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I often read that deflation is bad because consumers will wait for the
price to drop instead of buy. I'm not so sure. A consumer
considering a purchase on credit could save money by waiting, but
chooses to buy now even though the eventual cost will be higher.
Computer buyers can always save money by waiting, nevertheless they
buy.
The only case I can think of where consumers tend to wait is housing.
But that market is so distorted it is possible consumers are waiting
for the price to drop because the value is so poor.
I guess the test would be automobiles. Would consumers wait a year to
get a 10% discount on a car? I doubt it.
I would propose that the real reason spending slows during mild
deflation is not the anticipation of a lower price. The problem is
the uncertainty that tends to accompany it. People afraid of losing
their source of income won't spend freely.
----
Just for fun it would be possible to construct a stable deflationary
economy with negative interest rates. Deposits earn -6% interest,
loans charge -3% interest, the Federal funds rate is -1%. I think
the necessary change would be to do away with paper money and the like
so it wouldn't be possible to gain by burying it in the back yard.
All money would always be on deposit in a bank or whatever,
You know, it is starting to seem like a good idea. :-) I'll put
that in my futuristic novel if I ever get started. How would it
affect the government deficit? It seems it would make no difference.
Government has to spend more because the money withers away before it
is used to pay tax, but government spends less because it gets
negative interest on its borrowings, so it would seem to cancel out.
Tax cuts would be routine as the money increased in value.
My, what a sadist you are, just when I finished gobbling down the last
bit
of the stale turkey leftovers, your wild imagination takes over.
Conduct the experiment first in Zimbabwe, it seems that failed African
state needs the proposed remedy more than any other place. Think of
it.
To start, that place will automatically become the most
technologically
advanced state in the Dark Continent. Then report back. Maybe we
could all celebrate with roast ostrich.
(just writing like this because of a spoilt appetite, please don't be
offended,
Sir)
====================================================
==
On Dec 2, 7:34 pm, p...@g...com wrote:
...<snipped>..
> ----
>
> Just for fun it would be possible to construct a stable deflationary
> economy with negative interest rates. Deposits earn -6% interest,
> loans charge -3% interest, the Federal funds rate is -1%. I think
> the necessary change would be to do away with paper money and the like
> so it wouldn't be possible to gain by burying it in the back yard.
> All money would always be on deposit in a bank or whatever,
>
> You know, it is starting to seem like a good idea. :-) I'll put
> that in my futuristic novel if I ever get started. How would it
> affect the government deficit? It seems it would make no difference.
> Government has to spend more because the money withers away before it
> is used to pay tax, but government spends less because it gets
> negative interest on its borrowings, so it would seem to cancel out.
> Tax cuts would be routine as the money increased in value.
p...@g...com wrote:
> I often read that deflation is bad because consumers will wait for the
> price to drop instead of buy. I'm not so sure. A consumer
> considering a purchase on credit could save money by waiting, but
> chooses to buy now even though the eventual cost will be higher.
> Computer buyers can always save money by waiting, nevertheless they
> buy.
>
> The only case I can think of where consumers tend to wait is housing.
> But that market is so distorted it is possible consumers are waiting
> for the price to drop because the value is so poor.
>
> I guess the test would be automobiles. Would consumers wait a year to
> get a 10% discount on a car? I doubt it.
>
> I would propose that the real reason spending slows during mild
> deflation is not the anticipation of a lower price. The problem is
> the uncertainty that tends to accompany it. People afraid of losing
> their source of income won't spend freely.
A couple of thoughts:
1) I agree that we now have a generation of consumers who have
experience with "waiting is cheaper". Consumer electronics is a very
large part of our spending over the last decade and more, and it's
always been a "save money and wait" business. We're now very comfortable
with saying "that's good enough, I want it now" at some point, then
buying. This changes the deflationary equation.
2) On paper, houses are deflating and that's theoretically bad. What
gets missed in that statement is that the % of average annual income
they had risen to (the bubble) was so out of whack that leaving the
prices there couldn't be economically healthy, either.
Same thing with many goods. I have been looking for a wide screen DLP,
and I noticed that the "deals" this season on a $3000 purchase were
close to $1000 off. So........"discounters" such as Best Buy are making
margins of well over 40% on this stuff. Since sales of such items have
depended on credit to prop them up, a lot of air is coming out of THOSE
bubbles, too.
Bad or good? I'd say good there as well.
JG
>
> ----
>
> Just for fun it would be possible to construct a stable deflationary
> economy with negative interest rates. Deposits earn -6% interest,
> loans charge -3% interest, the Federal funds rate is -1%. I think
> the necessary change would be to do away with paper money and the like
> so it wouldn't be possible to gain by burying it in the back yard.
> All money would always be on deposit in a bank or whatever,
>
> You know, it is starting to seem like a good idea. :-) I'll put
> that in my futuristic novel if I ever get started. How would it
> affect the government deficit? It seems it would make no difference.
