Aggregate demand...

[Woolleybugger]

Wouldn't the best way to increase demand, is to have LOWER prices so more consumers can afford to purchase?

So how do you lower prices w/o cutting profits?

1. STOP devaluing the currency.
2. STOP increasing the cost of production thru cumbersome multi-level red tape and taxes
3. Lower cost of labor
4.increase production/efficency with newer capital investments.

The key to answering all your questions is to compare current AD with the capacity of the economy. If AD is less than the full capacity of the economy, there will be no inflation. If the economy is working at peak capacity, more money will create inflation. Right now, inflation is highly improbable since we have huge underused assets all across the country, labor, plant, materials and capital. The government can make up that lack of demand by either cutting taxes, spending or a combination of both. Since making money is nothing more than pushing a button on a computer in the Fed, the cost of making money out of thin air is nothing and it can happen instantly. The problem we have is that Congress and the POTUS have no good ideas for what this new money should be spent on. If they did, we could go to full capacity quite soon. As it stands today, the economy is not likely to get close to full capacity until incomes rise. Incomes will not rise until we have more demand...its a circle game that only the Fed and Congress can fix.

 

[worldlymrb]

If AD is less than the full capacity of the economy, there will be no inflation. If the economy is working at peak capacity, more money will create inflation.

That's not true.

If economy is producing real goods and services at 100% capacity, chances are.. prices will GO DOWN as the supply of goods increases and the number of USDs remain the same..

However... When you have a economy producing FEWER goods/services (<50% capacity), and try to increase demand by creating trillions of digital currency backed by nothing, you will have inflation because there are MORE dollars chasing a declining number of goods/services being produced.

 

[Woolleybugger]

That's not true.

If economy is producing real goods and services at 100% capacity, chances are.. prices will GO DOWN as the supply of goods increases and the number of USDs remain the same..

However... When you have a economy producing FEWER goods/services (<50% capacity), and try to increase demand by creating trillions of digital currency backed by nothing, you will have inflation because there are MORE dollars chasing a declining number of goods/services being produced.

You have it somewhat correct. When I say at full capacity I mean every factory is running at full bore, employment is at 100%, people are working effectively and productively and the goods and services produced match total incomes and expenditures of the economy. We have really only had this happen in WW1 and 2 when the government took over the economy. Inflation does not occur until then in an economy that controls its own money supply and is not a gold reserve money. It also occurs when the country has debts to foriegn entities in foreign currency. We have neither so our money supply still has a long way to go before it starts to inflate prices. Historically in the USA, inflation was really triggered by energy cartels not the money supply.

 

[fairsheet]

25% of America's entire dollar value, was disappeared at the close of the Li'l George Administration. It's convenient for us to believe that wasn't the worst thing in the world, because that lost dollar value had only been "on paper" in any case. In other words - what we lost? - we never really had in the first place.

But, what if that wasn't really the case....as I don't think it was. What if the wealth and value (at least some of it) remained behind, even as our economy was assigning a lower value to it? If that's the case, then we have lots of room for "resetting" the value of those assets by printing money, without actually engendering inflation.

 

[Woolleybugger]

25% of America's entire dollar value, was disappeared at the close of the Li'l George Administration. It's convenient for us to believe that wasn't the worst thing in the world, because that lost dollar value had only been "on paper" in any case. In other words - what we lost? - we never really had in the first place.

But, what if that wasn't really the case....as I don't think it was. What if the wealth and value (at least some of it) remained behind, even as our economy was assigning a lower value to it? If that's the case, then we have lots of room for "resetting" the value of those assets by printing money, without actually engendering inflation.

