Why would the FED want to fight Deflation?

Originally posted by Frogs
Basically for some of the reasons already posts it can be considered a bad thing. Sometimes if it happens as the result of productivity gains it can be good - kinda like you figure out how to make something cheaper and can charge less.

But - if it happens as the result of people mucking about with the economy when they shouldn't - it can be bad.

Read..

Deflation: The Good, The Bad and The Ugly

and...

Why Is Deflation Bad?

lies.


Deflation and Liberty
mises.org...

here's a real reason why deflation might be bad, minimum wage laws would cause unemployment.
blog.mises.org...

Deflation: Hurrah!
mises.org...

Here's a pile of macroeconomic lectures all favorable of deflation
fascistsoup.com...

Deflation is part of curing a broken economy.

Debt is paid down and capital savings are rebuilt. This necessitates deflation. There is only one reason Keynesians think deflation is bad, they can't loot the piss out of the tax payer when its occurring.

This is very simple.

If a private cartel of banks is in favor of it, you should by default be against it. Inflation never works in favor of the common man. It only benefits the rich.


[edit on 3-8-2010 by mnemeth1]

reply to post by mnemeth1


I never mad it past the the second articles header. As soon as I saw Liberal I stopped reading. Its all Liberal BS

Let me give you the macro scheme of how this works.

Step one, own a mega-commercial bank.

Step two, place your men in the Fed, Treasury, Congress, and the Presidency.

Step three, lend out trillions of dollars in loans not caring if they are paid back or not.

Step four, use the power of government to have the tax payers pay back those loans that defaulted.

Step five, when the tax payers go broke trying to pay back all the bad loan deals you made, take your profits and buy up commodities

Step six, have the Fed monetize the debt (print money) to pay back the debt.

Step seven, your commodities are now worth a gagillion times what you bought them for.

Step eight, trade your commodities for the new currency that is established to replace the old failed currency.

Step nine, retire to the Caymans.

Don't be fooled into thinking that deflation will hurt everyone. Deflation is bad for big traders and corporate assets in high yield funds. I'm no big economist researcher or anything, but I watch my own portfolio and try to educate myself on certain market trends.

Basically, when deflation happens as I understand it debt takes a massive down-turn. When that happens, buying up debt becomes more expensive, because the risk is lower and there's less supply. When the hedge funds screech to a halt, then companies that are in loaning out massive amounts of money do not get cash influx nearly as fast, because they can't sell their debt off.

Ex. You get a mortgage for $250,000 @ 5% APR over 30 years you end up paying $483,140 at the end of your mortgage. That's a difference of $233,140, which is the profit that the loan company makes. So what they do is they basically sell the debt off at $215,000. They get that money now and someone else takes the risk and waits for it to mature to make their $18,140.

In fantasy land "big business" gets surprised by deflation and quarterly projections fail to meet expectations then investors pull out and now there's too much overhead and companies cut-back (including laying you off). All the while nobody is buying because they are waiting for Wal-Mart to keep rolling back! THE ECONOMY IS GOING TO DIE!

But in reality companies see this coming and make adjustments over time to compensate a little. People don't really hold out for lower prices, but continue to buy more, because they can afford to. Afterwards the economy is stimulated because people are buying more and loan companies may not have the same cashflow and profits, but other companies are financially healthy and growing because people are buying more.

The sad part is that those rich guys with portfolios aren't making much on hedge funds and must invest in things that take time to mature at lower interest rates (like CD's, bonds and the like). Awww, the rich just aren't as rich. I told you it was sad.


Anyway, I hope you enjoyed my little explanation. I'm sure Ben Bernanke would tell everyone that I'm stupid if I mattered. But he's been doing a great job with the economy so far, right?

reply to post by Zaxxon


Pretty much right on dude.

Deflation hurts the bankers and the uber-leet Hollywood types, our criminal political class included.

In the long term, deflation helps the common man much more than it hurts him.

Yes, layoffs do occur but those layoffs are necessary to get people back into PRODUCTIVE jobs and out of the UNPRODUCTIVE jobs they are currently holding.

For example we don't need more people building houses, we need more people building things we can sell to China so we can pay them back for all the crap our government blew their money on.

reply to post by SWCCFAN

sorry to hear that...
Im up for retraing myself - a year or two of community college
part of the Canadian safety net,
because my job went to reduced hours,
but it is bullet biting time going back to school...
my present job is going too smooth though
and I see a sea change coming
so I'll take the new skills if I can...
The Canadian economy is tied to the US economy

wish you the best of luck SW



trouble is staples can still go up
tying up the average income
which leads to overall statistical deflation
while people are going homeless and hungry

[edit on 3-8-2010 by Danbones]

[edit on 3-8-2010 by Danbones]

[edit on 3-8-2010 by Danbones]

These idiots are STILL trying to save the system.

