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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: 3, Offtopic) by The Mighty Buzzard on Saturday February 21 2015, @12:52PM

    Entirely founded on a mistaken premise though. Capitalism is not what caused Europe's, and Greece in particular's, woes. Socialism is. Doubt me? Show me one, any single one, nation throughout the entire history of the world that has had a socialist system (it need not be called such, just work by those means) for 100 years and prospered under it. For a contrary example, every single example of long term growth throughout history had capitalism at its core.

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  • (Score: 1, Interesting) by Anonymous Coward on Saturday February 21 2015, @03:14PM

    by Anonymous Coward on Saturday February 21 2015, @03:14PM (#147775)

    had capitalism at its core

    I'm pretty sure every single example of long term growth had war at it's core.

    • (Score: 3, Interesting) by The Mighty Buzzard on Saturday February 21 2015, @03:28PM

      Yeah, no. I'll give you a chance to rethink that before I rip into it though. War has been with us all throughout history but it does not drive sustained economic growth, it can only temporarily prop up a failing nation.

      --
      My rights don't end where your fear begins.
  • (Score: 5, Insightful) by bzipitidoo on Saturday February 21 2015, @03:23PM

    by bzipitidoo (4388) on Saturday February 21 2015, @03:23PM (#147778) Journal

    I think your diagnosis is incorrect. What do you mean by socialist? And why do you pick 100 years as the magic length of time? Europe has not had 100 years of peace since the Pax Romana.

    A particular variety of capitalism caused the woes: unbridled capitalism. (And speaking of "unbridled", editors, in this case the word you want is "rein", not "reign".) Capitalism is all about competition. But for it to work, it has to be mostly fair competition. We want it as fair as we can make it. When there are no referees, or the referees have all been bought, there's nothing to stop the powerful from taking unfair advantage. Or from engaging in damaging competition. We don't want rivals destroying each others' products or murdering the others' employees or customers. Imagine if a retail store tried to gain an advantage by blowing up a bridge just as its competitor's truck was crossing. In the month it takes to repair the bridge, the entire city suffers traffic congestion from its absence. Everyone lives a little more nervously, wondering what bridge will be blown up next. We have laws and enforcement against that kind of crap. Without that, they certainly won't restrain themselves, and may feel they have no choice but to do what everyone else can do. Ultimately, a few successful ones grow into monopolies. (The only good rival is a dead rival?) I hope no explanation is needed of why that's bad for everyone. Too big to fail, yes? Damaged us all.

    Speaking of Greece, do you understand what is really happening there? It has little to do with capitalism or socialism. It's austerity. Misguided, wrongheaded austerity. Some have ulterior motives for pushing austerity. Creditors want the debt owed to them to be more valuable, and so are opposed to inflation. Deflation is bad, but that's what they want. Rather than generate wealth, they seem bent on taking what existing wealth Greece still has.

    • (Score: 3, Informative) by The Mighty Buzzard on Saturday February 21 2015, @03:59PM

      Just an arbitrary number that's long enough to show long-term growth as opposed to the short-term prosperity that can be shown by any number of unsustainable things. Pick any number you like that fits that bill.

      Unbridled? Yes that would be bad but we haven't had anything approaching it in a long time. What we have had lately is essentially socialism. Over 60% of our spending each year goes to wealth redistribution, so very much socialism. Our corporate taxes are the highest in the developed world, so again, socialism. Collusion between enterprise and the state to stifle competition, so very much socialism as it has been practiced if not as in its ideal form. Like it or not, we have been socialists rather than capitalists since FDR's New Deal.

      --
      My rights don't end where your fear begins.
      • (Score: 2, Insightful) by Anonymous Coward on Saturday February 21 2015, @04:08PM

        by Anonymous Coward on Saturday February 21 2015, @04:08PM (#147786)

        Over 60% of our spending each year goes to wealth redistribution, so very much socialism.

        I'm pretty sure redistributing wealth from the poor to the rich (corporate subsidies) doesn't count as socialism.

