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The "deflation is bad" theory is the biggest academic-sponsored fraud in history.

The Biggest Academic-Sponsored Fraud in History

Inquiring minds may be wondering "Is deflation really a problem?"

The fact of the matter is deflation is the natural state of affairs is deflation. Productivity improvements over time lead to lower prices. Attempts to prop up prices only benefits those in unions, those holding assets, and government bureaucrats who want to raise taxes.

Deflation is only perceived to be a problem because of the reckless expansion of credit that preceded it.

Look at it this way: If deflation caused a downward spiral in which everyone held off purchases expecting lower prices tomorrow, not a single computer would have been sold since 1990!

Yet, the price of computers, memory cards, wide-screen TVs, and in fact everything technological has been dropping like a rock for ages. Every day such items are bought. That would not be happening if Fed and academic theories regarding the downward spiral of deflation were remotely true.

Moreover, and as noted above, the unseen effect of the Fed's attempt to prop up wages and prices directly led to a loss of jobs to China.

The "deflation is bad" theory is the biggest academic-sponsored fraud in history.

Read more at http://globaleconomicanalysis.blogspot.com/#zmfQlBkp7RQOcvRo.99



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When deflation happens

When deflation happens because of improved technology, etc. it is obviously good. When we refer to inflation and deflation in this context, we are just talking about a change in prices due to supply and demand of goods and services.

However, monetary inflation and deflation are both bad, because they signify that the equilibrium demand for money is being over or under satisfied. Hard commodity standards like the gold standard and the proposed competing currency system are designed to have neither monetary inflation nor monetary deflation, as more gold (or whatever commodity) will be mined and provided in proportion to growth. This is not always perfect, but it's decent. Friedman proposed computerizing the money supply to match growth- once again, not perfect but decent. This is actually a pretty complicated problem. Hayek has a few in depth publication on this topic- very interesting.

If...

you let the Govt or any central authority control the money supply they will ALWAYS EVENTUALLY overcreate in order to provide favors (socialism) and to pay for war. Only the market can determine money.

The gold and silver "standard" in the Constitution binds ONLY the Govt to using gold and silver to pay its debts, not the People.

Madison's notes from the first Constitutional convention make this clear...

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~wobbles but doesn't fall down~

excellent post..

excellent post..

The Austrian School...

holds that slow deflation is good. Everybody's money slowly has more purchasing power. Excellent for savers and discourages debt/leverage which is such the rage today. Discouraging war debt is a particularly good thing. :)

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~wobbles but doesn't fall down~

Think carefully

Continuous inflation does not benefit unions. Union workers get screwed the same as unorganized workers. We know from FOMC minutes that in the 1980s the Fed specifically used the largest union contracts as a benchmark for their policies to bring prices under control. The Fed reasoned that if they could get unions to accept wage cuts the rest of the labor force would follow.

The price of computers is often cited as a reason why deflation is not necessarily a bad thing. I'm not fond of the argument.

The true definition of inflation and deflation is the increase or decrease in the supply of money. Electronics falling in price is not deflation.

The reason why computer prices fall in an inflationary environment is complex.

Part of it is better know-how, and the fact that computers assist in the creation of more computers. Circuits are no longer designed by people, they are designed by software. The more capital you have, the more capital you can create with it. This is a lot more pronounced with computers than it is with other goods.

Another part of it is off-shoring. You may have to be smart to design a computer, but you don't have to be to assemble one. Most computers used to be built in the US, now most of them are built by low wage workers elsewhere. This is reflected in the prices we pay. Notice that the prices of nearly all durable goods have been pretty stable. That's why.

Yet another factor is the nature of the design and manufacturing process. Processors, memory, TVs, and all the rest of it have very high up front design and setup costs. Once the factory is up and running to produce a given design it only makes sense to run with it as long as possible, lowering the price as you or your competitors bring better designs to market.

And finally, there's the massive subsidies from government. The computer itself was actually invented by government. If you do not know the story of Alan Turning, it's interesting and worth learning about. After WWII, the first buyers of computers were governments. After all, big government had big data to process, such as census data. When you combine that with my previous point about cost structure it's easy to see how the demand for computers by governments has driven and continues to drive advances in the field.

A better argument is that even if food prices trend down people will still buy food.

We know that Keynesian economists fear deflation because the existing monetary regime is based on debt. If more money isn't constantly injected into the economy to pay interest on existing debt then the entire system would quickly collapse and people would find a new medium of exchange. But they don't want to talk about that, so they make up other nonsense arguments.

Good essay on Deflation.

Anything that hurts the bankers always gets bad press.

"We have allowed our nation to be over-taxed, over-regulated, and overrun by bureaucrats. The founders would be ashamed of us for what we are putting up with."
-Ron Paul

Actually

parroting without understanding is lame. The first sentence allegation is baseless. The link provided is dubious.

Free-market capitalism society is not Utopia (sorry, parrots.) It is not a perfect, problem-free economy or society in general. The amount of unhappiness will be the same or greater. But it would generate much more actual wealth and comfort for each citizen in comparison, on average. And it would have distinct qualities (not everyone appreciates): free, rational and coldly-godlessly -emotionlessly-selfishly-rationally just.