> Government has to spend more because the money withers away before it
> is used to pay tax, but government spends less because it gets
> negative interest on its borrowings, so it would seem to cancel out.
> Tax cuts would be routine as the money increased in value.
>
p...@g...com wrote:
> I often read that deflation is bad because consumers will wait for the
> price to drop instead of buy. I'm not so sure. A consumer
> considering a purchase on credit could save money by waiting, but
> chooses to buy now even though the eventual cost will be higher.
> Computer buyers can always save money by waiting, nevertheless they
> buy.
>
> The only case I can think of where consumers tend to wait is housing.
> But that market is so distorted it is possible consumers are waiting
> for the price to drop because the value is so poor.
>
> I guess the test would be automobiles. Would consumers wait a year to
> get a 10% discount on a car? I doubt it.
>
> I would propose that the real reason spending slows during mild
> deflation is not the anticipation of a lower price. The problem is
> the uncertainty that tends to accompany it. People afraid of losing
> their source of income won't spend freely.
>
> ----
>
> Just for fun it would be possible to construct a stable deflationary
> economy with negative interest rates. Deposits earn -6% interest,
> loans charge -3% interest, the Federal funds rate is -1%. I think
> the necessary change would be to do away with paper money and the like
> so it wouldn't be possible to gain by burying it in the back yard.
> All money would always be on deposit in a bank or whatever,
>
> You know, it is starting to seem like a good idea. :-) I'll put
> that in my futuristic novel if I ever get started. How would it
> affect the government deficit? It seems it would make no difference.
> Government has to spend more because the money withers away before it
> is used to pay tax, but government spends less because it gets
> negative interest on its borrowings, so it would seem to cancel out.
> Tax cuts would be routine as the money increased in value.
The idea of an economy with negative interest is not quite new:
http://www.appropriate-economics.org/ebooks/neo/gese
ll.htm
<quote> Only money that goes out of date like a newspaper, rots like
potatoes, rusts like iron, evaporates like ether, is capable of standing
the test as an instrument for the exchange of potatoes, newspapers, iron
and ether. For such money is not preferred to goods either by the
purchaser or the seller. We then part with our goods for money only
because we need the money as a means of exchange, not because we expect
an advantage from possession of the money.
So we must make money worse as a commodity if we wish to make it better
as a medium of exchange. </quote> (Silvio Gesell)
Han de Bruijn
On 2 Des, 20:04, John Galt <k...@g...com> wrote:
>
> 2) On paper, houses are deflating and that's theoretically bad. What
> gets missed in that statement is that the % of average annual income
> they had risen to (the bubble) was so out of whack that leaving the
> prices there couldn't be economically healthy, either.
>
Yeah. In the old days the government would inflate the money so that
houses don't deflate because that would trigger more mortgage
defaults. The trouble with that once the inflation starts then
interest rates must rise so everyone with an ARM is at risk of
default. It's dilemma Catch-08. Man, they have sewed it up good this
time.
p...@g...com wrote:
> I often read that deflation is bad because consumers will wait for
> the price to drop instead of buy. I'm not so sure. A consumer
> considering a purchase on credit could save money by waiting, but
> chooses to buy now even though the eventual cost will be higher.
> Computer buyers can always save money by waiting, nevertheless they buy.
Thats a different situation, you have to buy sometime with something like that that
continues to drop over time.
Its different with say a car or house replacement where you would
normally be able to use the current one until you choose to replace it etc.
> The only case I can think of where consumers tend to wait is housing.
Cars also unless the earlier one has had a failure that doesnt warrant repair.
> But that market is so distorted it is possible consumers are
> waiting for the price to drop because the value is so poor.
Or just because they cant get credit.
> I guess the test would be automobiles. Would consumers
> wait a year to get a 10% discount on a car? I doubt it.
Plenty will, particularly when there isnt anything wrong with the original.
In spades with many consumer goods where there usually isnt a
clear failure of the original where it has to be replaced right now etc.
> I would propose that the real reason spending slows
> during mild deflation is not the anticipation of a lower price.
Corse it isnt. In most cases its due to the risk of losing your
job and being stuck with having to pay off the replacement
with no job etc. Particularly when the original is fully paid off.
> The problem is the uncertainty that tends to accompany it.
The whole of life is full of uncertainty. People deal with that fine.
> People afraid of losing their source of income won't spend freely.
Depends on what their savings level is like.
> ----
> Just for fun it would be possible to construct a stable deflationary
> economy with negative interest rates. Deposits earn -6% interest,
> loans charge -3% interest, the Federal funds rate is -1%.
You'll end up completely blind if you dont watch out.
No one is going to deliberately piss their money against the
wall with deposits in that pathetic little fantasy world of yours.
> I think the necessary change would be to do away with paper money and
> the like so it wouldn't be possible to gain by burying it in the back yard.
Eliminating paper money wouldnt stop that. You can just buy a high
density commodity like gold or diamonds etc and bury those instead.
