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the US need more inflation?

suttichart.denpruektham
Posts: 1,115
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10/18/2013 3:34:50 AM
Posted: 3 years ago
I read many news, talk to many of my banking freind and economist, all of the people in the field of finance and economy seem to agree that the US need to raise the level of inflation in order to restarting the economy.

I really don't understand why, can somebody offer explanation?
Subutai
Posts: 3,165
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10/18/2013 9:50:05 PM
Posted: 3 years ago
Inflation lowers the real value of your money. It essentially discourages fair business practices because the free market determined equilibriums and incentives are all messed up. I could go into a lot more detail than this, but I'll leave it at this right now.
I'm becoming less defined as days go by, fading away, and well you might say, I'm losing focus, kinda drifting into the abstract in terms of how I see myself.
darkkermit
Posts: 11,204
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10/19/2013 7:42:22 AM
Posted: 3 years ago
Inflation decreases unemployment based on the philips curve. This can be partially explained based on two phenomena's.

One is the money illusion. If deflation is 4%, people would think a 2% pay cut is unfair, while if inflation is 4%, people would think a 2% raise is fair, even though the real result is the same.

Another is that an increase in goods/services would create inflation and increase output/GDP.
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Cermank
Posts: 3,773
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10/19/2013 8:40:45 AM
Posted: 3 years ago
At 10/18/2013 9:50:05 PM, Subutai wrote:
Inflation lowers the real value of your money. It essentially discourages fair business practices because the free market determined equilibriums and incentives are all messed up. I could go into a lot more detail than this, but I'll leave it at this right now.

Could you explain?
wrichcirw
Posts: 11,196
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10/19/2013 8:40:48 AM
Posted: 3 years ago
The main reason the US "needs" more inflation is that the US is heavily indebted. Inflation lowers the real value of debt, most of which is not inflation adjusted.

Therefore, if inflation rises by, say 50% over 10 years, then GDP will inflate 50%, but the value of current debt will remain constant.

This is for all intents and purposes a kind of default, if it becomes a purposeful policy goal. Regardless, it is most certainly debt devaluation, intentional or not.

This is why most of east Asia is buying gold.

Without debt to consider, the US would have little to no reason to pursue anything other than an extremely mild inflationary policy.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
wrichcirw
Posts: 11,196
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10/19/2013 8:42:41 AM
Posted: 3 years ago
If I understand things correctly, Yellen (Bernanke successor) is going to be even more dovish regarding an accommodating monetary policy, meaning extended ZIRP and QE. This is all purposefully inflationary policy.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
MattSG
Posts: 1
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10/22/2013 4:22:22 PM
Posted: 3 years ago
The US is in massive debt and therefore needs a controlled amount of inflation to reduce its debt. The US has a total debt of nearly $17 trillion. Inflation, along with some economic growth, would decrease the US debt as the repayment would be made by the inflated value of the dollars ......but how much inflation is the right amount and over what time frame?
suttichart.denpruektham
Posts: 1,115
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11/1/2013 12:52:56 PM
Posted: 3 years ago
At 10/19/2013 8:40:48 AM, wrichcirw wrote:
The main reason the US "needs" more inflation is that the US is heavily indebted. Inflation lowers the real value of debt, most of which is not inflation adjusted.

Therefore, if inflation rises by, say 50% over 10 years, then GDP will inflate 50%, but the value of current debt will remain constant.

This is for all intents and purposes a kind of default, if it becomes a purposeful policy goal. Regardless, it is most certainly debt devaluation, intentional or not.

This is why most of east Asia is buying gold.

Without debt to consider, the US would have little to no reason to pursue anything other than an extremely mild inflationary policy.

I see, this is a very late reply, I sorry and thanks you very mush for all the explanations everyone of you had offered.

I am wondering though, why did your country need that many debts in the first place? Did american economy is relied heavily on public spending? Or is it your defense policy that required all this money to function?
wrichcirw
Posts: 11,196
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11/1/2013 5:29:33 PM
Posted: 3 years ago
At 11/1/2013 12:52:56 PM, suttichart.denpruektham wrote:

I see, this is a very late reply, I sorry and thanks you very mush for all the explanations everyone of you had offered.

http://libertyblitzkrieg.com...

lol, just kidding. =)

I am wondering though, why did your country need that many debts in the first place? Did american economy is relied heavily on public spending? Or is it your defense policy that required all this money to function?

"Need" is probably not the best word to use. IMHO the main problem was negligence during the Bush years.

This link demonstrates what happened shortly after Reagan ended the Cold War - federal debt-to-GDP went down during Clinton, only to increase dramatically during Bush II.
http://angrybearblog.com...

Public debt-to-GDP hit over 100% sometime between 2008-2013 due to policies aimed at mitigating the financial catastrophe that occurred during the final year of the Bush II administration. Currently it's tapered off again, but is still higher than any point pre-2008.

