Disinflation to Deflation

[clubbin714]

There seems to be a lot of talk about this issue between economist these days. The basic problem seems to be that over capacity around the world is causing prices to drop. Capacity clocked in at 74.4%, its lowest level in 20 years. Declines in core commodities reached 1.7% in the past 12 months, the lowest the 12 month change in this index. Year-over-year core inflation has not been this low since 1966.

However, in the US, we seem to be in a period of disinflation vs. deflation. I am not sure I would say the same for other parts of the world. Although I think the possibility of moving from disinflation to deflation is minimal, it is a possibility. If so, economic times could stay bad for some time.

What do you guys think about deflation?

[clubbin714]

As inflation slows down it is catagorized as disinflation. If it goes negative, it is classified as deflation. Our economy has been in a period of disinflation for years.

[Anonymouse]

What economy? There is no real money in circulation to begin with? The Federal Reserve creates inflation and deflation at will as it sees, just like it sets interest rates.

People need to understand how the system works.

[anileve]

I don't think there has been much talk regarding economy lately. So how about we dip into the economic systems, Federal Reserve and Keynesian economics .

Is government really independent of economics, can two entities exist independent of one another? How much does Federal Reserve really control? And what went wrong during the Great Depression?

I think all of this is highly intriguing, I'd love to read some thoughts.

[Anonymouse]

If you want to really read a good book about the Federal Reserve, I suggest



by William Geider

You should also get the book "Secrets of the Federal Reserve" by Eustace Mullins, but I think a version of it is online

http://www.apfn.org/apfn/reserve.htm

And of course perhaps everyone should read, what I think, is the most definitive work on how this came to be.

[Anonymouse]

This is the description of the book taken from Amazon.com

http://www.amazon.com/exec/obidos/tg/detail/-/0945466102/ref=pd_sim_books_3/104-6670130-8752714?v=glance&s=books

Where does money come from? Where does it go? Who makes it? The money magicians' secrets are unveiled. We get a close look at their mirrors and smoke machines, their pulleys, cogs, and wheels that create the grand illusion called money. A dry and boring subject? Just wait!

You'll be hooked in five minutes. Reads like a detective story - which it really is. But it's all true. This book is about the most blatant scam of all history. It's all here: the cause of wars, boom-bust cycles, inflation, depression, prosperity.

Creature from Jekyll Island is a "must read." Your world view will definitely change. You'll never trust a politician again - or a banker.

[anileve]

Originally posted by Anonymouse Your world view will definitely change. You'll never trust a politician again - or a banker. [/B]

You would like that wouldn’t you, although I don’t see it happening any time soon.

You still didn’t give me a valid argument as to how economics is independent of politics. Yet at the same time you claim that an impact of a war can influence the economic sector of the country. Basically you dispute the idea that both systems have to coexist together to create an efficient national economic state.

[Anonymouse]

Originally posted by anileve You would like that wouldn’t you, although I don’t see it happening any time soon.

You still didn’t give me a valid argument as to how economics is independent of politics. Yet at the same time you claim that an impact of a war can influence the economic sector of the country. Basically you dispute the idea that both systems have to coexist together to create an efficient national economic state.

First of all let's not confuse economy with economics, since the two are different things, the initial is the system of production and distribution and consumption, which only happens because of businesses and consumers. The latter is the social science that deals with it. With that said, it is patently clear that economy is independent of politics because economy works outside of the framework of politicians. In fact economic laws are true empirical propositions ( praxaeological laws ), that have their root in the individual.

Politicians and politics do not "create jobs", as you might hear those Demorats proclaim on CNN or FOX, they only regulate it and hamper on it. The only time when economy and politics merge is in a socialistic system in which politics intervenes in economics, and seeks to redistribute wealth. Moreover, economic laws, correspond to praxaeological laws, and praxaeology is the study of human conduct. Praxaeology deals with human choice and conduct, politics aims at curbing it. I don't know you're urge at knowing the distinction between politics and economics ties in to the Federal Reserve, but suffice to say that the Federal Reserve is a private corporation that has been allied with the government. There used to be a word which we called to denote such a system. Ahh yes, I believe it was fascism. You don't see anyone call this fascism nowadays, do you?

