23 Jul 12
Originally posted by normbenignNo, the question should be 'should it be prevented'.
The question should be why, and can it be prevented?
The two main reasons we have inflation are:
1. It is a hidden tax. It is a flat rate tax on everyone (which hurts the poor more than the rich) but is not noticed by most people until inflation gets very high.
2. Human psychology. Generally we do not like our salaries to go down. If salaries go down, even in a time of deflation, people believe they are worse off and blame the government. Therefore governments are likely to keep salaries going up to keep people happy. Similarly businesses benefit from low inflation in that their employees salaries keep going down and to some extent they can choose whether to give raises at the inflation level or below it. However reducing salaries would be practically impossible. Most importantly this applies to government workers (and it is government that makes decisions regarding inflation).
23 Jul 12
Originally posted by twhitehead"1. It is a hidden tax."
No, the question should be 'should it be prevented'.
The two main reasons we have inflation are:
1. It is a hidden tax. It is a flat rate tax on everyone (which hurts the poor more than the rich) but is not noticed by most people until inflation gets very high.
2. Human psychology. Generally we do not like our salaries to go down. If salaries go down, ...[text shortened]... applies to government workers (and it is government that makes decisions regarding inflation).
This makes it basically deceptive and fraudulent. Historically currency is debased when government has taxed as much as it dares to directly, and still wants more revenue, typically to fight unpopular wars.
23 Jul 12
Originally posted by normbenignIt is also used for defrauding other countries (as the US is currently doing). Basically, you borrow money in your own currency, then devalue the currency, thus lowering your debt.
"1. It is a hidden tax."
This makes it basically deceptive and fraudulent. Historically currency is debased when government has taxed as much as it dares to directly, and still wants more revenue, typically to fight unpopular wars.
The biggest problems come with very high inflation as it makes business planning very hard to do and saving very difficult. It can wipe out peoples retirement funds or pension schemes.
27 Jul 12
Originally posted by normbenignSo how do you feel about deflation - which, say, Japan has been experiencing at times during its long recession?
"1. It is a hidden tax."
This makes it basically deceptive and fraudulent. Historically currency is debased when government has taxed as much as it dares to directly, and still wants more revenue, typically to fight unpopular wars.
Is deflation a form of tax rebate? Should it be encouraged by the libertarian / conservative right?
27 Jul 12
Originally posted by TeinosukeIt depends on where the deflation is coming from.
Is deflation a form of tax rebate?
Zambia experience deflation a few years ago (2007 if I recall correctly) because the copper price went up due to demand from China, and partly because of debt reduction (interest payments on foreign debt is one of the largest costs Zambia has).
The effect was that peoples buying power significantly increased especially with regards to imported goods (cars/electronics etc).
So people effectively became wealthier in a very short space of time. It was fantastic.
However the benefits were not coming from the government. The benefits were coming from external sources (Chinas demand for Copper, and lowered demand for interest payments from foreign creditors).
So it wasn't really a tax rebate. If anything, the government itself was benefiting too, collecting more tax and keeping more of it for use within the country.
27 Jul 12
1 edit
Originally posted by twhiteheadInteresting anecdote. I've never quite been able to figure out why deflation upsets economists so much! But perhaps it's just one of those cases where the assumptions of economists diverge from the needs of real people.
It depends on where the deflation is coming from.
Zambia experience deflation a few years ago (2007 if I recall correctly) because the copper price went up due to demand from China, and partly because of debt reduction (interest payments on foreign debt is one of the largest costs Zambia has).
The effect was that peoples buying power significantly inc self was benefiting too, collecting more tax and keeping more of it for use within the country.
28 Jul 12
Originally posted by TeinosukeActually, fighting deflation was Hoover's mistake, continued by FDR. Deflation was natures way of cooling the overheated economy. It is taking your medicine like when a golfer who has driven into the woods, takes a horizontal shot, to get back on the fairway.
So how do you feel about deflation - which, say, Japan has been experiencing at times during its long recession?
Is deflation a form of tax rebate? Should it be encouraged by the libertarian / conservative right?
