Asset Price Deflation Coming Up?

Dakota

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I thought I'd plop these thoughts here since of course it is opinion based and perhaps not worthy of being in the news just yet.

Nevertheless, I'm willing to hop on the ban wagon and am also thinking we could see "asset deflation" soon.

http://globaleconomicanalysis.blogs...tion-coming-up-food-prices.html?#echocomments


When you see the chart from the link I posted, you can look at the deflation that happened after the 20's and see that what we are showing now is not something we've seen before in history.


http://www.elliottwave.com/affiliat...ree-Financial-Forecasts=aa.aspx#axzz3QDKRuMlB


Thoughts tossing around in my head....

1. Look what is happening to the oil industry at the early stages of price deflation, now imagine that happening to other industries in the world? A large chunk of our global economy is based in the creation and maintaining credit.

2. The heavy price of crude oil is why food prices have been high, so we should naturally start seeing reductions at the stores soon if logic takes center stage? So far I haven't seen reductions in the cost of any food, most notably beef.

3. If Social Security and government COLAs are pegged to the inflation index would pay be cut if there is absolute deflation?
 
Dakota - a few quick points:

On (1), yeah a huge part of the concept of modern economies is credit. That's what money represents, credit (extended to society in general by the person who has it). Money, by its nature, is loaned into existence. You either have a barter system or you have a money / credit system (or you have a hyrbrid of those things - the point being, those are the forms by which economic activity exists).

On (2), high transportation costs have played a role in food price inflation in general. But when it comes to particular kinds of food (e.g. fruits, pork, beef), there have perhaps been bigger factors - long-term droughts in particular areas or disease outbreaks in particular animals that have significantly affected supply. Wholesale beef, e.g., had been very expensive because the size of the U.S. herd was historically low. It's starting to recover right now, though that process could take some time; but we've already seen significant drops in wholesale beef prices. If nothing unexpected happens, we should start to see some relief in beef prices fairly soon.

On (3), no. If the change in the CPI-W (which is what Social Security bases COLAs on) goes negative, Social Security payments aren't reduced. The door only swings one way. But that does effectively mean that future COLA increases are delayed or reduced because the index has to recover back to where it was and then grow further before an increase in Social Security payments is called for (based on existing law). So, if the index falls a percent, payments stay the same. If it then grows a percent (or thereabouts) back to where it was, payments still stay the same - they don't rise that percent. All that said, Congress can come in and pass new legislation to give Social Security beneficiaries an increase even when existing law and changes in the CPI-W don't call for it. And we're talking about a politically powerful constituency here, so that's not out of the question.

Also, you didn't need to put this in the Conspiracy Theory... forum. :smile: I think it would fit in News and Current Events, it's quite relevant stuff.
 

tommyjo

New Member
The comparisons to the 1920s ignores a major factor...we were on the gold standard which made the worldwide financial crisis of the late 20s and early 30s so much more severe.

Oil prices are not the major cause of food price increases. That is just silly. If that were true prices of EVERY product would be higher and that is not true.

No SS payments don't decrease. They didn't decrease during the recession we just experienced...there just was no COLA.
 

Dakota

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I figured SS payments wouldn't be reduced but I was also trying to take into account the fact that during the last period of deflation, SS payments were not a factor, because they didn't exist until 1940.

Now I am curious, how can having the gold standard of the 20's and 30's make deflation more severe at that point of time than at this point in time?
 
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PeoplesElbow

Well-Known Member
Oil prices are not the major cause of food price increases. That is just silly. If that were true prices of EVERY product would be higher and that is not true.

Not true some products are a lot more dependent on energy than others to produce, then there are the types of energy needed for a particular industry.
 

Larry Gude

Strung Out
I figured SS payments wouldn't be reduced but I was also trying to take into account the fact that during the last period of deflation, SS payments were not a factor, because they didn't exist until 1940.

Now I am curious, how can having the gold standard of the 20's and 30's make deflation more severe at that point of time than at this point in time?

Great question. To over simplify, the gold standard, because it was a real thing with real, set value that was not readily manipulated, think of it as an agreed upon rule, when they way everyone was playing the game got out of whack, it hurt.

This time around, because fiat money is worth whatever we say it is, we can change the rules on the fly which makes sense in terms of less pain but it also...papers over....what was effed up.
 

Larry Gude

Strung Out
I figured SS payments wouldn't be reduced but I was also trying to take into account the fact that during the last period of deflation, SS payments were not a factor, because they didn't exist until 1940.

Now I am curious, how can having the gold standard of the 20's and 30's make deflation more severe at that point of time than at this point in time?


