[freeper12]

I know its not a popular opinion, but I do belive we are heading for deflation. IMO, the evidence is mounting...I do have a question however, many articles liket his refer to the ability of the govt to simply start up the printing presses and flood the economy with "free" money"...but I don't get it. I assume that the "firing up the presses" is really just an expression, but how exactly would the fed "flood" the economy with "free" money? Besides lowering interest rates, how does the fed actually increase the money supply? If they are giving away "freea" money...who do they give it too???

[afz400]

I think that the hope is for war with Iraq to re-ignite inflation, much like it did under Johnson. I'm not sure that will help, since the core problem is that we have exported all meaningful (manufacturing) jobs overseas, with no hope of ever getting them back. Pretty risky since we need to know how to make clothes, shoes, etc if and when war with China begins. We are fast becoming a nation of people who know nothing about how to build anything, just like Spain or France. We can thank the leaders of both parties for this mess.

[GOPJ]

Are the Chinese and other strong production cultures doing "a Ford"? The folks who make the cars have to be able to buy them or you get glut? Give them all a car and Malthus might be proven right. Maybe it's time to change the system of accounting and accountability.

Today's deflationary pressures come from excess supply of goods and industrial capacity.

[Leisler]

"Indeed, all the inflation in US consumer prices is coming from only five areas that make up a quarter of the index - housing, tobacco, car insurance premiums, hospital services and tuition.

All caused by decades of government policies, rules, regulation, codes, etc. Taxes for tobacco. Housing is a popular delusion but were else are you going to hide your money.

[imawit]

Lots of easy available credit through banks and all other lending institutions is how money gets' pumped into circulation.

My only question is, if they are really serious about just inflation and not also keeping the borower under their thumb then they should see to it that the consumer has more income to pay off debt and purchase anew without incurring new debt.

Reduce taxes ! Increase salaries !

More money and spending in terms of creating more debt only makes the problem worse. What would make me go out and buy something ?

More income and the potential for more income that I get to spend and the sense that I could partake in more income over an extended period of time.

This is really simple but it will not happen because the manipulators always want a string attached and the public is waking up to this and also feeling it with the increase in debt as they spend and the actual fact that one may never get out from under the rock that is the burden of debt let alone be able to earn a comfortable wage and living without the slavery that debt imposes which pushes the drop in economic activity which then begets recession which then begets deflation. You can't have your cake and eat it too. This goes for the big boys as it does for the little guy. No one is above this physical law, not even the powerful.

[arete]

If they are giving away "freea" money...who do they give it too???

They simply use the newly printed money to buy back government debt. Whoever was holding the 30 bond for example, now has a handful of newly "created" cash. The thinking goes that he will then spend it on something -- consumer goods and services, etc. In the past however, much of the loose cash went into speculative financial activity such as betting in the stock market. That is one reason we got into trouble in the first place with the stock market bubble. Many people have argued that the reinflation will fail because you are trying to cure an economic illness with the very same measures that caused the illness to begin with.

Richard W.

[Stefan Stackhouse]

Reasons why there will be no deflation:

1. We are the world's most powerful economy, and we have an abundant supply of paper, ink, and printing presses, so we are actually free and able to inflate as much as we need to.

2. Deflation is bad for debtors, and the US Govt is the world's largest debtor, so it has a strong incentive to inflate rather than deflate.

3. Millions of people getting disposessed from their homes is not good for politician's job security.

[dirtboy]

The fed is structured to fight inflation - so, despite their claims to the contrary, their ability to fight deflation is like attempting to push a rope. The main problem exists primarily with the staggering amount of debt in this country (a condition that also existed prior to the Depression). So far, people have been able to re-finance debt as interest rates have dropped, thereby keeping debt payments close to the value of money - and that is in turn reflected by a fed funds rate of 1.25. However, if this country goes deflationary, what can the fed do? It can't pay people to borrow money, and re-financing offers would not go to that point as well. So even if people can re-finance their debt to, say, 1 percent, they are still having to pay that debt with deflated (i.e., more valuable) dollars. And that is where the vicious circle can kick in.

IMO tax cuts are the only action at this point that can arrest this cycle, because they create a real net increase in the puchasing power of households.

[OldFriend]

Larry Kudlow has been using the 'deflation' word for over a year now and blaming the boneheaded policies of Greenspan.

[David]

First place, I think everyone needs to understand that we don't have 1-2% inflation any more--we haven't had any inflation for almost two years. The CPI measures the market trading price of a specified group of commodities which show a net increase in this range--but that is not inflation. Inflation is where you have too much money in too many transactions chaseing a limited supply of goods--we don't have that.

The basket of goods we trace prices on includes goods that are in markets with structural market factors forcing prices up (food grains--weather; oil and gas--supply; steel--tarrifs etc.). Nothing to do with inflation, we have deflation right now and have had it for around two years and the rate of deflation is accelerating.

" Besides lowering interest rates, how does the fed actually increase the money supply? If they are giving away "freea" money...who do they give it too???"

That is of course the real question. And Richard has given you the fed's best answer--they print money and buy government bonds, usually from bank reserves, on the assumption that the bank with an implicit cost of the cash in its reserves with no revenue from the cash will then lend it out; or the marketplace, on the assumption that the recipient of the proceeds of bond purchases will be under similiar pressure to invest or spend. That is not however what investors are doing with excess cash so that is not going to happen either.

I don't know who coined the term "helicopter money" but it's a wonderful term because it forces people to think about the problem the fed has in giving away money. The real way they do it is credit every checking account in America with $10,000--but if they did that, no one would ever again use the dollar for money; it would defeat their purpose.