I will leave you with this boring and tedious explanation offered by someone, about the difference between human action ( praxaeology ) and everything else falls into offered by someone.

Economics is the youngest of all sciences. In the last two hundred years, it is true, many new sciences have emerged from the disciplines familiar to the ancient Greeks. However, what happened here was merely that parts of knowledge which had already found their place in the complex of the old system of learning now became autonomous. The field of study was more nicely subdivided and treated with new methods; hitherto unnoticed provinces were discovered in it, and people began to see things from aspects different from those of their precursors. The field itself was not expanded. But economics opened to human science a domain previously inaccessible and never thought of. The discovery of a regularity in the sequence and interdependence of market phenomena went beyond the limits of the traditional system of learning. It conveyed knowledge which could be regarded neither as logic, mathematics, psychology, physics, nor biology.

Philosophers had long since been eager to ascertain the ends which God or Nature was trying to realize in the course of human history. They searched for the law of mankind's destiny and evolution. But even those thinkers whose inquiry was free from any theological tendency failed utterly in these endeavors because they were committed to a faulty method. They dealt with humanity as a whole or with other holistic concepts like nation, race, or church. They set up quite arbitrarily the ends to which the behavior of such wholes is bound to lead. But they could not satisfactorily answer the question regarding what factors compelled the various acting individuals to behave in such a way that the goal aimed at by the whole's inexorable evolution was attained. They had recourse to desperate shifts: miraculous interference of the Deity either by revelation or by the delegation of God-sent prophets and consecrated leaders, preestablished harmony, predestination, or the operation of a mystic and fabulous "world soul" or "national soul." Others spoke of a "cunning of nature" which implanted in man impulses driving him unwittingly along precisely the path Nature wanted him to take.

Other philosophers were more realistic. They did not try to guess the designs of Nature or God. They looked at human things from the viewpoint of government. They were intent upon establishing rules of political action, a technique, as it were, of government and statesmanship. Speculative minds drew ambitious plans for a thorough reform and reconstruction of society. The more modest were satisfied with a collection and systematization of the data of historical experience. But all were fully convinced that there was in the course of social events no such regularity and invariance of phenomena as had already been found in the operation of human reasoning and in the sequence of natural phenomena. They did not search for the laws of social cooperation because they thought that man could organize society as he pleased. If social conditions did not fulfill the wishes of the reformers, if their utopias proved unrealizable, the fault was seen in the moral failure of man. Social problems were considered ethical problems. What was needed in order to construct the ideal society, they thought, were good princes and virtuous citizens. With righteous men any utopia might be realized.

The discovery of the inescapable interdependence of market phenomena overthrew this opinion. Bewildered, people had to face a new view of society. They learned with stupefaction that there is another aspect from which human action might be viewed than that of good and bad, of fair and unfair, of just and unjust. In the course of social events there prevails a regularity of phenomena to which man must adjust his actions if he wishes to succeed. It is futile to approach social facts with the attitude of a censor who approves or disapproves from the point of view of quite arbitrary standards and subjective judgments of value. One must study the laws of human action and social cooperation as the physicist studies the laws of nature. Human action and social cooperation seen as the object of a science of given relations, no longer as a normative discipline of things that ought to be--this was a revolution of tremendous consequences for knowledge and philosophy as well as for social action.