Fairsheet gets it. Fiat money is simply a tool by which the government manages an economy to get a desired result. The desired result is 100% happiness and quality of life for every soul in that economy. Anyone who says that goal is impossible is likely correct but that is the unspoken concept behind running any democratic state. It is in fact part of our founding documents. The supply of money is tied to the value of goods and services produced and purchased within the nation from domestic and international sources. When we buy something, the bank debits our account and credits the other account, it is perfectly balanced. There is no increase in the supply of money needed. Say 60 out of 100 people spend every dime they have every day and some borrowed more than they made incurring a debt. 40 of them have no money to spend so they add nothing to AD. The money supply would never need to expand to cover the unspent demand from those 40 people. How much money does the 60 people spend? All their income plus any debt they incur above their income. That debt is a debit to that borrower, a credit to the person who got the money in exchange for the goods or services. The key is to get those 40 people to spend money that they earned. How do you do that? By giving them money (welfare) or putting them to work. Its actually quite simple when you think about it. At the macro level, the FED can just move buttons to take money from this account and move it to another account. No real money is sent around, its just numbers on a spreadsheet. Inflation MAY occur is all 100 people buy all the goods and services possible in an economy but with a global economy, they could just buy goods and services from another country which would not force prices up at all UNLESS that commodity is controlled or in short supply (OPEC).

 

[fairsheet]

Fairsheet gets it. Fiat money is simply a tool by which the government manages an economy to get a desired result. The desired result is 100% happiness and quality of life for every soul in that economy. Anyone who says that goal is impossible is likely correct but that is the unspoken concept behind running any democratic state. It is in fact part of our founding documents. The supply of money is tied to the value of goods and services produced and purchased within the nation from domestic and international sources. When we buy something, the bank debits our account and credits the other account, it is perfectly balanced. There is no increase in the supply of money needed. Say 60 out of 100 people spend every dime they have every day and some borrowed more than they made incurring a debt. 40 of them have no money to spend so they add nothing to AD. The money supply would never need to expand to cover the unspent demand from those 40 people. How much money does the 60 people spend? All their income plus any debt they incur above their income. That debt is a debit to that borrower, a credit to the person who got the money in exchange for the goods or services. The key is to get those 40 people to spend money that they earned. How do you do that? By giving them money (welfare) or putting them to work. Its actually quite simple when you think about it. At the macro level, the FED can just move buttons to take money from this account and move it to another account. No real money is sent around, its just numbers on a spreadsheet. Inflation MAY occur is all 100 people buy all the goods and services possible in an economy but with a global economy, they could just buy goods and services from another country which would not force prices up at all UNLESS that commodity is controlled or in short supply (OPEC).

Some, like worldly above, worship at the altar of the gold shills. They DO have a valid point when they suggest that "printing money" can result in inflation. What they don't seem willing to accept though, is that even as it CAN result in inflation, it doesn't necessarily result in inflation.

For years now, they've been fear-mongering hyperinflation that has yet to appear. So...what they've resorted to, is defining and shouting inflation for themselves. Their own definitions notwithstanding though, "inflation" is about as close to the "kitchen table" as it gets. Either I perceive signifiant inflation or I don't. No amount of shouting will convince me otherwise.

So...we're "printing money" AND we've yet to experience even historically mild inflation. Every other economy on earth, can only DREAM of being able to do what we can do. "Printing money" sans inflation, is the best of all worlds.

 

[Woolleybugger]

Some, like worldly above, worship at the altar of the gold shills. They DO have a valid point when they suggest that "printing money" can result in inflation. What they don't seem willing to accept though, is that even as it CAN result in inflation, it doesn't necessarily result in inflation.

For years now, they've been fear-mongering hyperinflation that has yet to appear. So...what they've resorted to, is defining and shouting inflation for themselves. Their own definitions notwithstanding though, "inflation" is about as close to the "kitchen table" as it gets. Either I perceive signifiant inflation or I don't. No amount of shouting will convince me otherwise.

So...we're "printing money" AND we've yet to experience even historically mild inflation. Every other economy on earth, can only DREAM of being able to do what we can do. "Printing money" sans inflation, is the best of all worlds.

