Comments on: Can the Deflation Equation Produce Good News for the U.S. Economy? http://toughmoneylove.com/2008/12/17/can-the-deflation-equation-produce-good-news-for-the-us-economy/ The Hard Truth about Money and Personal Finance Thu, 18 Mar 2010 15:14:21 +0000 http://wordpress.org/?v=2.9 hourly 1 By: vilkri http://toughmoneylove.com/2008/12/17/can-the-deflation-equation-produce-good-news-for-the-us-economy/comment-page-1/#comment-1795 vilkri Thu, 18 Dec 2008 03:17:53 +0000 http://toughmoneylove.com/?p=629#comment-1795 Inflation is a good thing when you owe money. So, if the government keeps running up its debt, it can make the debt smaller by creating inflation. The US is the only country in the world that can do that since no other country has virtually all its debt in its own currency. Unfortunately you can do this only once, and you can't be too obvious about it, either. Eventually our creditors will demand that we take on debt in other currencies such as Reagan's Samurai bonds which were issued in Japanese Yen. Let's hope for as much inflation as our creditors can bear and laugh all the way to the Chinese factory where the stuff is made that we buy cheaply here. Inflation is a good thing when you owe money. So, if the government keeps running up its debt, it can make the debt smaller by creating inflation. The US is the only country in the world that can do that since no other country has virtually all its debt in its own currency. Unfortunately you can do this only once, and you can’t be too obvious about it, either. Eventually our creditors will demand that we take on debt in other currencies such as Reagan’s Samurai bonds which were issued in Japanese Yen. Let’s hope for as much inflation as our creditors can bear and laugh all the way to the Chinese factory where the stuff is made that we buy cheaply here.

]]> By: Dorothy http://toughmoneylove.com/2008/12/17/can-the-deflation-equation-produce-good-news-for-the-us-economy/comment-page-1/#comment-1794 Dorothy Thu, 18 Dec 2008 01:55:17 +0000 http://toughmoneylove.com/?p=629#comment-1794 I like your analysis. I understand MoneyGrubbingLawyer's concern that "the fundamental psychological problem of overspending" hasn't been addressed, but I'm thinking, 1) people have heard enough stories of "how bad it is out there" (or experienced it themselves) to get scared enough to mend their ways, and 2) it seems like more and more people keep discovering ways to become entrepreneurial, and are learning to generate income even if they don't have the jobs. Imagine if the economy is actually making a permanent shift to smaller, more entrepreneurial businesses, and is less dependent on large corporations for our jobs? What then would be possible? I like your analysis. I understand MoneyGrubbingLawyer’s concern that “the fundamental psychological problem of overspending” hasn’t been addressed, but I’m thinking, 1) people have heard enough stories of “how bad it is out there” (or experienced it themselves) to get scared enough to mend their ways, and 2) it seems like more and more people keep discovering ways to become entrepreneurial, and are learning to generate income even if they don’t have the jobs. Imagine if the economy is actually making a permanent shift to smaller, more entrepreneurial businesses, and is less dependent on large corporations for our jobs? What then would be possible?

]]> By: Mat http://toughmoneylove.com/2008/12/17/can-the-deflation-equation-produce-good-news-for-the-us-economy/comment-page-1/#comment-1790 Mat Wed, 17 Dec 2008 20:09:01 +0000 http://toughmoneylove.com/?p=629#comment-1790 I'd add just a few things. It appears from the most recent data that the majority of this deflation is a deflation in oil prices, foodstuffs and the like have remained steady. This leads me to wonder how real it is. Further, sustained deflation is a very nasty thing. Eventually it lowers wages in a spiral with prices that would continue to remove liquidity from the markets. Lastly, in part because I don't believe we are in any kind of sustained deflationary period, I'd be more worried about future inflation. Since november the government has basically been printing money which will eventually lead to high inflation. This will devalue the dollar (not all that bad) and likely make it more difficult for the government to find loans. While it might be nice for the government not to be taking out loans I'm not convinced it won't still need them in a year or two. I’d add just a few things.

It appears from the most recent data that the majority of this deflation is a deflation in oil prices, foodstuffs and the like have remained steady. This leads me to wonder how real it is.

Further, sustained deflation is a very nasty thing. Eventually it lowers wages in a spiral with prices that would continue to remove liquidity from the markets.

Lastly, in part because I don’t believe we are in any kind of sustained deflationary period, I’d be more worried about future inflation. Since november the government has basically been printing money which will eventually lead to high inflation. This will devalue the dollar (not all that bad) and likely make it more difficult for the government to find loans. While it might be nice for the government not to be taking out loans I’m not convinced it won’t still need them in a year or two.

]]> By: MoneyGrubbingLawyer http://toughmoneylove.com/2008/12/17/can-the-deflation-equation-produce-good-news-for-the-us-economy/comment-page-1/#comment-1781 MoneyGrubbingLawyer Wed, 17 Dec 2008 17:28:53 +0000 http://toughmoneylove.com/?p=629#comment-1781 I'm worried about "triple whammy" you describe leading us to more of the same excess we've seen over the past few years. While prices may be coming down (or alternative, spending power may be going up), I don't think the fundamental psychological problem of overspending has been addressed. What gave rise to consumer consumption problems in recent years wasn't that incomes were too low or prices were too high, it was that people either didn't know how to manage their money and their mind or knew and didn't care. The combination of deflation and stimulus won't change this. I’m worried about “triple whammy” you describe leading us to more of the same excess we’ve seen over the past few years. While prices may be coming down (or alternative, spending power may be going up), I don’t think the fundamental psychological problem of overspending has been addressed. What gave rise to consumer consumption problems in recent years wasn’t that incomes were too low or prices were too high, it was that people either didn’t know how to manage their money and their mind or knew and didn’t care. The combination of deflation and stimulus won’t change this.

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