What is Digg?122 Comments
- inactive, on 04/02/2009, -4/+44Excellent article; I love these.
- lcohiomatty86, on 04/02/2009, -3/+38why things like this can't make it to the front page more often.. who knows.. this is INCREDIBLY useful and helpful information for the agerage joe out there.
- kemp34, on 04/02/2009, -3/+24This article continues the popular error that the Consumer Price Index is the measure of "Inflation".
Inflation is actually an expansion of the currency and credit in the economy. Consumer prices rising is one symptom of true inflation. - ostracize, on 04/02/2009, -1/+19I think the image failed to identify an important balance:
If inflation is good for the borrower, then it must also be bad for the lender.
If it is bad for the saver, it must also be good for the spender.
Therefore:
Inflation is good for the borrower and spender, and bad for the lender and saver.
Therefore, the longer inflation lasts for, the lenders and savers are reduced in number until there is no one left to finance the borrowing and spending. Maintaining a good balance of BOTH inflation and deflation should make for a stable economy. - JeeBs, on 04/02/2009, -4/+22Good presentation of a complicated and non-intuitive subject. Should help your average Joe understand the important bits about inflation.
- kingmanic, on 04/02/2009, -0/+17FTA highlights what the Fed should have been doing (raising interest rates to cool a super heated economy) but doesn't mention the Fed did the exact OPPOSITE and kept interests rates really low. That contributed to the problem we have now.
- Rothbardosaurus, on 04/02/2009, -1/+18"Risk of Deflation" OH NOES!! You mean prices might go down?
Economies can grow while prices decline. See the USA during its time on a hard gold standard. Steadily declining consumer prices, and a sustainable economic boom that puts the emergence of Asia to shame. - ninjaturtles1, on 04/02/2009, -0/+12Correct! I noticed that error too!
Also Note: Core inflation figures, exclude the most volatile components of the CPI, food and energy. Also, CPI does not include housing prices it looks at the owners' equivalent to rent in an effort to mitigate the former's adverse effects on measured inflation rates. I think you will find these core inflation figures in America are understated by the government by about 5%. - BlacklabelSAR, on 04/03/2009, -1/+12Where's the edition for Fractional Reserve Banking? And where is the one that explains why our government can print bonds but not dollars?
It's like what was explained was the mechanics of lubrication but not that fact that you are being *****.
Watch Money as Debt.
http://video.google.com/videoplay?docid=-446781510 ... - beatitlikeacop, on 04/02/2009, -6/+17I don't need to be well informed, I already drank the kool-aid, Obama will fix everything!!
- praha, on 04/02/2009, -3/+12
That lit up a couple lightbulbs over the head.
So, (FTA's monetarist's view)...
Lowering interest rates spurs people to take out more loans
More loans means more debt = creating more money.
More money created = increasing money supply
Increased money supply = devaluing of existing money
Devalued money = inflation.
Oh. *blink* - onClipEvent, on 04/02/2009, -0/+9that's still a lot of words for a 'visual' guide.
- michelsonmorley, on 04/02/2009, -3/+12It didn't address inflation due to credit. One of the major sources of deflation is because banks loan out so much money, that they don't actually have. The banks that failed first had over 20 dollars loaned out per dollar in the bank. Depressions are a natural result.
Fed loans to banks causing inflation -> banks loan to risky people (money they don't actually have) causing more inflation -> banks borrow from Fed to secure themselves -> banks continue to loan to risky people -> repeat until -> bank fails when Fed stops giving them credit leading to deflation.
The housing bubble was merely a consequence of this. If it wasn't risky investments in houses, it would have been something else.
At least, that's how I see it.. - Rothbardosaurus, on 04/02/2009, -4/+13Inflation is what happens when bankers and their puppet governments steal. The end.
- bobburn1, on 04/02/2009, -0/+8Not just kept them low, they cut them lower and lower with reckless abandon.
- kemp34, on 04/02/2009, -2/+10Spending and investment decisions should be made for rational reasons. Fear that your store of value will be debased is not a quality reason to spend/invest. Hence, when decisions are made because of this, you get severe malinvestments and excess consumption, as we have witnessed in spades over the past twenty or so years. Clearly, it makes more sense to have rational economic decisions, than decisions made based on fear of monetary debasement. How this monetarist argument became so entrenched is beyond me.
- Sucka27, on 04/02/2009, -1/+9Yeah and the average joe can use it too. Age-rage joe is too angry to really get it.
- fofgrel, on 04/02/2009, -1/+9It's also important to note that when the a) the government doesn't print money The Federal Reserve does, and then LOANS it to the government. and b) when the government spends newly printed money, the market has not yet adjusted for it, so they get to spend it at it's "un-inflated" value.
