This is so frigging obvious...

[Lukey]

I'm kicking myself for not coming up with it myself. The Keynesians at the wheels of the central banks are all claiming they are fighting "deflation" when, in fact, they are the CAUSE of it:

To wit, massive central bank financial repression is the actual cause of deflation. In the boom phase of the expansion it leads to unsustainable public and private borrowing which finances artificial spending by households and governments and excess investment in private mining, processing, manufacturing, transportation and distribution capacity, as well as public infrastructure. Then eventually comes the crack-up phase when the borrowing ends or diminishes, causing cascading reductions in output, prices, profits and incomes throughout the economic chain.

http://davidstockmanscontracorner.c...ntral-bankers-are-running-a-doomsday-machine/

That is precisely why they cannot ever seem to make any headway on deflation - they are chasing their tails...

 

[connieb]

I'm kicking myself for not coming up with it myself. The Keynesians at the wheels of the central banks are all claiming they are fighting "deflation" when, in fact, they are the CAUSE of it:

To wit, massive central bank financial repression is the actual cause of deflation. In the boom phase of the expansion it leads to unsustainable public and private borrowing which finances artificial spending by households and governments and excess investment in private mining, processing, manufacturing, transportation and distribution capacity, as well as public infrastructure. Then eventually comes the crack-up phase when the borrowing ends or diminishes, causing cascading reductions in output, prices, profits and incomes throughout the economic chain.

http://davidstockmanscontracorner.c...ntral-bankers-are-running-a-doomsday-machine/

That is precisely why they cannot ever seem to make any headway on deflation - they are chasing their tails...

Absolutely.

I actually started a post yesterday about the amount of household debt increasing and why this is a problem and that it was disguised in the statistics and how it is may be artificially inflating the growth of the economy, etc. And, got the usual attacks - I mean..after all... how dare you attack this healthy economy.

connie

 

[Arkady]

I'm kicking myself for not coming up with it myself. The Keynesians at the wheels of the central banks are all claiming they are fighting "deflation" when, in fact, they are the CAUSE of it:

To wit, massive central bank financial repression is the actual cause of deflation. In the boom phase of the expansion it leads to unsustainable public and private borrowing which finances artificial spending by households and governments and excess investment in private mining, processing, manufacturing, transportation and distribution capacity, as well as public infrastructure. Then eventually comes the crack-up phase when the borrowing ends or diminishes, causing cascading reductions in output, prices, profits and incomes throughout the economic chain.

http://davidstockmanscontracorner.c...ntral-bankers-are-running-a-doomsday-machine/

That is precisely why they cannot ever seem to make any headway on deflation - they are chasing their tails...

Did Stockman predict this deflation with his theories, or is this an attempt to make it fit after the fact?

Just kidding. You and I both know that Stockman didn't see this deflation coming. He's just trying to make the deflation that showed up fit with his false economic theories, rather than having to revise his theories to fit with real-world events. He's on the record specifically predicting there wouldn't be deflation:

http://www.theaureport.com/pub/na/the-emperor-is-naked-david-stockman

There were some whose models predicted the threat of deflation, but you won't find them on the right:

http://krugman.blogs.nytimes.com/2009/07/02/smells-like-deflation/

 

[Arkady]

Absolutely.

I actually started a post yesterday about the amount of household debt increasing and why this is a problem and that it was disguised in the statistics and how it is may be artificially inflating the growth of the economy, etc. And, got the usual attacks - I mean..after all... how dare you attack this healthy economy.

connie

I certainly didn't attack you on the basis of there being something wrong with criticizing this economy. I just pointed out that, down here in the real world, debt was declining, both in terms of household debt as a share of GDP and in terms of household debt costs as share of disposable income:

It's not just household debt that has become a dramatically smaller burden on the economy in recent years. The burden of government debt is way, way down, as well. The net interest expense for 2015 is only 6.1% of Federal Budget outlays, and only 1.3% of GDP. By comparison, at the end of the Reagan years, in FY 1989, those figures stood at 14.8% and 3.0% respectively. Debt was a pretty serious concern back then (though conservatives didn't tend to talk about it, because they thought someone might call for tax hikes or military spending cuts to address it). But, these days, the debt expense is a pale shadow of its former self, both at the federal budget level and at the household level.

