes such as higher reserve requirements (which I understand is a thing Australia did) or through capitalist fixes such as let them burn (which was part of the Iceland solution).

                Elsewhere, my argumentation on why pure capitalism is as utopic as communism.

                Socialization of some costs does not preclude private ownership of capital. Socialization of risk is the problem here and that is just not a capitalist feature.

                And make arguments not argumentations! The fluffy baby seals will thank you.

                • (Score: 2) by c0lo on Sunday February 22 2015, @09:43PM

                  by c0lo (156) on Sunday February 22 2015, @09:43PM (#148222) Journal

                  Elsewhere, my argumentation on why pure capitalism is as utopic as communism.

                  Socialization of some costs does not preclude private ownership of capital. Socialization of risk is the problem here and that is just not a capitalist feature.

                  Not being a native English speaker, I want to be sure I got you right in regards with "just not a capitalist feature" ("just not" vs "not just") what exactly do you mean:

                  1. "just not" - not admissible in capitalism (i.e. incompatible with capitalism)
                  2. "not just" - not specific to capitalism but not in (full) contradiction with capitalism either (i.e. socialization of - at least some types of - risks may be allowed in capitalism)

                  If 2, then I rest my case: socialization of some risks is allowed by capitalism and my argument flows as linked in my prev post.

                  If 1, does capitalism preclude the existence of an army as a countermeasure against the risk of attack by force?
                  If positive (the army existence is allowed), since socialization of risk is not allowed, should there be a private army (or many armies)?

                  (thanks for the correction in argument/argumentation. The French language - from whom argument/argumentation was borrowed - have the "chain of arguments" as a valid meaning for the "argumentation"; I see English admits only the "act or process" meaning, not also the result of it)

                  --
                  https://www.youtube.com/watch?v=aoFiw2jMy-0
                  • (Score: 1) by khallow on Monday February 23 2015, @08:56AM

                    by khallow (3766) Subscriber Badge on Monday February 23 2015, @08:56AM (#148343) Journal
                    I meant meaning 1. Sure, group-based assumption of risk, such as can be found in some sorts of escrow-based insurance (post a bond with a reliable third party against a certain harmful event happening) or charities, can be present in capitalism. But notice I did not specify the type of risk that was being so distributed. Distributing arbitrary risk to others via government or public policy mechanisms merely because you are particularly large, valuable, and/or politically connected is not capitalist.
                    • (Score: 2) by c0lo on Monday February 23 2015, @10:25AM

                      by c0lo (156) on Monday February 23 2015, @10:25AM (#148355) Journal

                      Sure, group-based assumption of risk, such as can be found in some sorts of escrow-based insurance (post a bond with a reliable third party against a certain harmful event happening) or charities, can be present in capitalism. But notice I did not specify the type of risk that was being so distributed.

                      Actually, I did specify the type of risk: force/military attack by a factor external to the society.
                      What strategy do you propose a capitalist society should take against this risk:

                      1. ignore it; humans are rational and war doesn't benefit anyone (the risk incidence is minimal)
                      2. ignore it: a capitalist society is so efficient no attacker can destroy or steal at the rate the goods are created (the risk impact is minimal)
                      3. socialize the cost of maintaining a collective defensive structure - army or militia+central command (reactive risk prevention)
                      4. socialize the cost of eliminating the risk factor - e.g. preemptive attacks (proactive risk prevention)
                      5. let the individuals deal themselves, is not the society job to protect them. At most, establish an insurance fund to deal with the effects of risk manifestation - insurance against the effect of war (risk mitigation)
                      6. other, please specify
                      --
                      https://www.youtube.com/watch?v=aoFiw2jMy-0
                      • (Score: 1) by khallow on Monday February 23 2015, @11:10AM

                        by khallow (3766) Subscriber Badge on Monday February 23 2015, @11:10AM (#148367) Journal

                        Actually, I did specify the type of risk: force/military attack by a factor external to the society.

                        And that has nothing to do with too big to fail, the subject of this subthread.

                        • (Score: 2) by c0lo on Monday February 23 2015, @11:20AM

                          by c0lo (156) on Monday February 23 2015, @11:20AM (#148374) Journal
                          Mmmm... I see... well, let's narrow down the topic of "risk socialization in capitalism" to "too big to fail".
                          The discussion with its plethora of arguments between the next two dots ..
                          --
                          https://www.youtube.com/watch?v=aoFiw2jMy-0
                          • (Score: 1) by khallow on Monday February 23 2015, @11:40AM

                            by khallow (3766) Subscriber Badge on Monday February 23 2015, @11:40AM (#148382) Journal
                            Ok, maybe we'll discuss this next time.