afterzir Posted February 3, 2014 Posted February 3, 2014 a) I got into a discussion with my brother about deflation. He thinks that deflation would lead to there being little capital investments going on. How do I show that deflation will lead to more capital investments? b) There are 3 definitions for inflation that I'm aware of: 1) increase in prices 2) increase in money supply 3) borrower is favored over the lender. I like 3), my brother likes 1), and Austrians like 2). Which is the best? Also, I believe that deflation should have the opposite definition as inflation (so if 2) was good, would deflation be a decrease in the money supply? **** Also, there is a youtube video I like called 'deflation is normal' where the speaker assumes a society with a FIXED amount of money, so I don't know how the money supply can be altered) Also (these requests are starting to pile up) could someone explain what is bad about using definition 3)? Thanks a lot.
dsayers Posted February 3, 2014 Posted February 3, 2014 I don't think there's a best. Inflation is an increase in the money supply. Increase in prices, which is often mischaracterized as inflation, is an effect of inflation. I've never heard the borrower over lender thing.
Josh F Posted February 3, 2014 Posted February 3, 2014 a) I got into a discussion with my brother about deflation. He thinks that deflation would lead to there being little capital investments going on. How do I show that deflation will lead to more capital investments? b) There are 3 definitions for inflation that I'm aware of: 1) increase in prices 2) increase in money supply 3) borrower is favored over the lender. I like 3), my brother likes 1), and Austrians like 2). Which is the best? Also, I believe that deflation should have the opposite definition as inflation (so if 2) was good, would deflation be a decrease in the money supply? **** Also, there is a youtube video I like called 'deflation is normal' where the speaker assumes a society with a FIXED amount of money, so I don't know how the money supply can be altered) Also (these requests are starting to pile up) could someone explain what is bad about using definition 3)? Thanks a lot. Yes, there would be less capitol investments. The market is over invested (infested) and poor investment choices have been subsidized. Reducing investment is the FREE MARKET'S method of creating regulation.
Mike Fleming Posted February 3, 2014 Posted February 3, 2014 Inflation is an increase in the money supply. The critical piece of information in that statement is "money". What is money? In our system it is defined as both cash and credit. Credit is basically cash owed. So the way money is currently defined can be a bit misleading because it is sort ot defined as itself and "itself owed" which is kind of confusing and misleading. Deliberately so, I suspect. Deflation in prices is generally considered a good thing. Look at computers. Inflation and deflation in and of themselves are not bad. If we define inflation as an increase in the money supply, which is mostly credit, then the amount of money borrowed will be constantly changing up and down. Assuming fractional reserve banking of course, which is another discussion. What is bad is counterfeiting, printing money. It's basically done to to lower the interest rate to stop malinvestments being liquidated. ie. let's say you invested some money in a business and the business could not make enough money for you to service the debt because the market just didn't consider it a good way to allocate resources (people didn't like your product). Instead of the investment being liquidated and the capital being reassigned more productively elsewhere, the government artificially lowers the market rate of interest, meaning the investment can keep stumbling along. This is the story of the American economy as a whole. Bad investments everywhere, but instead of allowing them to be liquidated the government allows the whole thing to keep going encouraging more bad investments and the American economy basically slowly wastes away while you have the illusion that the investments being made are good ones. QE (or money printing) is the slow acting poison killing America. By the time deflation actually is allowed to happen, if it is allowed to happen and they don't print into hyperinflation first, it will be a disaster. But the disaster has been building behind the scenes for many years. if deflation were to happen, it just makes the disaster that QE has created apparent and visible. It doesn't in and of itself create the disaster.
afterzir Posted February 3, 2014 Author Posted February 3, 2014 Yes, there would be less capitol investments. The market is over invested (infested) and poor investment choices have been subsidized. Reducing investment is the FREE MARKET'S method of creating regulation. Do you mean there would be less capital investment under deflation as opposed to under inflation, or do you mean there will be less capital investment than at present today?
Josh F Posted February 4, 2014 Posted February 4, 2014 Do you mean there would be less capital investment under deflation as opposed to under inflation, or do you mean there will be less capital investment than at present today? Both, because today we're dealing with massive inflation of the money supply. A deflationary model does make it harder to get cheap loans. Right now banks are getting their $ almost for free. The result is that people who dont qualify for loans are receiving them. In a deflationary economy you'd actually have to show your ability to earn a profit or pay off a loan before being given one.
afterzir Posted February 4, 2014 Author Posted February 4, 2014 I don't think there's a best. Inflation is an increase in the money supply. Increase in prices, which is often mischaracterized as inflation, is an effect of inflation. I've never heard the borrower over lender thing. What I like about the lender/borrower def. is that it implies productivity (since the borrower isn't going to put the money under his mattress and then return it. The problem I have with the money supply def. (among others) is how to separate between real and pointless printing, like if I find a special substance underground that is great for making buildings and money is printed to match its value that's one thing, but if Germany decides to print money like crazy for the sake of printing money that's another thing.
Mike Fleming Posted February 4, 2014 Posted February 4, 2014 The problem I have with the money supply def. (among others) is how to separate between real and pointless printing, like if I find a special substance underground that is great for making buildings How would you determine what is "pointless" and what is "real" printing? How would you decide how much? Do you not think it's completely arbitrary? And who gets to decide? And what stops them from abusing the power? like if I find a special substance underground that is great for making buildings and money is printed to match its value that's one thing, This is called mining. People go to investors to get money to finance mining equipment and/or borrow money from banks to finance it. Why would you print money for it? Printing money for it would be stealing. As you are stealing value from other people's money to finance it.
afterzir Posted February 4, 2014 Author Posted February 4, 2014 How would you determine what is "pointless" and what is "real" printing? How would you decide how much? Do you not think it's completely arbitrary? And who gets to decide? And what stops them from abusing the power? This is called mining. People go to investors to get money to finance mining equipment and/or borrow money from banks to finance it. Why would you print money for it? Printing money for it would be stealing. As you are stealing value from other people's money to finance it. I see, you're right. Thanks for that.
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