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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: 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.