        • (Score: 2) by The Mighty Buzzard on Saturday February 21 2015, @04:14PM

          Check again, slappy. That is 60% of all taxes going to the poor from the rich. Feel free to check my math. The actual percentage is 62 or 63 of what we spend and something in the neighborhood of 75% of what we actually take in in taxes.

          --
          My rights don't end where your fear begins.
          • (Score: 4, Interesting) by bzipitidoo on Saturday February 21 2015, @06:33PM

            by bzipitidoo (4388) on Saturday February 21 2015, @06:33PM (#147835) Journal

            That's the central problem with Republicans these days. Can't be bothered with facts, won't agree on what the facts are.

            The US has the highest corporate tax rate in the world, you say? Nominally, perhaps. In reality, no. Corporations get so many tax breaks that the effective tax rate is one of the lowest in the world. They pay a max of 35% before tax breaks. What they really pay, after tax breaks, is 12.1%. A few corporations have sometimes managed a negative tax rate, taking in more money in subsidies than they pay out in taxes.

            One argument I've heard is that the rich pay more than their fair share in income tax. The poor pay practically no income tax It's a disingenuous argument. The key word is "income". Before anyone starts muttering about mooching and the 47%, look at all taxes paid, most especially sales tax, not just income tax.

            Those wealth redistribution numbers are also cooked.

            However, I would prefer to approach the inequality problem from the other end. Middle class wages have been stagnant since the 1970s. Meanwhile, executives receive absurd levels of compensation. What can be done about this? Strengthen the board's desire and ability to say no to golden parachutes for one thing. Prosecute and imprison the perpetrators of the fraud that caused the financial collapse in 2008. Why has this not been done? There are many other little steps that can and should be taken to level the playing field.

            • (Score: 3, Disagree) by The Mighty Buzzard on Saturday February 21 2015, @07:16PM

              Why would you assume I'm a Republican? I've nothing but disdain for their anti-capitalist and oppressive goals the same as I have nothing but disdain for the anti-capitalistic and oppressive goals of the Democrats. Both parties are misguided at best and scum at worst, the Democrats are just somewhat worse in my opinion for their socialist leanings. Corruption is preferable to insanity.

              However, I would prefer to approach the inequality problem from the other end. Middle class wages have been stagnant since the 1970s.

              A) Inequality is only a problem if you are covetous. I prefer to only feel entitled to what I have earned.
              B) Bullshit. There is no sane math that bears that out.

              Meanwhile, executives receive absurd levels of compensation. What can be done about this? Strengthen the board's desire and ability to say no to golden parachutes for one thing. Prosecute and imprison the perpetrators of the fraud that caused the financial collapse in 2008. Why has this not been done? There are many other little steps that can and should be taken to level the playing field.

              Personally, I see those as problems as well but in the case of executive compensation that is the business of the board and the investors, not mine. If they want to throw insane amounts of money at someone undeserving, let them and let them fall because of it. As for the rest, I'm right there with you.

              Except for the playing field. When you feel the universe doesn't give two shits about you, smile; that's it being utterly fair.

              Those wealth redistribution numbers are also cooked.

              Bullshit. That is basic, first grade math to tally up yourself, which is exactly what I did. Check the federal budget [usgovernmentspending.com] yourself if you don't believe me. Healthcare: 27%, Age and Disability Pensions: 26%, Welfare: 10%. 27%+26%+10%=63% of spending. I even left out education which is very much "progressive" in its taxation form because it's debatable.

              --
              My rights don't end where your fear begins.
      • (Score: 1) by speederaser on Sunday February 22 2015, @01:32AM

        by speederaser (4049) on Sunday February 22 2015, @01:32AM (#147948)

        What we have had lately is essentially socialism

        Lately? How old are you? Social Security [wikipedia.org] has been around since 1935. Besides, a social safety net is not "socialism". "Socialism [wikipedia.org] is a social and economic system characterised by social ownership of the means of production...".

        Our corporate taxes are the highest in the developed world, so again, socialism.

        Our corporate tax rates [taxpolicycenter.org] are at about the lowest they've been since the 1940's. As others have pointed out, the effective rate is dramatically lower, less than 15%. Go back and read the Wikipedia article on socialism - corporate tax rates have nothing to do with whether a country is socialist or not.