If you study economic history, usury (interest) produces nothing of value, and over time it creates speculative wealth based on nothing - no underlying goods or services.

Every 60 years or so, the system has to crash and reset. This has been going on since the Roman empire. But they keep trying to "save" the system ... and in the process they keep building up to an inevitably bigger crash.

This is WHY, for the last 20 years we've seen middle income families deteriorate. This is WHY we live in a time of vast under-employment as well as unemployment. This is WHY municipal, state and federal debts around the world are skyrocketing.

Deflation is happening because many people simply can not afford to buy anything more than the essentials ... and there's absolutely nothing the Fed can do about that.

They're just going to fire some more magic bullets at the system and push the problem down the road a bit. And make it worse ...

At first they were buying years of time. Then months. Now it's weeks they're buying with every new solution.

Have you seen the dollar index lately??.. the dollar is down in value and has been on a steady steep downturn for the last month.. The dollar is 8 points from where it was in the height of the last "crisis" in 2008 .. however the dollar lost 8 points in the last month already... this claim of deflation is utter BS, they are going to say there going to fix the "deflation" and totally destroy the dollar in the process.. there trying to hyper-inflate the dollar.. it's the only way out of this debt mess we are in.. and they know it.. How else do you pay for crap loads of debt when productivity in the country is dropping like a rock and unemployment and underemployment are rampant.. Don't believe a word these slick bastards say .. look at the numbers.. the numbers don't lie.. I remember just a few years ago spending less than $100 a month on food, for that money now I cant walk out of the store on a weekly basis spending less than $75.. thats 300 a month on the same stuff and we have even cut back on many things. Products and goods are not getting cheaper , there isn't any deflation.. the economy is falling apart from every aspect.. and there doing everything they can to hide it!

Look at this chart, set it to weekly and 510 records :
www.fxstreet.com...

You can see how quickly were going down and the trend line is now just starting to decline.. I hope your got you safety belts on because this is going to be really really ugly.

I think I am done, there are some very well thought out intelligent posts on here, and too many that are not either. Seems to be a large portion of the site seems to think if I scream "The sky is falling, and the government sucks" long and loud enough, I will one day be a hero.

Someone who will never be a hero, but I will survive.

Originally posted by Malech
Because when there is deflation, the price of things starts to reduce.

If this happens for a while, people will see that prices are falling and think "why buy today, when it'll be cheaper tomorrow?", which exacerbates the problem. So prices start falling, people aren't buying, and companies start collapsing from lack of cashflow - leading to loss of jobs, even less people buying and then you start spiralling into a depression.

So deflation isn't really something you want

Glenn Beck (ya, I know) had a good explanation of this yesterday. He said the same thing, but I would add that in the end it leads to hyper-inflation.

Loaf of bread for $20 anyone?

reply to post by CUin2013?


If bread is $20 I will no longer be a lawful citizen. I will become a revolutionary.

When this comes to pass their will be 2 classes of people the untra rich and the Mega poor.

Robin hood anyone ....

Banksters beware We the People are coming for you too!

Wont they have to remove money currently in circulation?
Deflation in theory requires less cash in circulation to allow for the increase in value doesnt it?
Hyperinflation is when the presses run day and night and you get wheelbarrows full of worthless paper, correct?
I know they control the value but isnt this part of the mechanics to reach their desired goals?
In all honesty I believe they can make or break any nation over a cigar and drink after a golf game, just because they want to.

The reason why the Feds will be forced into deflation is because they can't really drop their interest rates anymore than they already are to keep loans (consumer debt/corporate debt) flowing in a down-turn economy. It is to the point to where nobody wants to really lend and nobody wants to take out a loan.

The only next option, which is in the interest of the Fed, IMF, and the World Bank would be to raise the value of the dollar to get people to start spending and lenders to start lending.

Deflation is pretty much the only choice left. And nobody waits for lower prices when they drop in today's society. At least not in the US. Deflation should be good for just about everyone. I wouldn't expect it to be drastic, because deflation won't be drastic.

reply to post by Zaxxon


Well, that's not the only choice left.

Deflation is what the market wants.

What we will get is inflation.

The Fed is going to turn the printing press on overdrive until the US turns into the Wiemar Republic.

reply to post by mnemeth1

Let's hope not. I don't know what that'd accomplish other than sustaining a bad economy that could get worse.
If I were a conspiracy theorist I'd say that they would pass massive public welfare programs to make the poor dependant on the government and then do this to choke out the middle class.


[edit on 3-8-2010 by Zaxxon]