You are absolutely correct. The entire story about balanced budgets, deficits, inflation and austerity is really about a world that no longer exists. It goes back to the Gold Bug days as you said when a currency was tied to the supply of a metal and reserve ratios dictated lending. If you owed money to a foreign bank because that nation bought goods and services from you, then the old days would allow for that debt to be paid in gold or silver. This limited the amount of money in circulation to the amount of gold or silver making it impossible to grow wealth without finding more metal, stealing it or changing reserve ratios. With fiat money, the supply of money is tied to the amount of money needed to serve a goal. That goal has always been to avert runaway inflation and increase employment. Now that supply of goods and services is virtually unlimited for all but energy and some very rare commodities, any nation finding itself in a situation where too much money is chasing too few domestically produced goods and services can just start buying cheaper imported goods and services. OPEC produced the inflation of the 70s. It was not Jimmy Carter and some liberal program.

 

[fairsheet]

A few years back, a lot of shouting heads, politicos, and their dupes in forums such as this, were falsely equating Greece with the United States of America. Some...like the dupes and the politicos SHOULD have known better. Other's in my opinion - like the financial shouting heads - probably DID know better.

They used Greece as an example of what WOULD happen here, if we didn't take the steps they were shouting. If they were actually honest, they would've used Greece as a good exemplar of why that sort of thing CAN'T and WON'T happen in the U.S.

 

[Woolleybugger]

A few years back, a lot of shouting heads, politicos, and their dupes in forums such as this, were falsely equating Greece with the United States of America. Some...like the dupes and the politicos SHOULD have known better. Other's in my opinion - like the financial shouting heads - probably DID know better.

They used Greece as an example of what WOULD happen here, if we didn't take the steps they were shouting. If they were actually honest, they would've used Greece as a good exemplar of why that sort of thing CAN'T and WON'T happen in the U.S.

Exactly. The reason Greece is in trouble is because they gave up their own currency and cannot manage it to get out of their mess. They are like a state in the red zone that is poor and cannot tax itself to provide a minimum level of services, they rely upon the Federal revenues to survive. A state must balance its books because it cannot create money by itself. Therefore, it can go bankrupt but a nation that has its own currency can never, ever go bankrupt. They can default on loans but that is not the same as going bankrupt.

 

[worldlymrb]

They DO have a valid point when they suggest that "printing money" can result in inflation. What they don't seem willing to accept though, is that even as it CAN result in inflation, it doesn't necessarily result in inflation

It all depends on where the printed money IS FIRST SPENT ON/VELOCITY.

You may quadruple the money supply in a month, that wont guarantee prices will quadrupole the next month either.

Since our private Central Bank (FRB) has unlimited credit to go along with their diplomatic immunity, if they were to print $85B a month and send a checks to every American Household, then rising prices on most things household consumers buy would be very quick.

But when that $85B a month is given to Wall Street/TBTF banks, than rising prices will hit the items the rich buy first. Stocks/Mansions/Ferarri's/Tiffany's etc.

 

[fairsheet]

It all depends on where the printed money IS FIRST SPENT ON/VELOCITY.

You may quadruple the money supply in a month, that wont guarantee prices will quadrupole the next month either.

Since our private Central Bank (FRB) has unlimited credit to go along with their diplomatic immunity, if they were to print $85B a month and send a checks to every American Household, then rising prices on most things household consumers buy would be very quick.

But when that $85B a month is given to Wall Street/TBTF banks, than rising prices will hit the items the rich buy first. Stocks/Mansions/Ferarri's/Tiffany's etc.

There's been no indication whatsoever over the last half decade, of undue inflation as to mansions, Ferarris, and gee gaws. When parsed over time - a decade will do it, we don't see any indication of undue inflation in the case of the markets, either.

These are the sorts of questions that you should pose to your financial svengali, BEFORE you post them in forums such as this. IF his facts are false, might his conclusions be false too?

 

[worldlymrb]

There's been no indication whatsoever over the last half decade, of undue inflation as to mansions, Ferarris, and gee gaws. When parsed over time - a decade will do it, we don't see any indication of undue inflation in the case of the markets, either.

