Regulating inflation.

Discussion in 'Economics & Trade' started by Brett Nortje, Apr 18, 2017.

  1. Econ4Every1

    Econ4Every1 Well-Known Member

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    Again, this says absolutely nothing about the most important thing of all, how long you have to work to earn that sack of potatoes.

    A sack of potatoes can cost $5 or 20,000 yen. If the average person in Japan had to work for 5 min to earn 20k yen and the average American had to work 15 min to earn $5, who is better off?
    Or if you prefer, in 1970 a sack of potatoes was $0.50 cents and it took 15 minutes to earn 0.50 and today a sack of potatoes were $5 and it took the average person 10 minutes to earn $5, who is better off?

    The value of the currency is incomplete and without context outside the context of the time and effort, it takes to earn.
     
  2. Longshot

    Longshot Well-Known Member

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    I'm not sure what any of that has to do with inflation.

    Maybe it would help if you gave an example of all prices rising. Then I might understand what you mean by inflation.
     
  3. Econ4Every1

    Econ4Every1 Well-Known Member

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    Because it get's to the question of why inflation is considered bad.

    Tell me why should I care that the ratios of the things I buy are changing if the ratio of what I earn is keeping pace or exceeding that ratio?

    You are focused on the duality of the nature of money. Frankly, I don't care what you call it. If you want to claim there is no such thing as deceleration only negative acceleration, I say, ok, so what? Now tell me why I should abandon the term deceleration?

    The theory of relativity says that "speed" is an illusion, what's really happening is a change in time. If I said there are no changes in "speed" only changes in time relative to different points of view, again, so what?

    If I concede that if I look at the world the way you are that inflation does not exist, tell me why I should care?

    That's what I can't figure out. So what?
     
  4. Longshot

    Longshot Well-Known Member

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    Hm, why should you care if the price of your money is decreasing? Well that means it's not an accurate unit of account, for starters.
     
  5. OldManOnFire

    OldManOnFire Well-Known Member

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    When we're buying we prefer no inflation but when we're selling inflation is great.

    Buying a house for $100K and selling it 20 years later for $1 million is usually considered a good thing for the seller. Of course we need to look at inflation adjusted dollars over time but I'm pretty sure the seller will be thrilled to get a check for $1 million. The $1 million is obviously a 'perceived' value since the actual asset remains somewhat identical to when it was new. Since supply and demand determines our prices, as long as things are selling people must be okay with whatever inflation exists. When consumers slow or stop buying, prices will fall until there is some equilibrium between sellers and buyers. IMO the root problem is not 'general overall inflation' but 'regional inflation'...like trying to buy a house in San Francisco versus Fresno, CA. Only those with significant means can buy a house in SF, and although they might complain this group continues to have the means to buy. What this effectively does is force out about 75% of Americans who do not have significant means. The example in SF can be multiplied many times over across the USA...and where we have high home prices everything else will be priced much higher. Interestingly SS recipients are told there is no inflation so no increase in SS payout?

    So...aggregate national inflation is no problem but regional inflation can be horrific...
     
  6. james M

    james M Banned

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    often they do in fact that's why many banks have 100's or 1000's of local branches.
     
  7. james M

    james M Banned

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    universally considered bad because:

    1) some get more of the new money by chance; those who don't suffer a decline in living standard

    2) prices fluctuate making it harder to compare goods for value. This decreases the efficiency of economy.
     
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  8. Longshot

    Longshot Well-Known Member

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    And it also essentially steals value from those who have saved, mostly the elderly.
     
  9. Econ4Every1

    Econ4Every1 Well-Known Member

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    How do the number of branches lend evidence to your claim?

    Fed member banks do not make loans from customer deposits, period, full stop.

    Non-banks, like the now defunct American General Finance, made loans from existing money, which is why their rates were higher than traditional banks. I believe that many car companies, GMAC, Honda motor Credit, Ford, Toyota, and Nissan make loans at 0%, they are subsidizing the difference between the prevailing rate and zero percent with real money. I'm not certain, but I think credit unions may make small loans from customer deposits, but I'm no expert on CU's
     
  10. Econ4Every1

    Econ4Every1 Well-Known Member

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    Who saves in cash? If you have IRA's, 401k's or your savings in precious metals, those assets inflate along with inflation do they not?