> All money would always be on deposit in a bank or whatever,
Wrong, as always.
> You know, it is starting to seem like a good idea. :-)
Only because you're completely off with the fairys as always.
> I'll put that in my futuristic novel if I ever get started.
And it will get flushed where it belongs.
> How would it affect the government deficit?
You might as well dream up a situation where we can fart our way to the moon etc.
> It seems it would make no difference. Government has to spend more because
> the money withers away before it is used to pay tax, but government spends
> less because it gets negative interest on its borrowings, so it would seem to
> cancel out. Tax cuts would be routine as the money increased in value.
You really should give up on that wacky weed.
p...@g...com wrote:
> On 2 Des, 20:04, John Galt <k...@g...com> wrote:
>> 2) On paper, houses are deflating and that's theoretically bad. What
>> gets missed in that statement is that the % of average annual income
>> they had risen to (the bubble) was so out of whack that leaving the
>> prices there couldn't be economically healthy, either.
>>
>
>
> Yeah. In the old days the government would inflate the money so that
> houses don't deflate because that would trigger more mortgage
> defaults. The trouble with that once the inflation starts then
> interest rates must rise so everyone with an ARM is at risk of
> default. It's dilemma Catch-08. Man, they have sewed it up good this
> time.
Sure. When it comes to housing, the government has been highly
interventionist since the 30's, although the real damage started in the
60's and beyond.
Time to pay the piper.
JG
On Dec 2, 6:34 am, p...@g...com wrote:
> I often read that deflation is bad because consumers will wait for the
> price to drop instead of buy. I'm not so sure. A consumer
> considering a purchase on credit could save money by waiting, but
> chooses to buy now even though the eventual cost will be higher.
> Computer buyers can always save money by waiting, nevertheless they
> buy.
>
> The only case I can think of where consumers tend to wait is housing.
> But that market is so distorted it is possible consumers are waiting
> for the price to drop because the value is so poor.
>
> I guess the test would be automobiles. Would consumers wait a year to
> get a 10% discount on a car? I doubt it.
>
> I would propose that the real reason spending slows during mild
> deflation is not the anticipation of a lower price. The problem is
> the uncertainty that tends to accompany it. People afraid of losing
> their source of income won't spend freely.
>
> ----
>
> Just for fun it would be possible to construct a stable deflationary
> economy with negative interest rates. Deposits earn -6% interest,
> loans charge -3% interest, the Federal funds rate is -1%. I think
> the necessary change would be to do away with paper money and the like
> so it wouldn't be possible to gain by burying it in the back yard.
> All money would always be on deposit in a bank or whatever,
>
> You know, it is starting to seem like a good idea. :-) I'll put
> that in my futuristic novel if I ever get started. How would it
> affect the government deficit? It seems it would make no difference.
> Government has to spend more because the money withers away before it
> is used to pay tax, but government spends less because it gets
> negative interest on its borrowings, so it would seem to cancel out.
> Tax cuts would be routine as the money increased in value.
There are other more or less convenient stores of value besides
money, like collectibles and precious metals.
On Dec 2, 3:34 am, p...@g...com wrote:
> Just for fun it would be possible to construct a stable deflationary
> economy with negative interest rates. Deposits earn -6% interest,
> loans charge -3% interest, the Federal funds rate is -1%. I think
> the necessary change would be to do away with paper money and the like
> so it wouldn't be possible to gain by burying it in the back yard.
> All money would always be on deposit in a bank or whatever,
Your percentages are off. You have reversed the deposits and loans
rates. Loans should be at -6% and deposits earn -3%. With electronic
money this arithmetic would be possible, no problem.
RL
On Tue, 02 Dec 2008 09:31:48 -0600, John Galt wrote:
> p...@g...com wrote:
>> On 2 Des, 20:04, John Galt <k...@g...com> wrote:
>>> 2) On paper, houses are deflating and that's theoretically bad. What
>>> gets missed in that statement is that the % of average annual income
>>> they had risen to (the bubble) was so out of whack that leaving the
>>> prices there couldn't be economically healthy, either.
>>>
>>>
>>
>> Yeah. In the old days the government would inflate the money so that
>> houses don't deflate because that would trigger more mortgage defaults.
>> The trouble with that once the inflation starts then interest rates
>> must rise so everyone with an ARM is at risk of default. It's dilemma
>> Catch-08. Man, they have sewed it up good this time.
>
> Sure. When it comes to housing, the government has been highly
> interventionist since the 30's, although the real damage started in the
> 60's and beyond.
>
> Time to pay the piper.
Until 1986 all interest was deductible. The deductiblity of interest on
personal debt other than the Home was phased out at that time. I'm not
real sure why the "intervention" stuff is dated to the 60's but for the
purpose of defending Republicans from the specter of their larceny. The
_REAL_ bubble blowing interventions happened under the Republican
Congresses. And the George Bush HUD.
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