For more than a hundred years, however, the effects of this radical change in the methods of reasoning were greatly restricted because people believed that they referred only to a narrow segment of the total field of human action, namely, to market phenomena. The classical economists met in the pursuit of their investigations an obstacle which they failed to remove, the apparent antinomy of value. Their theory of value was defective, and forced them to restrict the scope of their science. Until the late nineteenth century political economy remained a science of the "economic" aspects of human action, a theory of wealth and selfishness. It dealt with human action only to the extent that it is actuated by what was --very unsatisfactorily--described as the profit motive, and it asserted that there is in addition other human action whose treatment is the task of other disciplines. The transformation of thought which the classical economists had initiated was brought to its consummation only by modern subjectivist economics, which converted the theory of market prices into a general theory of human choice.

For a long time men failed to realize that the transition from the classical theory of value to the subjective theory of value was much more than the substitution of a more satisfactory theory of market exchange for a less satisfactory one. The general theory of choice and preference goes far beyond the horizon which encompassed the scope of economic problems as circumscribed by the economists from Cantillon, Hume, and Adam Smith down to John Stuart Mill. It is much more than merely a theory of the "economic side" of human endeavors and of man's striving for commodities and an improvement in his material well-being. It is the science of every kind of human action. Choosing determines all human decisions. In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference. The modern theory of value widens the scientific horizon and enlarges the field of economic studies. Out of the political economy of the classical school emerges the general theory of human action, praxeology. The economic or catallactic problems are embedded in a more general science, and can no longer be severed from this connection. No treatment of economic problems proper can avoid starting from acts of choice; economics becomes a part, although the hitherto best elaborated part, of a more universal science, praxeology.



Ludwig von Mises, Human Action

[Anonymouse]

"The Federal Reserve Conspiracy" by Prof. Antony Sutton.
This is a short history of money and finance in America. Professor Sutton carefully documents the secret plans of a small group of wealthy bankers to gain control of the financial and political power of the United States using government documentation to validate his charges.

[clubbin714]

I think I will give this is a shot, starting with my thoughts on the great depression and why it occurred.

A number of things in the U.S.

. A decrease in liquidity due to the stock market crash.
. A reduction in international trade by new tarrif laws.
. A reduction in the supply of money by the govt.
. An unwarranted increase in interest rates by the govt.


All of these resulted in a dramatic decline in investment and consumer spending, and things spiralled down


1) Cause and effect run from the economy to the stock market, not vice versa. Eliminating the stock market would not have stopped the Great Depression from occurring (although I guess you could argue that if the stock market had not existed, the rampant optimism that prevailed would not have been so extreme; therefore people would not have bought so much stuff on credit). The forces that caused the Great Depression had been building throughout the 20's; some of the bigger segments of the economy had been in decline since '27 or '28 like the farm and automotive sector.

2) Smoot-Hawley Tariff Act which amounted to US protectionism. was definitely a big mistake. Instead of allowing liquidation to occur, which is usually what happens during a recession/depression, more inefficiencies were built into the system. All of the alphabet soup agencies created by FDR made it more difficult for the economy to adjust by deficit spending and creating a bigger debt burden. It wasn't until the onset of WWII that the economy really got moving again. The fact that we were on the winning side and the fact that all of our major pre-WWII industrial competitors were decimated to one degree or another, had much to do with our recovery from the Great Depression.

3) Fed policy: as the 1920's passed by, certain astute members of the financial community saw the danger present by having an excessively easy money policy. But stock speculation was rampant and it was feared that a sudden raising of interest rates would cause a severe decline in the stock market and loss of confidence. Some half-hearted measures were taken but they didn't do anything to stop speculation. When the bubble finally burst, cranking up the money supply lost out to national and global defla-tionary forces. As Jim Davidson and William Rees-Mogg point out in their book *The Great Reckoning*, the question isn't "can the govt. print money" but rather "when do the costs of printing money exceed the benefit you get from printing it?" If you print money too rapidly, the value of each existing dollar/pound/lira/yen/whatever falls even more rapidly. They say that is why all countries with advanced capital markets (ie bond markets) have been constrained to undergo deflationary depressions rather than inflationary ones.

So even though the causes of the Great Depression are generally accepted among economic scholars there are still those who interpret things differently.

Comments? Holes in my logic?