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

    by The Mighty Buzzard (18) Subscriber Badge <> on Saturday February 21 2015, @07:16PM (#147856) Homepage Journal

    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 [] 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.
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