A point you make with those two issues; the previous absence of SS and the gold standard. One of the primary reasons to get rid of gold is so you could do SS and ALL sorts of other stuff that went way outside of existing economic thought. People would say "You can't do that!' based on gold standard, or, in other words, fixed rules. And clever people would say 'Sure we can. We just need to make the rules less rigid." Think of the gold standard as keeping what you earned. The problem in a recession or depression is that people who have what they earned will tend to stop spending to protect themselves. That sucks for everyone dependent on living paycheck to paycheck, so to speak. Think of fiat money as the way you overcome people slowing or stopping spending; you simply change the rules. Which is what the gold standard is supposed to protect from.

One of the reasons TARP was done was to serve those clever things like SS and so much other economic activity that wasn't feasible with a gold standard, or, again, fixed rules. TARP outraged traditional economic thinkers in in congress in fall of 2008, those who thought that rules mattered, gold standard thinking. "You can't DO that!" The fiat thinkers said "We can do anything!". Which was true but, that gets us to the question of what to do, why, and the implications.

And that is our next chapter.
 

Larry Gude

Strung Out
The next chapter; Monopoly.

Monopoly is a great economic teaching tool. It really is because it is a simple to understand, hands on way to to see and understand and participate in the economy. But, it is very basic. The variables come in with who is playing and why.

There are those who see it as a game to win whereby you end up with everything and everyone else loses. That person is motivated to win. Not to play and get along with others but, to get everything. That's one kind of person and one kind of economic thinking and it has it's place in the world and economic policy but, obviously, that is not what we want in terms of promoting the general welfare. Or, at least in my way of thinking, should not be what we want but, again, that gets to what one thinks of in terms of 'the general welfare' and how best to promote it.

The other major way is playing the game to play the game. Your goal isn't to wipe everyone out. It is to play. Enjoying paying rents, collecting rents, moving around, pay this penalty, reap this windfall, adding houses, apartments, whatever. That sort of person has a place in the world, too and is, obviously, in terms of promoting the general welfare, a much nicer person.

Gold standard people play to win and expect you to do the same. They want what is theirs and don't want anyone touching it. They also so no right to your stuff.

Fiat types are the other way, that they can share what they have and don't need and that you can, too and everyone just gets along.

The problems start when gold standard types want to pursue fiat money. By definition, fiat money can be worth whatever you can get everyone to agree to. Well, that inevitably leads to screwing over everyone who believes in gold standard thinking as now the rules keep changing.

On the other hand, fiat types run into troubles when their community spirit runs into actual real world limits on stuff of value.

In the game, the gold standard types kill or get killed and it's over. Which is why we don't want them in charge. At least not for ongoing peace and prosperity. When there is trouble and it may well be us or them, get you some gold standard winners and turn them loose. Then, put them back in a cage once they've secured your position. The fiat types, there is never a problem as long as the give and take is mutual. It's a closed loop and can go on forever, peacefully and harmoniously. Everyone is a winner because no one is a loser. The problem there is that the real world is not a closed loop and not everyone is a fiat player.

So, this little dissertation on the wonders of Monopoly may or may not be helpful to your questions. But, it might be in that the harshness of the '29 period was due to the gold standard. Fiat thinking wasn't working because that's not how the underlying rules, gold rules, were so, it was resistant to fiat ideas. Conveniently for me, gold rules, play to win rules, is what actually fixed the Great Depression; WWII.

Asset deflation is or is not going to happen and that is not much of an answer but, it IS the answer and it because we have a fiat system now; we can do anything we like based on getting everyone to agree. And that's right back to what are we trying to do and why and what are the likely results. TARP didn't work in terms of promoting the general welfare because that wasn't it's intention. Promoting the general welfare would have relieved the troubled assets of the middle class; their homes. TARP was used to relive the troubled assets of the elites who'd ####ed up and didn't want to have to pay for their mistakes. In effect, they were the person winning at monopoly, saw they'd screwed up and gave themselves passes to stay in the game at our expense. And that's where the problem is today; gold standard types in charge of a fiat system; heads they win, tails we lose. Because they can. And we let 'em.
 

FollowTheMoney

New Member
Here's the argument against any gold/silver standard: Commodity money is inconvenient to store and transport in large amounts. Furthermore, it does not allow a government to manipulate the flow of commerce with the same ease that a fiat currency does.

Gold was a preferred form of money due to its rarity, durability, divisibility, fungibility and ease of identification, often in conjunction with silver. Silver was typically the main circulating medium, with gold as the monetary reserve. Commodity money was anonymous, as identifying marks can be removed. Commodity money retains its value despite what may happen to the monetary authority.

With a gold or silver coin, once earned, it is your possession. Fiat currency is created and issued at interest by a private bank and is owned by the bank. With gold and silver used as a medium of exchange, power stayed in the hands of the people. Fiat currency is nothing but a form of control used by governments. We are slaves.

And if gold isn't important anymore, why to banks and countries still buy and hoard it? BTW, it's "heads they win, tails they win."

Added: This is the perfect place for this topic because the use of fiat currency created out of thin air, backed by absolutely nothing of any intrinsic valve, is indeed a conspiracy at the highest levels and magnitude.
 
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