This chart demonstrates how profligate America in general has become (all debt, not just government debt):
http://matterhornassetmanagement.com...

According to this link, it is still over 300%:
http://ycharts.com...

This is not due to "need". This is simply due to America getting used to spending money it does not have. America is not the only country guilty of this...most if not all of the "developed" OECD countries are guilty of this to a large degree, with Japan being the most guilty, I believe. To compare, the BRIC countries (Brazil, Russia, India, China), and other developing nation peers, are in sound financial shape. This article states that BRIC nations are "in trouble" because total debt-to-GDP is around 150-200%. Keep in mind though that in the US, it's currently 350%.
http://articles.economictimes.indiatimes.com...
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
suttichart.denpruektham
Posts: 1,115
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11/2/2013 2:40:57 PM
Posted: 3 years ago
At 11/1/2013 5:29:33 PM, wrichcirw wrote:
At 11/1/2013 12:52:56 PM, suttichart.denpruektham wrote:

I see, this is a very late reply, I sorry and thanks you very mush for all the explanations everyone of you had offered.

http://libertyblitzkrieg.com...

lol, just kidding. =)

I am wondering though, why did your country need that many debts in the first place? Did american economy is relied heavily on public spending? Or is it your defense policy that required all this money to function?

"Need" is probably not the best word to use. IMHO the main problem was negligence during the Bush years.

This link demonstrates what happened shortly after Reagan ended the Cold War - federal debt-to-GDP went down during Clinton, only to increase dramatically during Bush II.
http://angrybearblog.com...

Public debt-to-GDP hit over 100% sometime between 2008-2013 due to policies aimed at mitigating the financial catastrophe that occurred during the final year of the Bush II administration. Currently it's tapered off again, but is still higher than any point pre-2008.

This chart demonstrates how profligate America in general has become (all debt, not just government debt):
http://matterhornassetmanagement.com...

According to this link, it is still over 300%:
http://ycharts.com...

This is not due to "need". This is simply due to America getting used to spending money it does not have. America is not the only country guilty of this...most if not all of the "developed" OECD countries are guilty of this to a large degree, with Japan being the most guilty, I believe. To compare, the BRIC countries (Brazil, Russia, India, China), and other developing nation peers, are in sound financial shape. This article states that BRIC nations are "in trouble" because total debt-to-GDP is around 150-200%. Keep in mind though that in the US, it's currently 350%.
http://articles.economictimes.indiatimes.com...

Looking from your data, I don't think Bush deserve that mush criticism you made, although it is true that he managed to push American-dept economy in to one new high. I always believe that economy don't just collapse in a year or two, and your debt economy didn't just massively risen during 2008. The sharpest rise seem to be occured during 1980-2000, do you know what exactly happened?
wrichcirw
Posts: 11,196
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11/2/2013 2:50:02 PM
Posted: 3 years ago
At 11/2/2013 2:40:57 PM, suttichart.denpruektham wrote:
At 11/1/2013 5:29:33 PM, wrichcirw wrote:
At 11/1/2013 12:52:56 PM, suttichart.denpruektham wrote:

I see, this is a very late reply, I sorry and thanks you very mush for all the explanations everyone of you had offered.

http://libertyblitzkrieg.com...

lol, just kidding. =)

I am wondering though, why did your country need that many debts in the first place? Did american economy is relied heavily on public spending? Or is it your defense policy that required all this money to function?

"Need" is probably not the best word to use. IMHO the main problem was negligence during the Bush years.

This link demonstrates what happened shortly after Reagan ended the Cold War - federal debt-to-GDP went down during Clinton, only to increase dramatically during Bush II.
http://angrybearblog.com...

Public debt-to-GDP hit over 100% sometime between 2008-2013 due to policies aimed at mitigating the financial catastrophe that occurred during the final year of the Bush II administration. Currently it's tapered off again, but is still higher than any point pre-2008.

This chart demonstrates how profligate America in general has become (all debt, not just government debt):
http://matterhornassetmanagement.com...

According to this link, it is still over 300%:
http://ycharts.com...

This is not due to "need". This is simply due to America getting used to spending money it does not have. America is not the only country guilty of this...most if not all of the "developed" OECD countries are guilty of this to a large degree, with Japan being the most guilty, I believe. To compare, the BRIC countries (Brazil, Russia, India, China), and other developing nation peers, are in sound financial shape. This article states that BRIC nations are "in trouble" because total debt-to-GDP is around 150-200%. Keep in mind though that in the US, it's currently 350%.
http://articles.economictimes.indiatimes.com...

Looking from your data, I don't think Bush deserve that mush criticism you made, although it is true that he managed to push American-dept economy in to one new high. I always believe that economy don't just collapse in a year or two, and your debt economy didn't just massively risen during 2008. The sharpest rise seem to be occured during 1980-2000, do you know what exactly happened?