In reality, our problem right now is basically the opposite of what conservatives think it is. Everyone is trying to fix his balance sheet at once: households, the governments of the major nations, businesses, etc. The problem, of course, is math. One person's spending is another person's income. So, if the average economic operator is slashing spending to try to pay down debt or build up cash, then, by definition, the average economic operator must have a falling income. The reduction in my spending is showing up elsewhere as a reduction in someone else's income. That's how recessions work. And slow recoveries happen when the majority of economic players remain reluctant to borrow and eager to save or pay down debt, so that it's incredibly difficult for economic expansion to happen. Japan has lost two decades to that phenomenon, because most people and companies in Japan are simply too focused on moving as far into the black as possible, and all that saving chokes off investment.

When that kind of vicious cycle gets going, it can't necessarily be fixed just through orthodox monetary policy. And if the deflationary cycle gets too strong, it's hard to fix even with fiscal policy chipping in. It's a matter of psychology, and just as hyperinflation takes a real shock to the system to break the expectation of rising prices, it takes a real shock to the system to break the expectation of falling prices, as well. You wind up needing a combination of very aggressive fiscal expansion, and monetary policy that makes it clear that the central bank will happily tolerate significant amounts of inflation. You need to create a new mindset that "stirs the animal passions" and gets people worried more about missing the boat, and having their savings inflated out from under them, than they are about being caught with a shortfall of funds.

 

[connieb]

I certainly didn't attack you on the basis of there being something wrong with criticizing this economy. I just pointed out that, down here in the real world, debt was declining, both in terms of household debt as a share of GDP and in terms of household debt costs as share of disposable income:

It's not just household debt that has become a dramatically smaller burden on the economy in recent years. The burden of government debt is way, way down, as well. The net interest expense for 2015 is only 6.1% of Federal Budget outlays, and only 1.3% of GDP. By comparison, at the end of the Reagan years, in FY 1989, those figures stood at 14.8% and 3.0% respectively. Debt was a pretty serious concern back then (though conservatives didn't tend to talk about it, because they thought someone might call for tax hikes or military spending cuts to address it). But, these days, the debt expense is a pale shadow of its former self, both at the federal budget level and at the household level.

In reality, our problem right now is basically the opposite of what conservatives think it is. Everyone is trying to fix his balance sheet at once: households, the governments of the major nations, businesses, etc. The problem, of course, is math. One person's spending is another person's income. So, if the average economic operator is slashing spending to try to pay down debt or build up cash, then, by definition, the average economic operator must have a falling income. The reduction in my spending is showing up elsewhere as a reduction in someone else's income. That's how recessions work. And slow recoveries happen when the majority of economic players remain reluctant to borrow and eager to save or pay down debt, so that it's incredibly difficult for economic expansion to happen. Japan has lost two decades to that phenomenon, because most people and companies in Japan are simply too focused on moving as far into the black as possible, and all that saving chokes off investment.

When that kind of vicious cycle gets going, it can't necessarily be fixed just through orthodox monetary policy. And if the deflationary cycle gets too strong, it's hard to fix even with fiscal policy chipping in. It's a matter of psychology, and just as hyperinflation takes a real shock to the system to break the expectation of rising prices, it takes a real shock to the system to break the expectation of falling prices, as well. You wind up needing a combination of very aggressive fiscal expansion, and monetary policy that makes it clear that the central bank will happily tolerate significant amounts of inflation. You need to create a new mindset that "stirs the animal passions" and gets people worried more about missing the boat, and having their savings inflated out from under them, than they are about being caught with a shortfall of funds.

Arkady,

You may fool yourself. You may fool plenty of others here eager to lap up any "evidence" indicating that what the left is on to and leftist fiscal policy is a good thing. But, you do not fool me. Nor do you fool anyone who has any more than a basic understanding business, credit and finance.

I already pointed out why your "burden" argument is bunk... or rather.. the IMF did when they pointed out that rising asset values masks the risk looming when those asset values drop. Sure the burden looks light comparatively when things are going gang busters - the problem is what happens when they don't.