    So if I have wheat futures and inflation sets in, won't the cost of my wheat futures rise? When I cash them out, won't they keep pace with inflation? I mean, the rise in cost is the definition of inflation, is it not?

    Anyone that saves in dollars deserves to lose them.

    For those that have no savings and rely on a company pension, those are the real losers because those payments are fixed. For those that are living on a government pension or other payment, the government should simply scale the payments to keep pace with inflation.
     
  11. Longshot

    Longshot Well-Known Member

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    It effects not only physical cash in circulation (part of M0) but money in bank accounts (M1-M4). So a lot of people.
     
  12. Econ4Every1

    Econ4Every1 Well-Known Member

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    yes, but not many people save large sums of cash in bank accounts. Furthermore, if the balance on my account averages $5,000 it's not money saved long term, I spend $5000 in 30 days and I deposit another $5000in that same time. So it's constantly turning over. So as inflation happens so do my pay raises.
     
  13. Longshot

    Longshot Well-Known Member

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    In an inflationary fiat environment, money loses its function as a store of value. So then yes, grandma is forced to play the stock market with her life savings and wall street get rich at her expense.
     
    Last edited: May 18, 2017
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  14. OldManOnFire

    OldManOnFire Well-Known Member

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    This is a hypothetical and somewhat off-topic question; Let's pretend I have $1 trillion and all of it is in a savings account at my local bank. The bank goes bankrupt and FDIC pays me $250K. What happens to the other $999,999,750,000?
     
  15. Roon

    Roon Well-Known Member

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    They do not lend the actual customer deposits. They hold those as reserves and simply create new entries into their fancy computer systems when giving out loans. They "expand" the money supply by conjuring up new money out of thin air simply because they have the reserves to justify it.
     
  16. Roon

    Roon Well-Known Member

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    When discussing why inflation is bad I would be remiss if I didn't point out in your explanation of "Why you don't care" you are making the assumption(that I don't think it is very prudent to make) that wages will continue to rise along with inflation.
     
  17. Roon

    Roon Well-Known Member

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    Well since all money is credit - for that $1 trillion to exist there needs to be $1 trillion worth of debt somewhere....so that debt simply gets repaid and the money disappears...in the simplest of terms.
     
  18. Econ4Every1

    Econ4Every1 Well-Known Member

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    Looking back what I said was true, looking forward you are correct, wages that don't keep pace with inflation are the real problem. As soon as we abandon neo-liberal supply side theory we could get back to working less, but like all things in economics, they can't be viewed in a vacuum.
     
  19. james M

    james M Banned

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    money is fungible so if they have enough reserves they lend them out
     
  20. james M

    james M Banned

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    this is largely false. The Fed exists to expand or contract money supply. Private banks are allowed to expand or contract only to extent Fed determines that expansion or contraction to be consistent with its monetary goals.
     
  21. james M

    james M Banned

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    it depends what bank did with money. Probably the money is not destroyed but merely in hands of new people who have no obligation to pay back bank depositors. And???
     
  22. Econ4Every1

    Econ4Every1 Well-Known Member

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    Nope, that's not how it works. Money fungibility has nothing to do with it. It's accounting.
     
  23. james M

    james M Banned

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    The conclusion in this scenario is that banks are in their lending restricted by their own funds plus the amount of deposits that they can attract and that therefore the “lending out deposits” terminology makes sense.Note that this system is very dangerous if banks engage in maturity transformation, ie if the loan terms are longer than the deposit terms: if ever depositors request money back faster than loans mature then the Bank goes bankrupt

    Note that in this scenario it is still entirely correct using the “lending out deposits” terminology, because the only way the bank can extend a loan to a customer is if a depositor accepts to freeze his deposit during the period of the
    We found that under scenarios (2) and (3) the banks’ capacity to provide loans was limited by available deposits (or, in the case of (3), available long term deposits). Under scenario (4) banks were under no such restriction (scenario (1) did not have banks).https://medium.com/@odtorson/do-banks-lend-out-deposits-4671bb27fcb5

    loan.
     
    Last edited: May 19, 2017
  24. Roon

    Roon Well-Known Member

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    Incorrect. The banks can expand as much and as often as they like so long as they maintain the appropriate reserve requirements.
     
  25. james M

    james M Banned

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    ah but they don't set their own reserve requirements so have no control over how much they can lend out!!
     

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