Mises simply stated that deflation, while a problem, is of lesser magnitude than inflation. Monetarists, however, understood the problem in more detail. Deflation reduces not only the cost of products, but wages of workers and dollar/gold-wise corporate profits (although value will be the same.) That will make harder for business and individuals to plan and repay any loans (money becomes expensive + interest on original borrowed money, while future profit/salaries go down).

Always use YOUR mind. Ayn Rand would put our parrots into her "parasite" category.

Inflation vs Deflation: Stretch to fit. Humbug!

Tripe vs Carp. Humbug! Stretch to fit? Tis but a lie either way.

We have men create what they purport to be a monetary system w/o any money in it. Monopoly-money. They granted themselves the privilege to print what we are told to take at face value as a US Dollar. But it is a bank note... A Federal Reserve note. "Legal Tender."

Federal Reserve Act Public—No. 43—63d Congress.] H.R. 7837. Opening line. Elastic casting? A staged event without a stage?

Let me repeat it for emphasis.
Federal Reserve Act Public—No. 43—63d Congress.] H.R. 7837. Opening line.

Let me type it out for emphasis.

    Opening line. "An Act To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes."

December 23, 1913. The eve before Christmas Eve. Thus begins the act to eviscerate United States Banking. Money of the United States has left this supposed "Reserve System" decades ago. It is a hollow promissory note system. Vacuous & void. An ”elastic currency” is a measure of what? Make-believe?

  • Elastic ruler to measure a ruler?
  • Elastic yardstick to measure a yard?
  • Elastic "legal tender" to measure any dang fool thing?

Measure of the 1913 Federal Reserve Act first sentence cast upon this land an elastic currency. Monopoly-money! Stretch to fit. At what cost?

Why is "legal tender" debt? Why do we pretend it is money?
Our nation's money is Constitutionally a metal measure specified by weight & purity. There are many rational & reasonable ways to measure wealth & produce money to he used in trade. We don't need legal fiction. We don't need an elastic measure of value nor worth.

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

Inflation and Deflation are neither good nor bad

It depends on why they are occurring.
The scam the Federal government repeats the mantra that like taxes inflation is inevitable.
Neither are true other than as a result of intentional government policies.
Deflation is always bad for government as they have to stop borrowing and spending, that is why they actually try and convince us inflation is good for the economy.

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Deflation...

is good for savers.... bad for those who hold long term debts.

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~wobbles but doesn't fall down~

Long term, however....

....no change is best for everyone and would increase prosperity more than either, including for savers.

The bestest...

is to leave it up to the market. :p

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~wobbles but doesn't fall down~

bump

For deflation and increase demand

donvino

The article is calling

The article is calling deflation as the constant decrease of prices in the economy. The same way people wrongfully use the term inflation when it comes to raising prices. That's the good kind of "deflation", and should always be allowed to run its course, usually happens when the market is adjusting prices after a boom correcting a inflated market, when demand drops, or when new technology arrives making supply cheaper.

But the term deflation, rightfully used by the Austrians, as the decrease on the supply of money, it is just as bad as inflation (increase in the supply of money). Raising or falling prices is the expected consequence of that. Deflation or inflation distort real prices.

"When the people find that they can vote themselves money, that will herald the end of the republic." Ben Franklin

Inflation/deflation...

used to only mean the volume of money. They redefined it to price levels to obscure the printing of fake fiat money as the real problem. :p

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~wobbles but doesn't fall down~

you are correct-both will happen in any market

what is damaging is the fed or other central bank trying to manipulate the money supply and credit that distorts the market and creates further imbalances

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Hate to be a downer,

but to say deflation is always good, is bad economics. The consequences of serious deflation are just as catastrophic as serious inflation. Its just looks different.

Contrary to the too-popular gold bug, 'nothing is money but gold' belief in this movement, we are experiencing deflation right now. Yes, I said that.

There's a weird reality of both inflation AND deflation happening right now. The currency is being inflated, yes, but we the people are experiencing deflation because the crazy amounts of money are staying at the top and over sees. It is benefiting the elite, not us. There is a shortage of money in our population which is causing the economic issues we have now -- shortage of jobs, etc. Don't believe me? Look into the costs except for the main commodities (which they engineer). How much better and cheaper is your computer now, than several yrs ago? Still don't believe me that we the people are NOT experiencing inflation? Go into your wheel barrels of worthless money and send me some!!

You

miss on the fact that prices do not rise at the same level in every industry. Especially after the bubble, price readjustment happens despite of the government attempt to re-inflate. What you describe is not deflation (which is macro), but redistribution of wealth.

And by the way,

before I get attacked for it, I'm not saying that gold shouldn't be money. My point is, it doesn't matter what the money is, as long as its debt free. If you issue loans using straight up gold, but loan it on interest, it will fail as a currency. Someone will not be able to pay all of it and get left out in the cold, if the interest owned is not created in currency. You cannot pay back what was not created. Lend out a dollar, and someone can pay that dollar back. Lend the dollar out with 10% interest, there is no payback because that 10% was not created in currency.