- ninjaturtles1, on 04/02/2009, -1/+8Its not the people that want inflation! It's the government!
The voters love spending and no one likes taxes! Fiat money gives the government the best of both worlds! It can spend like mad to make the voters happy and it doesn't need to increase taxes!
The Feberal Reserve can create money out of thin air and tax silently through inflation!
Core inflation figures, exclude the most volatile components of the CPI, food and energy. Also, CPI does not include housing prices it looks at the owners' equivalent to rent in an effort to mitigate the former's adverse effects on measured inflation rates. I think you will find these core inflation figures in America are understated by the government by about 5%. - gilbes, on 04/03/2009, -1/+8The article is wrong. Inflation never helps you. And their loan example is complete *****.
It is not like lenders are unware of inflation, it is built in to your loan and the payments.
When was the last ***** time you saw a bank loan with interest that was compounded on the day it was due and the interest is less than inflation? Never.
They coupoun more frequently and then amoritze the payments so they pay off less principal when the money is worth more at the begining of the loan. By the time the majority of your payment goes twords the principal, the money is worth less, but so is the loan so they don't really care. They already got their money from the high value of the money paid at the begining that went twords interest.
This might be why we are in a credit crisis, people can't understand some basic facts about compound interet and amortization schedules.
Also, savings accounts are BS because you can never make money unless the interest is over the rate of inflation which is hardly ever the case. They best most of them do it slightly lessen the effect of inflation. And the bank made a lot more money with your money in the meantime, and it actually cost you for the pleasure of them doing that. - lofispy, on 04/02/2009, -2/+9While you are in the right ballpark, ultimately you fail to see the deeper implications of what you are speaking on. To jump from the idea that inflation has both pros and cons to the conclusion that therefore fractional reserve banking and the fed are necessary evils is not a logical argument. In fact, it is the monetary systems put in place by the very existence of things like fractional reserve banking that has led to and fostered the environment where a money bubble was allowed to happen in the first place. The only reason that saving money has become so detrimental to the health of the economy is the fact that money no longer has a hard anchor anymore, and instead has been tied to and made to rely on the creation of debt as the arbiter of its existence. In other words, the only way for the system to continue to perpetuate is an ever-growing bubble of public and private debt. That, quite simply, is not sustainable.
You speak of global economic contraction as a bad thing, when the truth of the matter is quite the opposite. Together we have all stood by and bought into the illusion of endless abundance and wealth, which has led to one of the most pronounced periods of over-valuation of commodities that the world has ever know. While it may be painful, at this point the only medicine left is one of deflation, and ultimately, a return to common sense fiscal policies that demand a hard anchor for currency and a realization for the need to be building equal opportunity free markets based of decentralized small business and not government regulated big business. - divinediva, on 04/02/2009, -4/+10Excellent Presentation..
- spyd3rweb, on 04/02/2009, -2/+8"The economy will experience slow growth" yes it will be a natural sustainable growth, not an artificial growth caused by easy credit. Creating conditions that force people to spend money all in the name of a better economy is wrong. People should be able to spend or save money at their own free will without coercion from factors such as inflation. It is not the job of the government to tell people what to do with their money, if they want to make a mattress out of dollars they have every right to do so.
- racco, on 04/02/2009, -1/+7visual guide? that was all words. give me pictures
- bobburn1, on 04/02/2009, -0/+6Yes, a small amount of inflation is good. But bring interest rates down to historical lows and injecting trillions of dollars into the economy is ridiculous stupid and a recipe for high (if not hyper) inflation.
- inactive, on 04/02/2009, -2/+7Deflation is not a horrible problem. As stated above the USA had tremendous economic booms during times of deflation. Deflation helped save Japan during the zombie bank years. During the hard recession many people in Japan got richer because prices fell. The money supply doesn't shrink just because people save. Saving is a good thing. Heaven forbid people saved money for once, put it in a the bank. Which the bank could loan so companies could invest in capital.
So under your illustration of deflation nobody would buy anything if it got cheaper?
I bought my first computer for $2500. A few years later a brand new computer that was many times better then my old one cost me only about $1200. So should I have waited to buy a PC because prices were going to get cheaper? I wanted to go buy some food yesterday but I thought it might get cheaper so I decided I would just go hungry today?
Look at farming. What took many men years ago can be done by one tractor, and with advances in technology we should have seen cheaper food prices. But we haven't because if we did the government screams deflation and everyone drinks the koolaid, and they print money. We all pay the hidden tax. Our money is worth less and we all poorer because of it. - fofgrel, on 04/02/2009, -3/+8definition of inflation as cited: "a persistent, substantial rise in the general level of prices RELATED TO AN INCREASE IN THE VOLUME OF MONEY AND RESULTING IN THE LOSS OF VALUE OF CURRENCY. All the other forms of "inflation" mentioned in the article are, by definition, NOT inflation. That is why the constitution stipulates that only gold and silver be money, and we had no major depression for over 150 years. Then the Crash of 1929 happened just 16 years after the creation of the federal reserve. And now a lot of economists say we are headed for another. So I argue that, no, inflation is not good.