Liquidity is what helps every business and every family ride out the economic storm. You like any good leftist and Keynesian.. believes that through debt you will reach liquidity. That is of course a fallacy, but one, I know you cling to with dear life. That is simply not how things work. The problem is of course, you temporarily goose the spending and "investment" and yet, you still have not improved your position.

This is very easy to understand from an accounting perspective. Because every debit has a credit. If I take out a loan I may have more cash, but because I have a loan - I still have exactly the same net worth. I may increase sales by making corresponding commitments to spend. And, yet, I still have the same net worth. THAT is the game you Keynesians play. You increase the GDP with borrowed spending and it looks all nice. Volume increased - but you didn't GET anywhere. There is more money floating around - but there is not any more wealth.

And you see - therein is the difference. People who subscribe to Keynes, subscribe to the theory that money to spend, is a good thing. And, that if people are spending money that is a good thing and it means everything is working the way it should. BUT - THAT does nothing to build wealth. It is the shell game of raising revenues with matching rising expenses, that never actually result in a rising bottom line. It is the opposite of what you need to do to build wealth.

And, building wealth is at the core of what I and other conservatives like Lukey think is what is necessary. Wealth is what gives you that cushion when things go south. Wealth is what gives you freedom to invest in new things. Debt - and debt service hamper that. Some debt is necessary and good, IF the production value outweigh cost. But, consumer spending debt - is not ever a good thing for wealth building.

YES, the economy SUCKS while everyone is trying to get back into the black. That is the way things are supposed to work. And, left entirely to their on devices, EVENTUALLY things get fixed, and the debt is no longer a yoke and instead of servicing ever more debt, you have plenty of liquidity to do what you want to do with it. The problem with you and other Keynesians is that you don't want to go through the pain to get the gain. But, you never learn you don't get the ultimate gain without the pain. Recessions and even depressions are normal and necessary market corrections. Trying to manage your way out of them, only extends them. Because the debt service holds back the true growth and wealth building that would be possible.

connie

 

[Arkady]

Arkady,

You may fool yourself. You may fool plenty of others here eager to lap up any "evidence" indicating that what the left is on to and leftist fiscal policy is a good thing. But, you do not fool me. Nor do you fool anyone who has any more than a basic understanding business, credit and finance.

I already pointed out why your "burden" argument is bunk... or rather.. the IMF did when they pointed out that rising asset values masks the risk looming when those asset values drop. Sure the burden looks light comparatively when things are going gang busters - the problem is what happens when they don't.

Liquidity is what helps every business and every family ride out the economic storm. You like any good leftist and Keynesian.. believes that through debt you will reach liquidity. That is of course a fallacy, but one, I know you cling to with dear life. That is simply not how things work. The problem is of course, you temporarily goose the spending and "investment" and yet, you still have not improved your position.

This is very easy to understand from an accounting perspective. Because every debit has a credit. If I take out a loan I may have more cash, but because I have a loan - I still have exactly the same net worth. I may increase sales by making corresponding commitments to spend. And, yet, I still have the same net worth. THAT is the game you Keynesians play. You increase the GDP with borrowed spending and it looks all nice. Volume increased - but you didn't GET anywhere. There is more money floating around - but there is not any more wealth.

And you see - therein is the difference. People who subscribe to Keynes, subscribe to the theory that money to spend, is a good thing. And, that if people are spending money that is a good thing and it means everything is working the way it should. BUT - THAT does nothing to build wealth. It is the shell game of raising revenues with matching rising expenses, that never actually result in a rising bottom line. It is the opposite of what you need to do to build wealth.

And, building wealth is at the core of what I and other conservatives like Lukey think is what is necessary. Wealth is what gives you that cushion when things go south. Wealth is what gives you freedom to invest in new things. Debt - and debt service hamper that. Some debt is necessary and good, IF the production value outweigh cost. But, consumer spending debt - is not ever a good thing for wealth building.