It's because the data I posted did not include the effects from the 2008 meltdown. Public debt did massively rise from 2008-present, and almost all of that was due to containment policies stemming from what looked like the end of the world in 2008.

You can parse out the deficits by year:
http://www.treasurydirect.gov...

From 2000-2008 deficits were large, but around $500 billion. In 2009, the deficit was around $2 trillion. Every year after 2009, deficits have been around $1.5 trillion, or around 3x as large as they were from 2000-2008. Most of this deficit spending was meant to stem the tide of what would have been massive foreclosures, unemployment, and defaults on private debt.

You have to keep in mind that even though these deficits were posted during Obama's term, almost ALL of the impetus for this spending was due to what happened in 2008. I remember in October 2008, as an investor, I asked myself one and only one question - was this the end of the world? I decided it wasn't, and it didn't matter what I invested in, everything doubled or tripled. My point being, people really did think it was the end of the world back then.

Dow Chemical is an unfortunately not-so-extreme example of what happened in many big name stocks in 2008:
http://finviz.com...

As you can see, it lost almost 90% of its market value due to the 2008 crisis. The financial sector fared far worse...most of the names I'd pull up as examples are no longer in business, like Washington Mutual, Merrill Lynch, Bear Stearns, Lehman Brothers, etc...even Goldman Sachs took a huge hit, about 70% price decline:
http://finviz.com...
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
wrichcirw
Posts: 11,196
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11/2/2013 2:59:03 PM
Posted: 3 years ago
At 11/2/2013 2:40:57 PM, suttichart.denpruektham wrote:
At 11/1/2013 5:29:33 PM, wrichcirw wrote:

The sharpest rise seem to be occured during 1980-2000, do you know what exactly happened?

I assume you're looking primarily at this chart:
http://matterhornassetmanagement.com...

From 1980-1990 was Reaganomics, so "trickle down" economic policy that benefited large corporations along with massive deficit spending at the federal level in order to win the Cold War. Also, during Reagan's term, inflation was broken, so people were no longer afraid that interest rates would rise precipitously...this results in a credit boom, and so you see a very large increase in total debt, both public and private.

During the 90s, federal spending decreased dramatically due to the end of the Cold War. Apparantly this was not complemented by a decrease in spending in the private sector, so you see a slower rise from 1990-2000 than what you see in the 80s, but a rise nonetheless.

From 2000-2008, the private sector continued to spend, and the public sector re-engaged in massive deficit spending.

After 2008, you see the private sector "deleveraging" whereas the public sector engaged in emergency deficit spending so that deleveraging in the private sector would not cause an economic collapse in the US. This emergency deficit spending was pure Keynesian economics, and was orders of magnitude larger than what occurred during the 80s or during Bush II.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
wrichcirw
Posts: 11,196
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11/2/2013 3:02:07 PM
Posted: 3 years ago
I will also add that from 1980-2000, total debt-to-GDP rose from 160% to 240%...an 80 point differential.

From 2000-2010, it rose from 240%-380%, a 140 point differential. So, in a period half as long, you see a rise twice as fast. This is extremely worrisome, and almost all of it is due to Bush II policies (or rather negligence), IMHO.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
Subutai
Posts: 3,165
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11/4/2013 4:56:30 PM
Posted: 3 years ago
At 10/19/2013 8:40:45 AM, Cermank wrote:
At 10/18/2013 9:50:05 PM, Subutai wrote:
Inflation lowers the real value of your money. It essentially discourages fair business practices because the free market determined equilibriums and incentives are all messed up. I could go into a lot more detail than this, but I'll leave it at this right now.

Could you explain?

Assuming normal conditions, inflation may leave you with more money, but the value of each dollar would be less, meaning the real value of your money, or your wealth, has not increased, and in many cases can actually become a net loss.

Now in every inflationary situation, the government starts by printing money to give to a particular industry. This will raise the price of their services, allowing the employees of that industry to buy more. The famous "multiplier effect" ensues, and demand is overstimulated. The price of living will increase for all. Because of the unpredictability of prices, speculation, instead of production, becomes more important.

Overall, the idea that inflation increases your wealth is just a mirage.
I'm becoming less defined as days go by, fading away, and well you might say, I'm losing focus, kinda drifting into the abstract in terms of how I see myself.
SCHUMAN8R
Posts: 42
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11/4/2013 10:03:59 PM
Posted: 3 years ago
I have read that the United States dollar is no longer backed up by the gold standard since Richard Nixon was in office. Because of this our money holds no real value if it is over printed (which is happening right now) prices will go up with hyper inflation causing our economy to crash and we will re build with the gold standard. Until this happens we can't have a solid base of money to lend other countries and to spend among ourselves.
Can't touch this!