- harinezumi, on 04/03/2009, -0/+5The problem is that a lot of economic activity happens on credit.
The TV maker may have borrowed $90 to pay its workers and buy the components in order to get the TV made, expecting to sell it for $100 which would allow it to pay off its debt and keep $10 profit. If the currency deflates, though, it still end up owing $90, even though it can only get $75 for the TV now.
While the $75 has as much purchasing power as did $100 before the deflation, this doesn't help our TV maker, who ends up being $15 in debt from the transaction. The bank couldn't care less about the increased purchasing power of money from deflation. - inactive, on 04/02/2009, -7/+12deflation and recession is a consequence of previous inflation and false boom.
http://mises.org/articles.aspx?AuthorId=115 - ninjaturtles1, on 04/02/2009, -0/+5Powered by the Fed the banks are the ones who create inflation.
You should Google Fractional-reserve banking. - kingmanic, on 04/02/2009, -2/+7Deflation tends to scare the living ***** out of people because the last time we had it was the great depression. As a Saver the current small deflationary period is great for me but should it last longer then it might do more damage. Deflation discourages investment in things and encourages the investment in money.
- FredFredrickson, on 04/02/2009, -1/+5Holy ***** was that a long chart. And hey, Digg Bar is kinda neat.
- subscriber, on 04/03/2009, -1/+5Inflation is, in fact, when the price of stuff goes up. That's how it's measured.
If I said, "Speeding is when the car goes too fast," you might say that is an inaccurate and misleading statement because speeding is actually when the speed limit is lower than your current speed. Same thing. - SkippyDoorknob, on 04/02/2009, -0/+4Simple. One count was more up to date than the other.
- marine6680, on 04/03/2009, -0/+4The problem is that people are too focused on how big the number is on their paycheck.
The real value of your wages is not how big is the number on it, but how much you can get/buy with it.
It would be so easy to drag up how all this relates to Government policy, but I will state one thing.
The way the monetary system works now, the more the government spends the higher inflation gets. So any government program be it bad or good (that includes humanitarian efforts and those that help unfortunates) means more spending. We should stop demanding that the government do everything for us, that which we can/should do for ourselves.
ok, one more thing.
The country's deficit could be renamed "how much we still owe the bank on our loan" Because the government no longer controls its own money. Every time the government spends money (be it to pay its employees, build a new road, or send food to a country after a disaster) it must "get a loan" just like us normal people do to buy a new car or house. And "just like us normal people" it must pay interest back. I don't like the fact that some bank (even the Fed Reserve) making money from the operating costs of this country. It wasn't like that when the government used gold as a hard asset basis for its money.
Guess I couldn't resist. (every thing is so entwined) LOL - Merakon, on 04/02/2009, -1/+5It is the theft of purchasing power.
And the US government has the LEAST money in the world, that is why they love inflation, so that it reduces the value of their debt in real terms. - aletoledo, on 04/03/2009, -0/+4This graphic perpetuates one of the most deceptive lies about inflation and people need to educate themselves on the reality.
The lie is that inflation is good since it reduces the burden of debt. The reason that this is a lie is because inflation doesn't ever reduce the amount you ever owe on anything. What they truly mean to say is that you should expect to see a raise in salary and therefore you make more in the future (presumably due to inflation) and therefore your debt doesn't appear so bad.
What is the flaw here? It's that you don't always get a raise in salary. Many people today do get a raise in salary every year, but if you think about it, this is really a raise because you're more valuable to your company and it's not because of inflation. This is the untold part of the lie, because inflation is stealing the raise you deserve from your employer due to increased performance and applies in unknowingly to being a raise due to inflation. In effect this means that you have never, ever received a raise due to performance increase, but rather it's always been the inflation you've been chasing after. Therefore you're no more valuable today to your employer than the day you were first hired.
So please, whenever someone says that inflation is good because it reduces debt, explain to them that it requires a rise in income to be effective in this fashion. Inflation is bad, bad and bad. There is no redeeming value to it and it's propaganda that tries to convince you that there is something good about it. - Cassanova, on 04/02/2009, -1/+4I kinda wish they went into the gold standard and other options and how they combat inflation and the the pros and cons of those ideas. But overall that was very helpful.
- kelmaster1, on 04/03/2009, -2/+5You're right, the Mint.com is trying to play it off as a function of the CPI. Their representation of it is somewhat accurate, but they leave out critical details.