YES, the economy SUCKS while everyone is trying to get back into the black. That is the way things are supposed to work. And, left entirely to their on devices, EVENTUALLY things get fixed, and the debt is no longer a yoke and instead of servicing ever more debt, you have plenty of liquidity to do what you want to do with it. The problem with you and other Keynesians is that you don't want to go through the pain to get the gain. But, you never learn you don't get the ultimate gain without the pain. Recessions and even depressions are normal and necessary market corrections. Trying to manage your way out of them, only extends them. Because the debt service holds back the true growth and wealth building that would be possible.

connie

Your error is that you continue to think of it I individual terms. For an individual, paying down debt and building up cash reserves is a great idea in tight economic times. But what happens when too many people try to do that at the same time? Try honestly to think it through.

Anyway, if you're right and debt reduction is wonderful at a society wide level, then rejoice. We have a vastly reduced share of our GDP going to both federal and household debt these days. We must be living in an economic golden age, right?

 

[Lukey]

Did Stockman predict this deflation with his theories, or is this an attempt to make it fit after the fact?

Just kidding. You and I both know that Stockman didn't see this deflation coming. He's just trying to make the deflation that showed up fit with his false economic theories, rather than having to revise his theories to fit with real-world events. He's on the record specifically predicting there wouldn't be deflation:

http://www.theaureport.com/pub/na/the-emperor-is-naked-david-stockman

There were some whose models predicted the threat of deflation, but you won't find them on the right:

http://krugman.blogs.nytimes.com/2009/07/02/smells-like-deflation/

I think "Wally" said it best:

wally July 3, 2009 · 8:35 pm

“Things are turning out like you said. The stimulus was insufficient to begin with..”


No stimulus of any size can forestall a credit collapse. It has only changed the rate of correction by pulling spending forward; that is why we will be like Japan. The second alternative is a fast collapse and correction. There is no third.

And Stockman wasn't "mis-predicting" hyper-inflation either:

DS: No, I do not think we will have hyperinflation. I think the financial system will break down before it can even get started. Then the economy will go into paralysis until we find the courage, focus and resolution to do something about it. Instead of hyperinflation or deflation there will be a major financial dislocation, which means painful re-pricing of financial assets.

I guess that's what you are referring to. And he's been right so far - we have had neither inflation nor deflation as the CBs have printed enormous amounts of fiat currency and monetized almost all net new issuance of public debt, all in effort to merely keep prices from falling (as the market would have them do). He is merely pointing out today the source of the deflation that they are fighting is in fact, themselves. "We have met the enemy and it is us" as it were.

And the "financial dislocation" he referred to is still in the cards. The CB's have certainly not achieved their objectives, so I'm not sure what your point is here. You think Krugman is right and we need massive amounts of public spending to "fix" the economy, but as Stockman points out, all this "stimulus" has done so far is create massive levels of unneeded productive capacity throughout the developed and emerging markets. You need to take the recession, write down the losses on all the mal-investments, and get the economy back to a size that can be supported on its own through the private sector. This isn't rocket science.

 

[Lukey]

I certainly didn't attack you on the basis of there being something wrong with criticizing this economy. I just pointed out that, down here in the real world, debt was declining, both in terms of household debt as a share of GDP and in terms of household debt costs as share of disposable income:

It's not just household debt that has become a dramatically smaller burden on the economy in recent years. The burden of government debt is way, way down, as well. The net interest expense for 2015 is only 6.1% of Federal Budget outlays, and only 1.3% of GDP. By comparison, at the end of the Reagan years, in FY 1989, those figures stood at 14.8% and 3.0% respectively. Debt was a pretty serious concern back then (though conservatives didn't tend to talk about it, because they thought someone might call for tax hikes or military spending cuts to address it). But, these days, the debt expense is a pale shadow of its former self, both at the federal budget level and at the household level.

In reality, our problem right now is basically the opposite of what conservatives think it is. Everyone is trying to fix his balance sheet at once: households, the governments of the major nations, businesses, etc. The problem, of course, is math. One person's spending is another person's income. So, if the average economic operator is slashing spending to try to pay down debt or build up cash, then, by definition, the average economic operator must have a falling income. The reduction in my spending is showing up elsewhere as a reduction in someone else's income. That's how recessions work. And slow recoveries happen when the majority of economic players remain reluctant to borrow and eager to save or pay down debt, so that it's incredibly difficult for economic expansion to happen. Japan has lost two decades to that phenomenon, because most people and companies in Japan are simply too focused on moving as far into the black as possible, and all that saving chokes off investment.

