The Biggest Myth in Economics - Deflation

C

CanadianKid

New member
You know every time Alan Greenspan or Ben Bernanke cite the risk of deflation it just wants to make me puke....

The myth of deflation is the same as the myth of supply side economics....

It doesnt work in the real world....

Nobody pays less for McD's in 2008 than they did in 2002.

Nobody drinks cheaper milk at Wal-mart in 2008 than in 2004.

Nobody has a cheaper latte at Starbucks in 2009 than in 2005.

It has never happened. Period.

CK
 
deflation is just a fancy word for the economy returning to a more sensible and realistic place. It does nothing more than bring real value back to the dollar instead of the inflated and less valuable rate it had been at.
 
What your talking about is a market correction... Its not the same thing. Market corrections are when a bubble forms and than pops.

Deflation is when the actual real value of a good/product decreases over time.

CK
 
CanadianKid said:
What your talking about is a market correction... Its not the same thing. Market corrections are when a bubble forms and than pops.

Deflation is when the actual real value of a good/product decreases over time.

CK
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you've got deflation backwards. The real value of a good or product is what inflation is all about, when it costs more money to buy something because that money isn't worth what it used to be.

market correction? it is, of a sort.
 
Actually it is you who has it all wrong.

Deflation and market corrections are not the same thing.


Take for example housing. A house that you buy in 2005 for 200k, if you can sell it for 300k in 2006 during a housing bubble, and than the new owner resells it in 2007 during the housing collapse at 200k. It doesnt mean there was deflation from 2006 to 2007. It was a market correction.


Deflation happens when you have the same house in 2005 selling for 200k, and now its market value in 2006 is 180k and its market value in 2007 is 160k due not to demand but due to costs.

There is a big difference you need to read up on it.

CK
 
I'm leading a horse to water it seems, but he doesn't care to drink.

I can't step down enough to explain deflation to CK. Anyone have the dumb down ability?
 
SmarterThanYou said:
you've got deflation backwards. The real value of a good or product is what inflation is all about, when it costs more money to buy something because that money isn't worth what it used to be.

market correction? it is, of a sort.
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Yes your "trying" to lecture me when you get confused by your own words... Inflation is not market correction either buddy.

CK
 
CanadianKid said:
What your talking about is a market correction... Its not the same thing. Market corrections are when a bubble forms and than pops.

Deflation is when the actual real value of a good/product decreases over time.

CK
Click to expand...
It happened for real during the Great Depression, and since then "controlled inflation" has been the goal. So, that it hasn't happened in your lifetime doesn't mean it never has been a real event.
 
Damocles said:
It happened for real during the Great Depression, and since then "controlled inflation" has been the goal. So, that it hasn't happened in your lifetime doesn't mean it never has been a real event.
Click to expand...

Yes i realize deflation did happen in the Great Depression.

I dont think its a realistic assumption in this day and age.

CK
 
It happened in Japan in the late 80's. It can and has happened, but it is rare.
 
CanadianKid said:
Yes your "trying" to lecture me when you get confused by your own words... Inflation is not market correction either buddy.

CK
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I'm trying to tell you that deflation and market correction are two closely related subjects with subtle, yet definable differences. You are correct though, that inflation is not market correction. It is a result of wrongful manipulation of currency and interest rates.
 
When you adjust for inflation, most things are cheaper. Only the areas where the government is heavily involved are things more expensive or flat, e.g., medical care, tuition and homes.

I paid 2300 dollars for my first piece of shit computer. I can buy one a 100 to 1000 times better for a quarter of the cost now.
 
Jarod said:
It happened in Japan in the late 80's. It can and has happened, but it is rare.
Click to expand...

It is indeed rare, because after the Great Depression we learned that we would much rather have controlled inflation rather than deflation. We have thus managed our economies to avoid deflation as much as possible. That is why you are seeing the panic from the world banks and governments right now. We want to avoid sliding into a global deflationary environment.
 
Superfreak said:
It is indeed rare, because after the Great Depression we learned that we would much rather have controlled inflation rather than deflation. We have thus managed our economies to avoid deflation as much as possible. That is why you are seeing the panic from the world banks and governments right now. We want to avoid sliding into a global deflationary environment.
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inflation is controlled in order to provide the illusion of accumulated wealth and that is all. Uncontrolled inflation would quickly show, and has shown in the past, that the value of money can be reduced to toilet paper if it is not adjusted according to the gold standard. When the gold standard was removed, it became necessary for the feds to move our economy over to a debt based economy with manipulated interest rates.
 
CanadianKid said:
You know every time Alan Greenspan or Ben Bernanke cite the risk of deflation it just wants to make me puke....

The myth of deflation is the same as the myth of supply side economics....

It doesnt work in the real world....

Nobody pays less for McD's in 2008 than they did in 2002.

Nobody drinks cheaper milk at Wal-mart in 2008 than in 2004.

Nobody has a cheaper latte at Starbucks in 2009 than in 2005.

It has never happened. Period.

CK
Click to expand...

Not in your lifetime.

http://en.wikipedia.org/wiki/Argument_from_ignorance
 
SmarterThanYou said:
inflation is controlled in order to provide the illusion of accumulated wealth and that is all. Uncontrolled inflation would quickly show, and has shown in the past, that the value of money can be reduced to toilet paper if it is not adjusted according to the gold standard. When the gold standard was removed, it became necessary for the feds to move our economy over to a debt based economy with manipulated interest rates.
Click to expand...

Inflation merely encourages investment.

Deflation would have a severe negative effect on investment, as the returns would shrink to the point where it wasn't worth the risk. If you can make 3% a year on stocks in an environment with 10% deflation a year, you just aren't making enough to justify the risk. So people pull their money en masse out of the market.

Also, deflation is extremely good for bankers, as it effectively increases interest rates.
 
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