It's called Fractional Reserve Banking, which is the true source of inflation. Large banks use this policy as well and I really don't know how it's still legal because it's a blatant scam.
http://en.wikipedia.org/wiki/Fractional-reserve_ba ...
Our entire economy is solely based on credit and inflation is just something we have to deal with. Some would argue that the last 200 years of rapid expansion is due to non-restrictive monetary policies, hence the Bank of England and the British Empire, and the Fed's creation and the US as a World power etc (the Soviets had a National Bank). Every developed country has a central bank that practices these policies. Unfortunately destroying this system would result in the collapse of the world economy.
The ironic part is that supposedly the positive side to inflation is repaying debt, but really that loan your paying off is probably 90% fake (non-depositor backed) money in the first place! Thanks to fractional reserve banking... - RadiatedAnt, on 04/02/2009, -2/+5I found this visual guide for inflation most useful http://lug.oregonstate.edu/gallery2/d/1779-2/s02_i ...
- rodrigo1979, on 04/02/2009, -0/+3I was just a kid back then, but take a look at what happened in Brazil in the late 80s thru the early 90s:
http://www.sjsu.edu/faculty/watkins/brazilinfl.htm
Stores didn't give back change - they gave you candy instead.
It was said that if you were to find a penny on the street, you didn't bother picking it up. It'd be worthless by the time you had reached for it. - Licurgo, on 04/03/2009, -0/+3everybody complains when the system dont work, instead of buying electronics and vacations when the system actually work back on 2006, they should bought a trailer(no rent), some ammo(no crime) and lots of canned food(no food stamps), for everything else there is mastercard..
- MrFunStuff, on 04/02/2009, -1/+4@ltethe you are completely off base on Deflation. When prices drop people buy. Think about a sale in a store. Sales don't last forever and nether does deflation. People know this and want to buy before prices start going back up again. The market can handle deflation if it is alloyed to adjusted for the values of the money going up and commonalties prices going down. Wages and the prices of manufacturing has to be adjusted for the increase in buying power of the currency. So as long as your employer adjusted to the deflation by renegotiating the cost of manufacturing and wages, The buying power of you pay-check would stay the same i.e even though you are getting paid less the buying power of your currency has increased so you will be able to afford the same things you could afford before the deflation.
"This guy explains it a lot better than me"
Prof. Dr. Jörg Guido Hülsmann: The Economics of Deflation
http://video.google.com/videoplay?docid=-146029481 ... - GregDude, on 04/03/2009, -1/+4How does the extra money get into the system to cause and sustain inflation?
The complex diagrams hint toward bank interest rates influencing the money supply.
Another way to look at western economies is that...
1) The government prints money (via credit, exchange, creative book keeping, etc. and usually with the promise to contract the supply later.)
2) This creates a pyramid scheme with a temporary stimulating growth effect.
3) After a short delay, prices automatically adjust (inflation effect). The process must be repeated to sustain exponential growth.
4) Meanwhile money flows toward the richest individuals and companies. (The flow up effect greatly outpaces the trickle down effect).
5) Periodically the poorest individuals and companies have no money. This period is called a recession, and the whole system is automatically reset.
6) During the recession period, the richest individuals and companies take ownership of the most valuable poor individuals and companies, then the whole cycle repeats itself.
You can simulate the system by playing Monopoly.
The whole process is so simple a child could understand, but so appalling most people cannot accept its reality. - ninjaturtles1, on 04/02/2009, -0/+3You should have photoshopped Bush, Obama, Greenspan and Bernanke heads in there! Hehehe.....
- Smoodigger, on 04/03/2009, -0/+3You're still assuming inflation is a change in prices. What you're referring to would simply be a result of changes in supply and demand.
The best example I've heard about gold is this:
A pretty nice suit, belt and shoes will cost you about $900, which is also about the price of an ounce of gold right now.
Go back to roman times, and you could get a pretty nice toga, belt and sandals for 1 gold piece (approx. 1 ounce).
What's interesting is that the same amount of gold buys about the same amount of goods and services across the years. Because gold is scarce, it holds its value (until alchemy works).
Anyway, I don't really have much more to say, but think on that for a minute. - inactive, on 04/03/2009, -0/+3Long history about money is long: The Money Masters
http://video.google.com/videoplay?docid=-158315456 ... - C0ntraRadical, on 04/03/2009, -1/+4"Inflation is a monetary thing. Has nothing to do with goods and services or prices."
If you really believe this then please explain what's incorrect about the theories of cost-push, demand-pull, and built-in inflation as presented by the article.
Back up your bold (incorrect) claims. - mibi, on 04/02/2009, -0/+3It mentions other indexes as well.
- mibi, on 04/02/2009, -0/+2Good call. I was considering putting in the credit part, as I briefly mentioned it, but didn't visualize it.
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