Paul Krugman's Despair

I see.

IMO the statements I made in my posts are facts and I used data and statistics to back up my point much more than you.

Just what I was doing too.

No, I am in my "why are you applying double standards" mode because you consistently write "I DO NOT CARE ABOUT THEORIES...ONLY UNBIASED FACTS/STATS" and then in the same post you write about your theories.

Do as you wish. Let me know why you are interested in a discussion without applying gross double standards.

You too.

 

That's right! Real GDP can increase even when inflation is 50 or 150%! Because how you calculate real GDP increases is, you take the nominal number, adjust it for inflation and then you're left with how much the economy actually grew! What part of this don't you understand?

 

I'm just making a nutshell statement of what you've obviously been arguing endlessly on this board. Just to prove this here's my nutshell version of what you're claiming and your nutshell version of same :

Your original contention was, in a nutshell, with the 1920 recession the government didn't get involved and it was over in a year. 1929 recession the government got involved and turned it into a Depression.


now yours :



1920/21 depression/recession handled with Austrian School. Result?
Both unemployment and the DOW returned to pre-depression levels in 3.5 years (the unemployment rate in TWO)...and public dent declined.

Great Depression handled with Keynesian School. Result?
From mid '33 until mid '42; unemployment averaged 17+% and the DOW declined (and did not return to pre-crash levels until 1954!) and the national debt skyrocketed.

http://www.politicalforum.com/current-events/204329-paul-krugmans-despair-34.html#post4543719

And now you're making a new definition of "cheap money." Like I already pointed out, the money supply only increased with GDP during the 1920s so your "printing too much" claim is obvious nonsense. Don't forget we were on the gold standard after all. And exactly what are "high margin rates or subjective loan terms"? Can you explain please and explain exactly what they have to do with how money was made cheaply available in the 1920s?

And I already answered your question with a yes or no answer days ago and then demolished your answer to the point where you didn't even attempt a substantive response other than to start this passive-aggressive (*)(*)(*)(*)(*)ing "give me a yes or no answer" thing. Why you're doing this when I a. already gave you a yes or no answer and then b. demolished your reply I can't understand.

 

Zimbabwe are printing their money. America can borrow for thirty years at real rates of 1% and could borrow a couple of trillion dollars for a yearly payment of what we're spending in Afghanistan and Iraq every few months. Then in thirty years when it's time to roll over the debt we'd owe two trillion and have a seventy plus trillion economy. It would have been like borrowing four hundred billion in 1980 and having to pay back or reborrow four hundred billion in 2010.

Central banking works out nice for bankers but banking worked out nice for the global economy from 1926 onwards. And you don't have to bail out the bankers, just the banking system. bailing out the bankers in western countries is a new phenomenon due to crony capitalism, lobbying etc.

The 1890s were the closest thing we've ever had to the ideal situation that the fringe nutters want to have happen to the financial system. And it didn't go too well back then, did it?

 

No - I typed that I do not care MUCH about theories. Meaning,sometimes I find them necessary. But most times I find them a bore and a complete waste of time.

Have a nice day.

 

You typed 'If we had a ten percent inflation rate that would mean real GDP would be falling at the rate of about eight or nine percent.'

The chart I provided proved that in '79-'81 (when inflation was way over 10%) that REAL GDP barely declined at all. In at least one case - it went up.

Yes or No?

Answer - yes.


Result - your statement was wrong...big time.


Have a nice day.

 

Possums, all you need to understand is that deflation is worse than inflation because deflation collapses demand while inflation stimulates demand.

This happens because of human expectations. In a deflationary world, an unspent dollar gains value each day. A dollar of debt becomes more onerous day by day.

Demand dies because there is an expectation that something will be cheaper tomorrow than it is today.

We thus end up with a death spiral of falling demand, less jobs, lower tax revenue - thus making Government debt more difficult to reduce because whatever surplus you just budgeted for disappears with the falling tax revenue.

The solution is to maintain a slight positive rate of inflation so that peoples expectation of the value of their money is constant, or perhaps slightly biased towards investing it rather than hoarding it - which reduces the velocity of money and hence economic activity. The Australian target inflation rate is less than 3.5%, and when inflation hits that number, the Australian Federal Reserve Bank raises interest rates to rein in demand and thus reduce the inflation rate.

Of course, if I am a plutocrat sitting on a few Hundred millions dollars in cash, what do you think i would prefer? Inflation or deflation?

 

LOL.

I ask the guy/gal a 'yes or no' question.

He/she says he/she already gave me the answer.

I ask him/her what that answer was (because I do not recall seeing it) about five times.

And instead of simply typing: 'It was 'yes'.'; or 'It was 'no''...he/she types about 500 characters telling me he/she already answered it - without saying what that answer was.
(not to mention avoids answering other questions I have asked him/her.



Whatever.

 

Too bad the Fed's isn't 3.5 as well (right now the CPI is 3.8%). Then they would raise interest rates and (maybe) stop all these ridiculous QE's (though they help my gold/silver BIG time - so I selfishly don't mind).

 

We need inflation in the 4-5% range. It is a good way to grow out of some of the debt burden.

 

By 'we' I assume you do not mean people on fixed incomes who are getting squat from their savings accounts and for whom a 5% rise in prices can mean the difference between 'just getting by' and not (which probably encompasses tens of millions of Americans)?

That is also pre-supposing that the inflation you speak of is the result of a healthy, growing economy and not of stagflation.

 

Excellent response, DA60.

 

By we I mean the nation as a whole, including the scores of millions trapped in mortgages that are greater than the value of their homes, as well as state and local governments.

I am presupposing that inflation will increase prices, including home values that will appreciate, freeing the millions who are trapped, which will greatly help the economy.

It is true that those who are on fixed incomes are harmed by inflation. That number is probably relatively few, as most things income support mechanisms (like SS and pensions) are indexed to inflation by some means or another. And those with investments can offset inflation as investment values rise as will interest rates.

 

That is all pre-supposing that the inflation rate is not due to stagflation. And, of course, the CPI has nothing directly to do with real estate prices.
For instance, inflation has more then tripled in the last year - yet house prices are probably lower now then a year ago.

And I know of many seniors that are getting killed by the bad economy and the ultra low interest rates. Rates that mean their savings (as many seniors have high % of their savings in cash equivalents) are paying them squat.

It's funny - Keynesian's don't seem to realize that their policies are hurting the poor the most and the rich the least. In fact, the rich love it - they are getting money directly from taxpayers pockets into their own.

 

It's not, because even with stagflation (inlflation with stagnant real growth) you have increasing prices, which relatively reduces the value of the debt. However, the fact that millions are underwater on their mortgages depresses the economy, because they cannot sell their homes to move to where their are better employment possibilities. It prevents mobility.

I agree that prices for individual items do not move in exact correlation to the CPI, which is an average. But a general increase in prices in the economy puts upward price pressure on all things in the economy.

As inflation increases, interest rates will eventually rise too.

 

How does stagflation reduce debt? Remember, the CPI has NOTHING to do with housing prices. In the late 70'/early 80's, inflation went through the roof but housing prices DEFINITELY did not.
America right now is experiencing a minor form of stagflation. The CPI is rising, yet real estate is stagnant and unemployment is high.
There is NOTHING good about stagflation for the vast majority of home owners.

'Investopedia explains Stagflation
Stagflation occurs when the economy isn't growing but prices are, which is(*)not a good situation for a country to be in. This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., stagnation increased the inflationary effects.'

'http://www.investopedia.com/terms/s/stagflation.asp#axzz1a2frS0fM

 

It doesn't reduce actual debt, but relative debt. General inflation puts upward increases on price levels generally.

If you had 10% inflation over the next couple years, it is possible housing prices would not increase, meaning that in real terms the values fell by 10%, which would be the case if there were no inflation.

All other things being equal, inflation will relatively increase the price of housing making the relative amount of mortgages smaller.

Housing prices rose pretty steadily in the 1970s.

Which is why even more millions are not underwater on their mortgages.

Increasing inflation moderately does not mean stagflation. A stagnant economy may occur whether there is inflation or not.

But even with staglation, you have increasing prices, which reduces the relative value of existing debt. Which, given the problems we have without our overly indebted society, wouldn't be a bad thing.

 

Inflation has more then tripled in the last 12 months, yet interest rates are the same or lower.
And Bernanke says he will not raise them until at least 2013.

That means seniors (and others who depend on their savings) are going to have at least 5 years of pathetic returns from those savings.

 

I didn't mean to imply it was instanteous. But eventually, banks lend money, and pay interest, on rates that include an assessment of inflation.

 

What do you mean relative debt?

And I typed the' LATE 70's/early 80's.'
Not 'the 70's.

Check your own chart - housing prices went WAY down when adjusted for inflation during the late 70's/early 80's.

 

And how much longer do you think these people that depend on their savings can hold out?

All you seem to care about is making sure those irresponsible homeowners that were ignorant/greedy enough to take out mortgages they could not afford, get to keep their homes.

I care more about those who have worked hard their whole lives, managed to save enough for their retirement - only to see all their plans fall apart because Keynesians are obsessed about making sure people that should not even own a home; get to keep it.

Personally, I have little empathy for those that took out mortgages way bigger then they should have.

No one put a gun to their heads - the responsibility is ALL theirs.

And they alone should face the consequences of their fiscal irresponsibility...not millions of taxpayers who acted responsibly.

 

I don't know, but the fact that their houses have dropped so far in value has probably hurt them as much as interest rates.

Your characterization is too broad, though there were certainly many who were speculating and flipping who got caught with their pants down.

My care is about improving the economy as a whole.

I'm not aware Keynesians are obsessed with that. Which Keynesians are obsessed with that?

Most didn't, at the time.

I put it more with the banks that made huge fees buying and selling mortgages that should never have been underwritten.

But the millions of taxpayers do in the form of the recession we are going thru.

 

Yeah but that's the point. We're not talking about adjusted for inflation.

 

You're correct. Common sense tells people that you are making good sense.

 

IMO, Bernanke, Obama and just about everyone who thinks the present course the Fed is taking is a good one.


Btw - there is near zero chance I am getting into long, multi- level, multi- quoted debates with anyone on pure theories and 'I believe that' or 'I believe this' back and forth debates.

I realize MANY on here do. Not me (generally).

Life is WAY too short for that IMO.

Just letting you know so you don't think I am dissing you in some way.