Deflation is Setting In

[wilheldp_PE]

This story from the Associated Press is rather disturbing. It describes textbook deflation (prices are dropping due to reduced demand), but the article depicts it as a way to get a good deal on your next TV, car, home, or grocery purchase. The bad side of deflation is that it is a naturally self-perpetuating phenomenon. Prices continue to drop until they reach equilibrium with supply and demand, but demand will continue to drop because people don't want to buy something today at a higher price knowing that the same item will be cheaper tomorrow. This is the first step from the Great Recession to the Great Depression II.

 

[roadwreck]

 

[Capt Worley PE]

This story from the Associated Press is rather disturbing. It describes textbook deflation (prices are dropping due to reduced demand), but the article depicts it as a way to get a good deal on your next TV, car, home, or grocery purchase. The bad side of deflation is that it is a naturally self-perpetuating phenomenon. Prices continue to drop until they reach equilibrium with supply and demand, but demand will continue to drop because people don't want to buy something today at a higher price knowing that the same item will be cheaper tomorrow. This is the first step from the Great Recession to the Great Depression II.

Won't happen. I wouldn't spend an awful lot of time worrying it might either.

 

[benbo]

This sounds like the kind of thing PE-NESS would worry about.

 

[Road Guy]

were stuck this way until 2010 (mid term elections) at the very least

 

[Capt Worley PE]

I'm thinking 2010 might be a lot like 1994 if the Reps can get their act together.

 

[wilheldp_PE]

This goes way farther back than just the last couple of election cycles. Fiat-currency based economies are naturally cyclical. This is just the bust part of the boom-bust cycle caused by government intervention in the monetary system.

 

[Capt Worley PE]

Fiat currency is a necessity when the economy outgrows the amount of gold ever mined. This happened decades ago.

 

[wilheldp_PE]

Fiat currency is a necessity when the economy outgrows the amount of gold ever mined. This happened decades ago.

The economy didn't outgrow the gold supply until after we were taken off of the gold standard. In fact, that is an impossibility by definition. If banks are willing to take the risk, they can engage in fractional reserve to temporarily increase the money supply without increasing the gold supply. But the Federal Reserve is fractional reserve taken to the extreme (i.e., trillions upon trillions of dollars printed with nothing of value reserved to back them up).

 

[Chucktown PE]

^^ agreed. And if the economy outgrows the amount of gold mined, the value of gold would simply increase. So instead of 1 oz of gold being able to buy two wigets, maybe it could buy 2.2 widgets. Which also gives one incentive to save.

 

[Capt Worley PE]

I really doubt we as engineers that we have much knowledge of the complexities of macro-economics. We're pretty much just spouting off what we've heard or read somewhere by rote memorization.. Can't see much productive in that.

So I'll stop.

 

[wilheldp_PE]

I really doubt we as engineers that we have much knowledge of the complexities of macro-economics. We're pretty much just spouting off what we've heard or read somewhere by rote memorization.. Can't see much productive in that.
So I'll stop.

I know you all think I am some nutjob when it comes to arguing government related topics, but I don't care. I have put in a great deal of research to formulate my opinions, and nobody has yet offered me a compelling reason to change my stances. Below is an interesting graph showing the money supply from 1959 to 2007. Notice the slow rate of increase until about 1971, then the rapidly increasing rate of increase thereafter? I wonder what happened in 1971...

 

[Supe]

I really doubt we as engineers politicians that we have much knowledge of the complexities of macro-economics. We're pretty much just spouting off what we've heard or read somewhere by rote memorization.. Can't see much productive in that.

 

[Capt Worley PE]

I wonder what happened in 1971...

GM lowered their compression ratios across the board.

I knew that was a bad idea!

 

[benbo]

Okay, here’s a deal. Anybody who thinks we’re headed into another Great Depression –

1.Define that for me.

2.Tell me when it’s going to happen.

Then, when that time comes, if it doesn’t occur these people can admit once and for all they know no more about economics than anybody else. If you can't do this, you're just blowing smoke.

I’m not saying I know it won’t ever happen. I’ve just been hearing this for 35 years and I’m wondering if somebody could just put up or shut up about this prediction. Frankly, I’m still not worried about it. I’m actually more concerned about inflation myself.

 

[Chucktown PE]

I really doubt we as engineers that we have much knowledge of the complexities of macro-economics. We're pretty much just spouting off what we've heard or read somewhere by rote memorization.. Can't see much productive in that.
So I'll stop.

Sorry Capt. I agree with you on most stuff, but just because we're engineers doesn't mean we don't have knowledge of other topics. I received a minor in economics at Clemson, and almost had a minor in history. Just because I'm an engineer doesn't mean that I'm not capable of reading research and formulating my own opinion in some other area of knowledge.

 

[Kephart P.E.]

I know you all think I am some nutjob when it comes to arguing government related topics, but I don't care. I have put in a great deal of research to formulate my opinions, and nobody has yet offered me a compelling reason to change my stances. Below is an interesting graph showing the money supply from 1959 to 2007. Notice the slow rate of increase until about 1971, then the rapidly increasing rate of increase thereafter? I wonder what happened in 1971...

Damn that Communist Nixon for doing this!!!!!

 

[Chucktown PE]

All wilheld is trying to say is that the Federal reserve is largely responsible for our current economic troubles, and basically all of the boom and bust cycles that we have experienced in recent history. Yes, those cycles occured before the Federal Reserve was created, but they will become more severe as the money supply becomes more and more unhinged from any real asset.

Read this book if you get a chance. It basically talks about how a bunch of fat cats got together to creat the banking cartel and fiat currency that is the federal reserve system.

 

[benbo]

I thought when money lost its value you got inflation, not deflation.

 

[Chucktown PE]

Right now we are going through a period of deleveraging. I haven't heard any economists disagree with that. While credit was readily available, the money supply rapidly increased. Now the opposite is happening. While the government is putting large amounts of money into the economy (stimulus), the private sector is withdrawing large amounts of money out of the economy (saving). The government can't spend enough to offset the amount of money that the private sector is pulling out, although Keynesian economics tells the government to try. Hence, the money supply is still shrinking, no matter what the government does. Eventually the government won't be able to keep spending money (when the stimulus ends), and the money supply will shrink even more.