These are the sorts of questions that you should pose to your financial svengali, BEFORE you post them in forums such as this. IF his facts are false, might his conclusions be false too?

Tiffany's sales surpass expectations as the rich keep buying - UPI.com
www.upi.com › Blog‎
Nov 26, 2013 - Tiffany reported profits 50 percent higher with the wealthy more willing to ... Sales are soaring across all regions for Tiffany, the world's second ...

McMansions are back -- and bigger than ever- MSN Money
money.msn.com/.../post--mcmansions-are-back-and-bigger-than...‎
by Aimee Picchi - in 121 Google+ circles
Aug 27, 2013 - Some markets are witnessing heftier McMansions than others. Lancaster, S.C., Jacksonville, N.C., and Naples, Fla., saw the biggest expansion ...

Lamborghini sales soar in financial crisis | Autosaur
www.autosaur.com/lamborghini-sales-soar-in-financial-crisis/‎
Mar 13, 2013 - Lamborghini bucked the trend during the financial crisis — after seeing ... Sales in the USA accounted for the highest rise, where the number of ...

BEEF SALES ALL TIME HIGH
GAS PRICES HIGHEST PRICE EVER DURING XMAS
UTILITY PRICES RECORD HIGH

Meanwhile...DEFLATION is everywhere when it comes to PACKAGE SIZES!!

But don't believe your lying eyes Fairsheet because govt would never lie about numbers.

 

[fairsheet]

Tiffany's sales surpass expectations as the rich keep buying - UPI.com
www.upi.com › Blog‎
Nov 26, 2013 - Tiffany reported profits 50 percent higher with the wealthy more willing to ... Sales are soaring across all regions for Tiffany, the world's second ...

McMansions are back -- and bigger than ever- MSN Money
money.msn.com/.../post--mcmansions-are-back-and-bigger-than...‎
by Aimee Picchi - in 121 Google+ circles
Aug 27, 2013 - Some markets are witnessing heftier McMansions than others. Lancaster, S.C., Jacksonville, N.C., and Naples, Fla., saw the biggest expansion ...

Lamborghini sales soar in financial crisis | Autosaur
www.autosaur.com/lamborghini-sales-soar-in-financial-crisis/‎
Mar 13, 2013 - Lamborghini bucked the trend during the financial crisis — after seeing ... Sales in the USA accounted for the highest rise, where the number of ...

BEEF SALES ALL TIME HIGH
GAS PRICES HIGHEST PRICE EVER DURING XMAS
UTILITY PRICES RECORD HIGH

Meanwhile...DEFLATION is everywhere when it comes to PACKAGE SIZES!!

But don't believe your lying eyes Fairsheet because govt would never lie about numbers.

You didn't provide any evidence that the prices of any of these items are unduly inflated. Go back and try again.

 

[worldlymrb]

You didn't provide any evidence that the prices of any of these items are unduly inflated. Go back and try again.

Just follow the QE and you will find the "growth" Keynesians say will trickle down.

Housing prices continue to soar, with 7.5% rise in 2013

 

[fairsheet]

Just follow the QE and you will find the "growth" Keynesians say will trickle down.

Housing prices continue to soar, with 7.5% rise in 2013

Consider the housing price vector over the last decade, and get back to me. Funny thing is though.....prices ALWAYS rise in the context of an economic recovery - practically by definition. This shout angle that rising prices are proof....PROOF! they shout, that we're not in recovery, is bizarre.

 

[Woolleybugger]

Housing prices are rising due to low interest rates. The issue is jobs. How can fiscal and monetary policy affect job creation? If you listen to conservatives, we need to go back to the early 1900s when there were no rules, no regulations, no licenses, no inspections, no controls etc on almost any economic activity. In their minds, we are 5 million food trucks away from full employment or a thousand sweatshops from prosperity or a thousand miles of polluted river from being rich again. It is a fantasy started by listening to stories about the past without any context at all. If only we could go back in time when the government did nothing, we would all be like mama and papa off the boat making do in the Streets of New York. This is classic Milton Friedman fantasy stuff.