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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.
(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
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?
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.
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 https://soylentnews.org/~MichaelDavidCrawford
(Score: 4, Informative) by The Mighty Buzzard on Saturday February 21 2015, @01:33PM
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 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
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 https://soylentnews.org/~MichaelDavidCrawford
(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
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)
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 https://soylentnews.org/~MichaelDavidCrawford
(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
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: 2) by The Mighty Buzzard on Monday February 23 2015, @11:53AM
Pretty poorly, thanks.
“When the people find that they can vote themselves money that will herald the end of the republic.” -- Benjamin Franklin
Prophet much, Ben?
My rights don't end where your fear begins.
(Score: 4, Informative) by shortscreen on Saturday February 21 2015, @07:27PM
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: 2) by The Mighty Buzzard on Saturday February 21 2015, @07:37PM
Doesn't matter whose pocket it goes into, it's still paid for by Joe Citizen for social welfare. That you're required to own the stuff by law does factor in there.
My rights don't end where your fear begins.
(Score: 3, Insightful) by Anonymous Coward on Saturday February 21 2015, @04:12PM
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: 2) by The Mighty Buzzard on Saturday February 21 2015, @04:21PM
Nah, crony capitalism is when corruption becomes the norm rather than the exception. That is attainable and has been practiced in this very nation for extended periods.
My rights don't end where your fear begins.
(Score: 3, Insightful) by Fauxlosopher on Saturday February 21 2015, @08:31PM
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
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.