Its the people (and their energy/services) who are the value, not the money. Money should be nothing more than an easier way to exchange those values/services, and it should be fair and debt free!

We seriously need to embrace the alternative debt free currencies movement in the states. Look up Ithaca Hours and Mountain Hours, or Wayne Walton's videos for more info.

Actually anyone DICTATING what "money" should be is bad.

Whether it be a gold bug, or the Fed, or Ron Paul or you, me or Milton Freedman.

In a FREE MARKET, individuals decide what money they want and what money they trust. Through Grisham's law, bad money will disappear and good money will become the standard, or standardS, that the market will use.

There is no need to "End the Fed" for example. The only thing that needs to end is the Fed's congressional EXCLUSIVE FRANCHISE to issue the national currency. Up until 1929 any one could issue a currency and there were many private currencies that were standard and in circulation.

If you end the Fed's exclusive franchise, then the Fed will END ITSELF with no need for anyone else to end them. Why? Because relative to other and private currencies, such as gold, among many other alternatives, the Fed money is probably the LEAST DESIRABLE and, hence, will not be chosen by the market as a survivor.

Half Legit

I +'d your first half, because it's absolutely true, any manipulation of the money supply is bad. If you buy a home with a mortgage, and there is deflation, you are just as screwed as the saver is with inflation. I don't know what you mean by debt-free money, but you make it sound like a prohibition of usury, which doesn't work economically.

One of gold's monetary properties is that it's supply expands at roughly the same rate as GDP (2-3%), which is exactly what we want. It makes prices stable, not inflationary or deflationary. This makes plenty of room for interest, since there will be more money to pay back loans, to which the market will naturally generate an interest rate in proportion to the money supply. Furthermore, no one should be taking out loans unless they expect to use it to create more wealth, and thus are able to pay interest. In either case the market corrects so that money is only loaned to the productive.

As far as up front payments, they don't change the economics of being "left out in the cold". That was what the fed was created to fix, and we all know how that turned out.

Debt-free-money. "Twain it!"

Probably referring to tender offered w/o corresponding debt. Perhaps simple as a bar tab. "Twain-it" was I phrase I oft used to start a tab out West.

For example, the the Monopoly-Game, the bank issues Monopoly-Money before the game starts. It is issued w/o any debt (mortgage free).

The Monopoly-Game does not factor in interest. That is not addressed.

You also commonly saw local vendors sell wares on credit, oft w/o interest. Sometime lay-away. Other times, pay-when-you can IOU.

"Twain it!"

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

ugh, not this again

Who in their right mind is going to lend you money without interest?

“Although it was the middle of winter, I finally realized that, within me, summer was inextinguishable.” — Albert Camus

Easy,

one that would like to be paid an upfront fee for lending his/her capital.

I always figured

it was just part of the ebb and flow of things. A symptom of markets trying to 'right' themselves. (Only to be messed up by government meddling where it really has no business.)

Deflation is always good

Deflation is always good for the population.
Demand increases as prices decrease - fact.
It also holds true for wages. Who cares about having a high wage if your purchasing power is rubbish. Much better to have a low wage with a good purchasing power.

Please visit my site for more information about my libertarian book. Thanks!

Are you sure it's always

Are you sure it's always good? I'm going to play the devil's advocate based on what my Economics professor (disgusting, I know) had to say. He said that deflation is bad for people in debt because, say I borrow $10,000 from you today and say I'll pay you back in five years, at the end of those five years that $10,000 is going to be a lot harder to pay off if there has been general deflation because it will be worth a lot more.

Trust me, I'm not about to buy into the Keynesian bullsh that this professor spews, I just thought it was an interesting point that I hadn't heard of or thought about before.

Liberty|Death

depends on what type of

depends on what type of deflation you are talking about. Monetary or push pull.

Care to elaborate for me?

Care to elaborate for me? It's funny because I'm about to complete my Economics major at UMass Amherst, and I've never heard of any of this stuff. I really can't believe I'm paying for such bologna, even though I'm really just paying for the degree I'll be getting, which I guess is just as much bologna actually.

Liberty|Death

you are being shoved keynsian

you are being shoved keynsian economics down your throat where they praise the central bank (FED) as a god. The reason why is because the bankers do not want any one questioning or showing others their crime. Back in the early and mid 80's when I was in college we got the same BS rammed down our throats too. Only then I did not understand economics like I do today.

Inflation / Deflation is an increase or decrease in money supply from the central bank. This type of supply is bad. You have a banking cartel set up with a monopoly. They decide what the economy does until the laws of economics are stretched to the breaking point that bad things happen. As we are at the edge of right now.

The type of so called deflation in the price of goods/services is from research, over supply or under supply of a material needed to produce a good etc.. These are push pull conditions which occur naturaly in an economy. I have seen this many times in the 24 years that I have owned my own business.

When money is stable as in a gold standard you will have purchasing power increase for the consumer. In a fiat created currency world that we live in the currency slowly dies as the dollar has been doing since the early 1900's. The problem is you can not make 100 billion in gold ounces at the stroke of a key board as you can dollars.