Bottom line? Deflation is here and there is nothing the fed can do about it. What do we do? Conserve cash; be sure it is located in a secure place: Few banks are worthy; few money funds are safe; some T-Bill only funds are ok; best is Treasury Direct investments in T-Bills.

[fogarty]

Ultimately, "the US government has a technology, called a printing press ... that allows it to produce as many US dollars as it wishes at essentially no cost ... Sufficient injections of money will always reverse a deflation", he says.

BWAHAHAHA! Fools. They seem to think it is so easy to fix a credit and deflationary spiral. Like pumping air into a ballon that has been popped, zipping around the room.

With such short-sighted monetarists and Keynesians at the helm, the smart ones among us are doing two things: getting out of all debt and buying precious metals. Things are going to get worse before they get better. Unemployment now above 6% and another surge of layoffs coming in January.

[GOPJ]

bump

[mpoulin]

I know its not a popular opinion, but I do belive we are heading for deflation. IMO, the evidence is mounting...I do have a question however, many articles liket his refer to the ability of the govt to simply start up the printing presses and flood the economy with "free" money"...but I don't get it. I assume that the "firing up the presses" is really just an expression, but how exactly would the fed "flood" the economy with "free" money? Besides lowering interest rates, how does the fed actually increase the money supply? If they are giving away "freea" money...who do they give it too???

They create a debt on themselves by printing new Federal Reserve Notes (which are debt instruments) and use them to buy U.S. Treasury bonds (which are debt instruments).

The difference is that FRN's pay no interest, while Treasuries do.

"Modern Money Mechanics" (Federal Reserve Bank of Chicago) explains all this.

[Pagey]

bttt

[Southack]

"I know its not a popular opinion, but I do belive we are heading for deflation. IMO, the evidence is mounting..."

It's good that you think that way, since so many influential people have been working so hard to convince you that's the true "reality".

But, agitprop aside, are we actually heading for deflation?

How can you tell?

Well, first of all, you need to understand deflation.

"Deflation" means that your Dollar buys more. When you have deflation, things cost less.

Is "deflation" always bad? Of course not. People wait for "sales" at retail stores because they want to take advantage of localized, temporary deflation. People shop at "sales" because they want their Dollars to go further and purchase more things.

OK, now that you have some grasp of the concept of "deflation", how do you know when it is on the way nationally, rather than just in isolated localities like in a store?

It's simple; you watch the "speed of money".

Oh, but wait Mr. Southack, how can it be simple if no one knows anything about the speed of money?

Well kids, that's the rub. All of the doom and gloomers, i.e. those tireless souls who want you to shake in your boots and be afraid that the sky is falling, don't want to tell you about the speed of money.

They'll craft elaborate "articles" designed to convince you that deflation is on the way, but they won't mention word one about the speed of money.

Heck, most folks don't even know what it means.

The "speed of money" is how fast financial transactions occur. Wow, they never told you that in the NY Times, now did they?!

I wonder how they missed that little tidbit?

Now, if the speed of money is increasing, and if your Dollar is buying more things, is that really BAD for our economy?!

Of course not!

In fact, why is it bad that your Dollar can EVER buy more things?

In other words, WHY are these gloom and doomers worried about deflation? Isn't that just like being worried about a store having a sale?!

Well, the REASON that the doom and gloomers worry about deflation is that they are uneducated (or that they are educated but deceitful).

The economists at the Washington Post and at the San Francisco Chronicle may not even know the difference between the speed of money and deflation.

Nonetheless, their arguments confuse the speed of money with deflation.

They worry that financial activity will slow down.

Well, SOMETIMES when prices go down nationally, financial activity DOES slow down. This is what happened during the Great Depression.

What they fail to comprehend, however, is that MOST of the time when prices go down, financial activity speeds up.

You lower the price on your house NOT because of deflation, but rather, because you want your localized financial activity to speed up; in other words, you lower the price to sell your house faster.

Likewise, stores have sales to increase their own speed of financial transactions.

Stores don't lower their prices in order to slow down the speed of their money! No, stores lower their prices to ENCOURAGE their financial activity to pick up.

But the Leftist media doesn't want you to know those simple facts. They want you to be frightened. They want you to think that the sky is falling.

Of course, none of what the mainstream media wants will help you determine if deflation is coming or not, and it certainly won't help you to discern if the deflation in question will be bad (i.e. slow down the speed of money) or good (i.e. increase the speed of money).

For that, you're on your own (well, with a little help from me).

[RnMomof7]

Say thanks to the one world Government folks

[winodog]

In the past two months I have recieved three credit cards in the mail each with a 10,000 dollar limit on it. I did not ask for them. I did not fill out any forms. They just arrived. They did not even send a warning notice like I use to get before I got one in the mail.

[ScholarWarrior]

I hope you got your questions answered.
The purchase of Treasuries on the open market is step one.
This will cause the interest rate to fall to zero, but will start to flood the market with cash, hoepfully increasing inflationary expectations and raising rates

The second major action will be to cut taxes in a huge way.This will tend to generate more Treasury borrowing which can then again be purchased by the Fed,

The final step, referred to in the article, is for the Fed to intervene by restarting trading in core investment assets. We are a long way from that.

Don't worry folks, before it gets too bad there are many others who will march to DC to fix it.

[rastus macgill]

Bring on that deflation ! Reverse the years of monetary policy that have been a de facto tax on savings and income !
Lets see..... things will cost less money will go further savings will increase (Why buy it now its cheaper next week!)
seriously I still can't understand why a slow gradual deflation is so much worse than inflation.Why can't it be zero all the time that is best right ?
my apologies to economists both vocational and amateur

[Cacique]

bump for later

[Incorrigible]

Me?  I'm planning on moving to "Bush-ville".

I got a good rate on my loan for this place: