Deflation is Bad in the eyes of those economists who will be shown to be perpetrating a fraudulent belief that prices have to rise for the economy to grow. That means most economists in universities who have been pushing Keynesian style macro economics and an idea that more money expansion creates more wealth will be seen as totally incompetent.
A barter system seems to be deflationary, but in fact it is simply money maintaining its value against the increasing goods and services that can measured with it,
I don't consider inflation and deflation as being simply general change in prices, up or down. inflation is considered to be the result of money loosing value, and deflation is considered to be money going up in value. but if money has no value then how can it go up or down in value. if I by a product for 1 once of silver and then by that product three years latter for one third once of silver, it still maintains its value, so it can't be consider inflationary or deflationary. The way I see it is that inflation and deflation is the result of money that has no value. And if the money has no value then it can't measure anything of value with it.
This lecture was made right during the repo crisis of 2019, when the fed tried to reduce the currency supply, but everything started to go awry. What timing!
There's a difference between a credit crunch & natural deflation. A credit crunch is a healthy, although initially painful, correction to a prior expansion of fiduciary media. Natural deflation is simply an increase in productivity relative to the money supply. Deflation encourages real savings, which enable longer-term investments by deferring present consumption.
the real issue of deflation goes to the issues of paying back loans. The understated thing is how much businesses are dependent upon borrowed money. If they make less on the overall they can't readily pay back the loans which makes businesses fail. of course then the response would be to have fewer competitors which would increase prices... but so it goes. If enough big companies topple on each other you get other issues in the banks and money multiplier... but the root of all this is a problem of lending.
When prices are dropping the encouragement is to save rather than spend. Why buy something today of you can get it for less tomorrow? If people hoard their money then it is essentially out of circulation and not serving it's purpose as a medium of exchange.
@@earthstick You must've not listened to what he said. Let me ask you, going based on the CPI, most of what we buy are the same with most people like food, gas, healthcare, clothing etc. Will you decide not to eat today because you know the price of that meal will be worth less next year?
@@bisiriyutajudeen5728 Of course not but the only things you are encouraged to buy are essentials. If you're not selling essentials you are going to find it harder. And people are encouraged to merely exist. There is also a problem for people trying to sell. If you don't sell quick enough your profit margins are getting squeezed. Is the bank going to lend mortgages when the value of the house is dropping due to deflation? The way I see it is we had a finite currency in gold and that lead us to where we are now. People losing gold lead to the charging of interest and the limited supply lead to fractional reserve banking. Returning to a finite currency is regressive. The aim is that the supply of money must _equal_ demand. Not more and not less otherwise it does not function properly as a medium of exchange.
14:20 I’ve also been told by folks my age (26) who went to technical college or universities that state verbatim: “Collective dependence [on government] is healthy dependence.” 😢
There is deflation phobia because deflation often correlates with economic depressions. Yeah prices go down and debt is reduced but the majority of the people would be poor and saving what they can, and not spending. In a boom bust cycle yes you need inflation and deflation it just sucks that many people suffer during deflationary periods.
@@Mike-mc3sh assets naturally grow and shrink. That’s not the inflation many are talking about. It’s the cost of living going up because the government is forcing money into the economy.
@@inherentjesse I said assets meaning real estates, stocks, etc. The inflation right now is in consumer prices. Deflation is good for consumer prices and a few other things. Deflation is bad for asset holders because they will lose their homes, investments, and savings. Everything goes up and down, not just assets. Consumer prices fluctuate too.
@@Mike-mc3sh the issue is now the government is forcing the inflation up artificially. Market deflation involving the cost of living isn’t going up and down. It’s going straight up and the feds want that. Even if it means killing the driving force of the economy. The middle lass
The central banks do not need to reduce the money supply to cause deflation. A general price decline caused by increased savings or increased efficiency along with other recessionary pressures would make it impossible for many businesses to repay their debt causing layoff of workers, more debt default (destruction of money) as people default on home mortgages and a spiral of money destruction.
I disagree with the use of the term "gold standard" in the context of the US economy. The US has always been on a DOLLAR standard and that is the only standard in the country. Of all the metals, the ONLY metal without a floating specification was silver so that the very meaning of a US dollar was tied to a specific amount and purity of silver. THAT is the dollar standard. Then, with that standard established, there could be coins NOMINALLY denominated in dollars but their market value was determined by the metals' value in relation to the silver dollar. Contracts written with settlement in "dollars" meant silver coins and any contracts where the parties agreed to settle in gold "dollars" simply reflected that preference and fo obviously lower numbers than the silver counterpart. If the value of gold had risen then that was taken into consideration in the contract and the number used in the contract would reflect the value of the gold rather than any fixed exchange rate the government had stamped on the coin for reference purposes. Economists need to get their history correct and use proper nomenclature.
yeah like it is crushing technology market right now, because people dont buy a new pc because they know in 1 year they will have a pc with 2x better performance for the same price. I bet you fit in the category of those people who would starve to death in a deflation economy because you knew that if you waited 1 year withtou buyin food you would get richer without moving your ass. PS: one more point why deflation is good, it would make natural selection work at faster rate.
Prices of goods go down sure... but as the man said so do costs to produce. And also those scared of deflation assume a static state of what goods/services are available... rather than reality where new innovations get introduced. Productive people see the opportunity there and would still be buying... I want a hobby CNC mill that is 2k today... to make things... but it will be 1900 next year. But I'll miss out on a year of making things if I wait. It's pretty clear to me that Keynesians/ deflation-phobes are NOT productive people.
Savings increase-> investment banks lower interest rates-> entrepreneurs invest in the distant future-> labor, land & capital goods are shifted, not made idle for literally no reason Depositors forgoing present consumption results in a larger reserve for banks. This allows banks to lower interest rates. Lower rates signal to entrepreneurs that they should borrow now, & long term investments are encouraged due to their greater uncertainty, & thus, greater sensitivity to lower rates. Consumers forgoing present consumption frees up scarce resources for entrepreneurs to invest in the present, & the investments are backed by real savings, which means consumers will have the means to buy these future goods. Isn’t it cool how every price in the market has a coordinating function? Isn’t it cool how car manufacturers don’t need to know why the price of steel is falling for this market signal to impact their actions, coordinate production, & establish equilibrium? Similarly, entrepreneurs don’t need to think about how lower interest rates come about in a free market when consumers forgo present consumption, freeing up scarce resources for investment, & guaranteeing consumers will have money to spend on the future consumer’s goods these investments will yield. All they need to know is borrowing at 2.5% is better than borrowing at 10%. It really is something, isn’t it?
So far as I can tell by analyzing the actual data and ignoring the conventional wisdom, the actual cause of the Great Depression was the evaporation of real wealth that transpired when so much was squandered in the stock market bubble of the late 1920s. Without the addiction to gambling on stocks, without the government controls on the economy, and without the intervention of the Roosevelt administration the United States economy would have recovered quite rapidly from what would have been little more than a slow down due to lower European demand as their economies recovered from the Great War.
I've been studying bitcoin recently and my concern with it is that of deflation. There is a limit to the amount of bitcoin that can exist. Some sources quote the maximum is 23 M bitcoin, others state 21M but either way it is finite. If bitcoin were ever to replace fiat currency then given that the population is rising and the amount of goods and services to be traded is rising, once we reach maximum bitcoin the supply of money will halt and the amount of goods chasing those bitcoin will increase. So prices in terms of bitcoin will decrease. In fact the rate of increase in bitcoin is logarithmic so demand will exceed supply before then. The whole things looks like it has been constructed as a virtual gold standard - complete with miners. I'm aware of the alternative problem of inflation and the devaluing of money and how it encourages people to spend soon rather than save - because the value of money is going down over time. However during deflation surely people are encouraged to save instead of spending. If no one wants to spend any money because the value of money is increasing over time then how are people going to sell anything? Isn't this the problem with deflation? If everyone sits on their money then it is as if the money is not there and it does not function as a medium of exchange. My thoughts are that the problem with fiat currencies is not that they can be supplied infinitely because they have no backing, far from it. A currency with no limit has a boundary removed. It can meet any rate of demand such as when the rate of goods and services is rapidly increasing. The problem is people are irresponsible with the rate of money supply and increase the money supply faster than demand. The optimal is for the rate of money supply to equal the rate of demand and then prices will remain static.
What you are saying is that I won't be spending any money, because while it sits in my bank account, it racks up more and more value and therefore the economy will stagnate. However I believe that it is a complete opposite to that. When people are not scared of losing money, or their income, they tend to spend more. They buy more food, better clothing, more interesting entertainment. However when they earn money and they know that the longer money sits on the bank account, the smaller value it has, it pushes people to NOT spend anything extra + it pushes them to speculate and invest into financial economy without strengthening the real economy. I believe that the biggest problem with gold reserves was the physical properties of said payment methods and therefore government creating a panic around people that there wont be enough of it. If you take bitcoin though, if there is not anymore units, you just divide it into smaller fractions, digitally. There it is, problem solved. Now service would cost almost no money at that point - a visit to a cinema would cost 0.00000x1 bitcoins, but the value of the service would be equal to wages and on top of that people with savings would be richer every day, therefore spending more for the services and living happier lives.