As to being a tax rebate, I guess that analogy would be correct.
28 Jul 12
Originally posted by twhiteheadI couldn't agree more. Inflation policy is fraud pure and simple. It is hard to see why it is so easy to keep going.
It is also used for defrauding other countries (as the US is currently doing). Basically, you borrow money in your own currency, then devalue the currency, thus lowering your debt.
The biggest problems come with very high inflation as it makes business planning very hard to do and saving very difficult. It can wipe out peoples retirement funds or pension schemes.
Like most frauds, the mark sees the game as an advantage. A friend tells me how much money he's made on his various home purchases. Yes, he "made money" if you consider only the buying and selling price of the homes. He also luckily bought at a relatively low point and sold at an inflated high point. Lots of people recently haven't been so lucky. The trouble is, with this theory, it ignores that the early high level of interest amortization ate up all or most of his "profits". Also, his cash on hand after the deals had far less buying power than it had years earlier.
The most common historical beneficiary of inflation is the ability to wage wars. If war mongers had to tax workers for their military exploits and buildups, a lot fewer wars, even justifiable wars would be fought.
Inflation also creates confusion and arguable positions for demagogues to hide behind.
28 Jul 12
Originally posted by Teinosuke"I've never quite been able to figure out why deflation upsets economists so much!"
Interesting anecdote. I've never quite been able to figure out why deflation upsets economists so much! But perhaps it's just one of those cases where the assumptions of economists diverge from the needs of real people.
Economists tend to work for government and banking, institutions which tend to be able to benefit at least in the short run from inflation. The other breed of economist works in academia, is an intellectual, whose output is ideas. These are seldom rewarded for being right or punished for being wrong. They often are partly supported by governments for their ideas, and fame or recognition for them comes from government and banking.
28 Jul 12
Originally posted by normbenignYes, housing bubbles and stock market bubbles though not inflation are related. Whenever a discussion about the collapse of the US housing market and economy in general comes up, one thing I say is that the real problem is that because of a housing market bubble and stock market bubble they thought they were richer than they really were. So they haven't actually lost real money, they have lost imaginary money they never really had. Of course the clever people who got out just before the collapse or before rock bottom, ended up gaining real wealth at the expense of those that didn't get out.
A friend tells me how much money he's made on his various home purchases. Yes, he "made money" if you consider only the buying and selling price of the homes. He also luckily bought at a relatively low point and sold at an inflated high point. Lots of people recently haven't been so lucky.
28 Jul 12
Originally posted by normbenignOn the other hand, he's certainly better off that if he'd thrown away all that money on renting. Our monthly mortgage payments here are actually probably slightly less than it would cost to rent this house on the open market!
Like most frauds, the mark sees the game as an advantage. A friend tells me how much money he's made on his various home purchases. Yes, he "made money" if you consider only the buying and selling price of the homes. He also luckily bought at a relatively low point and sold at an inflated high point. Lots of people recently haven't been so lucky. The ...[text shortened]... lso, his cash on hand after the deals had far less buying power than it had years earlier.
31 Jul 12
Originally posted by TeinosukeOnly if you don't count all of the tangential costs. You may rent for let's say exactly the same as someone's house payment.
On the other hand, he's certainly better off that if he'd thrown away all that money on renting. Our monthly mortgage payments here are actually probably slightly less than it would cost to rent this house on the open market!
The renter pays no maintenance costs typically. Sometimes not even cutting grass or shovelling snow. There are favors from government to homeowners, but I question these favors. Clearly those whose homes were inflated prior to 2008 that were left 'under water' lost out on the basis of inflation.
The renter is not "throwing money away" if he gets value. He surely gets freedom to move that the homeowner doesn't. And the homeowner is subject to the vagueries of real estate law, taxes and the government.
31 Jul 12
1 edit
The only reason I rent is I need to stay flexible. The Finnish government (at least in my area) has a rather peculiar system of paying the rent up to something like $800/mo or so for people on benefits, effectively setting that price as the minimum price for rental homes in the private sector. It's really quite silly.