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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, Informative) by The Mighty Buzzard on Sunday February 22 2015, @01:23AM

    You seem to be under the delusion that all work is created equal. It is not. The man who causes a factory to be built through expenditure of his own effort and stored effort(capital) has done far more for society than those who work a menial job in said factory. And he deserves recompense and even profit for his work and his risk. Any argument to the contrary is simply greed and envy, pure and simple.

    My rights don't end where your fear begins.
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  • (Score: 2) by nishi.b on Sunday February 22 2015, @04:49AM

    by nishi.b (4243) on Sunday February 22 2015, @04:49AM (#147993)

    And how is this relevant to our world where most rich people just inherited their money ? About the risk, again, you take the mythical american dream vision of the entrepeneur that while working earns enough to launch his own company and takes a personal risk if his company fails. But is that really the world we live in ? This scenario is a small part of the reality, but the idea of risk is still funny when you talk about professional investors. Who won when Goldmann Sachs was making billions ? Who lost when they lost billions ? I didn't see traders or bank executives losing their house, or being forced to live in the street. But that is what happened to the menial worker in the factory. So who is bearing the risk ?

  • (Score: 1) by K_benzoate on Sunday February 22 2015, @07:15AM

    by K_benzoate (5036) on Sunday February 22 2015, @07:15AM (#148016)

    This might be true if we reset each generation with a blank Monopoly board and distributed the funds equally before starting the game. That is not, and never has been, the reality in which we live. Even then, many people will rise and fall based purely on lucky accidents of history, and not merit. I got an immediate and unearned headstart because my parents worked hard with what they were born into. They got an immediate and unearned headstart because they were extremely lucky with the land they found themselves in possession of through no effort of their own; because their great-(...)-grand parents came here from Europe and murdered all the people who were already living there.

    Striking a balance between the brutalizing regimes of pure communism and pure capitalism should be the project of our civilization. A maximizing of human flourishing will not be found at either extreme. There are assuredly many mutually exclusive ways to succeed, but these are certainly dwarfed by the number of ways to fail. This entire human project we call society is an effort to navigate the infinitely complex landscape that lies between those poles, and at present we have drifted right of centre.

    Climate change is real and primarily caused by human activity.
    • (Score: 2) by The Mighty Buzzard on Sunday February 22 2015, @03:06PM

      Wah, wah, wah, my parents aren't rich! Poor baby. Welcome to the vast majority of people. Those parents who are rich have every right to do with their money as they please though, that includes passing their advantages on to their children, exactly the same as you are entitled to do.

      My rights don't end where your fear begins.