When that kind of vicious cycle gets going, it can't necessarily be fixed just through orthodox monetary policy. And if the deflationary cycle gets too strong, it's hard to fix even with fiscal policy chipping in. It's a matter of psychology, and just as hyperinflation takes a real shock to the system to break the expectation of rising prices, it takes a real shock to the system to break the expectation of falling prices, as well. You wind up needing a combination of very aggressive fiscal expansion, and monetary policy that makes it clear that the central bank will happily tolerate significant amounts of inflation. You need to create a new mindset that "stirs the animal passions" and gets people worried more about missing the boat, and having their savings inflated out from under them, than they are about being caught with a shortfall of funds.

This is typical of how Keynesians operate - anything to push out the boundaries on the collective. You use debt service as your measure when you know darn well that interest rates have a large role in that and rates are being held at artificially low levels by CB financial repression. Use debt to income levels if you want to be honest, because that allows you to compare debt loads regardless of the interest rate environment.



So while it has come down, it is still well above the levels that were considered normal before the credit orgy in the 00's due to the Fed's mismanagement of interest rates. Rates have to normalize at some point, so a rational person would look at that and say "good" while a wild eyed Keynesian sees an emptying bathtub and immediately starts scheming to fill it back up whether it makes sense or not because, God forbid, someone might get laid off.

 

[Lukey]

Your error is that you continue to think of it I individual terms. For an individual, paying down debt and building up cash reserves is a great idea in tight economic times. But what happens when too many people try to do that at the same time? Try honestly to think it through.

Anyway, if you're right and debt reduction is wonderful at a society wide level, then rejoice. We have a vastly reduced share of our GDP going to both federal and household debt these days. We must be living in an economic golden age, right?

You get a recession! Or even a depression. As Connie pointed out these are natural parts of the business cycle and help to rebalance production with demand. The simple reason this scares the hell out of Keynesians is because deep down inside, you know you have contributed to growing levels of government that are unsustainable in a down economy. So you seek at all costs to manage them away, rather than face cuts in your vaunted big government spending programs. But, as Stockman points out, what you end up doing (when you do that) is driving the imbalances to even more unsustainable levels, until a simple (dis-inflationary) recession isn't enough to rebalance things and you get a (deflationary) depression. And as Wally pointed out to Krugman, you can take it swift and sharp (like 1920/21), or drag it on forever through Keynesian style big government interventions as happened under FDR and is again happening under Barack Obama, due to their exceedingly anti-capitalist policy agendas including all manner of government "stimulus" to keep the bathtub filled.

And the total debt level (compared to GDP) has declined but from an exceedingly increased level compared to the past. We still have a long way to go:



So the Keynesians who demand moar debt in the face of this chart should be treated like the cross eyed maniacs they are. We should be rounding you up and putting you all in padded cells, rather than letting you run the fiscal and monetary policies of the world biggest economies.

 

[as seen on tv]

when i go to the grocery store, car dealership, best buy TV shop, JC Penney . .. I see no evidence of deflation, compared to the recent (or long term) past.

 

[Arkady]

when i go to the grocery store, car dealership, best buy TV shop, JC Penney . .. I see no evidence of deflation, compared to the recent (or long term) past.

Odd that you'd mention a Best Buy TV shop, since that's one of the places you could make the very strongest case for deflation. For example, in 2008, Best Buy was advertising a 50" 720p "Black Friday" doorbuster deal on an HDTV for $899.99.

http://www.dealigg.com/black-friday-Viera-50-Class-720p-Plasma-HDTV

Today, without even the benefit of a "doorbuster" deal, you can buy a 50" 720p HDTV for $279.99. That price deflated by about 69% in seven years.

http://www.bestbuy.com/site/dynex-5...lack/6522235.p?id=1219236791464&skuId=6522235

For the price of that 2008 "deal," you could get a 60" Samsung 1080p LED TV with built in wifi and smart hub, better refresh rates, better contrast,lower energy use, etc. When it comes to electronics shopping, your money just goes vastly farther today than a few years ago.