@@Memes-bs4bi When you divide bitcoins in order spread them across a greater number of people the value increases. There was a restaurant that allowed people to pay for their food in bitcoins directly. But they found people stopped doing this and payed in standard currency instead because the value of bitcoin was always increasing. When you have inflation people are encouraged to spend quickly instead of save. Take it to the extreme of hyperinflation and you have to spend as soon as you are payed because tomorrow your money may be worth a fraction of what it is worth today.
@@earthstick of course you'd spend thé garbage currency instead of the one that rises in value. What I am saying is once you would not have other choice than spend directly with bitcoins, then it would be different.
@@Memes-bs4bi Of course you would have no option but to spend the bitcoin eventually but when the currency is rising in value you are encouraged to spend as late as possible. The opposite is true for a currency that is devaluing. Another consequence is that people who are trying to make a sale are encouraged to offer as much as possible to get that currency. I have listened to the argument against infinite fiat currency and am sympathetic but I don't see the problem being that fiat currencies are infinite. That is a benefit, any demand for currency (due to an increasing population) can be met. The problem is inflation of the currency that exceeds demand. We need a system that enforces the rate of currency increase to equal the demand. Then the value of money stays the same.
If you are holding a bunch of debt and your income drops and there are fewer jobs due to lowered birth rates you’re screwed. It doesn’t happen in a bubble.
You have to remember that the federal reserve works for the federal government, not for the people. With deflation comes lower tax receipts for the federal government, which would mean that government would need to either shrink the scope of it's operations, or raise taxes, neither of which is palatable to a self-interested politician. They obviously would prefer to inflate more fiat dollars into the system which they can conveniently spend themselves to increase the scope of government, buying votes in the process. They can potentially even reduce tax rates, buying more votes. The inflation tax is one that most people don't realize they pay, and so politically, imposing this inflation tax is the way any selfish government would address a potential bout of deflation. They aren't scared of deflation, but they see it as an opportunity to steal value from the people that the people won't notice. Why waste a gift like that? Not only do savers lose purchasing power though the inflationary money supply, but they also lose any potential benefits they would have received due to the deflation. In other words, the government sees falling prices, and they say to themselves, "Why would we let our citizens enjoy lower prices and an increasing standard of living when we can intercept those benefits for ourselves and the people are unlikely to know that they were stolen from?" The federal reserve was enacted, after all, as an end-run around the constitutional requirement that all government issued money must be backed by gold and silver. The bankers of the time, being more conniving than even the worst politicians, came up with this scheme and presented it to the politicians of the day with the promise that now the government can spend as much as it wants to to pay for whatever programs and wars it chooses to engage in. All the bankers want in return for helping the government enact this scheme is that they also are granted the ability to create money out of thin air when they issue loans. What could go wrong? Its a miracle that we've lasted as long as we have under this system.
"constitutional requirement that all government issued money" Where exactly do I find Constitutional authorization for the government to issue money? I've looked, maybe I missed it.
@@christianlibertarian5488 Stable money, to me, means having a constant value, or as close to constant as they can manage. Now they tell us that stable value means at least 2% inflation each year. After watching this video, how is it paranoid to think that the government has simply become dependent on stealing the purchasing power or it's people's prior savings?
@@edwaggonersr.7446 Reposting, it shows on my page still, but youtube commenting system still has some kinks to work out, I suppose. The fifth clause of the Article I, Section 8 gives the federal government the power to mint coins and article 1 section 10 prohibits the individual states from making legal tender of any money except for gold and silver. No bills of credit, it says.
@@gt5713 Are we talking past each other. We seem to be in agreement that the government has no Constitutional authority to create currency, or money. The government is not in the business of mining, smelting, refining and alloying PMs. I government is authorized to coin refined and properly alloyed PMs brought to it by private citizens. For this service the government charged a small fee called seignorage, i.e., provide the treasury with 100 oz. of properly refined and alloyed metal and get back the equivalent in PM coins less about 2%. Private banks provided customers with on demand redeemable notes in various denominations; competitor banks, and private citizens kept them honest by the threat of a bank run. Only a foolish banker would issue more bank notes than there was PMs in the vault. This system worked quite well. It was actually a separation of state and money. It was not a gold standard; it was simply PMs used as money and bank notes used as on demand redeemable money substitutes. It was the job of the US Treasury to make sure the purity and weight of each coin was not debased; this is how you determine the value of a coin.
Sounds like the speaker does not understand that in our monetary system, money is debt!!!!! Debt that goes into default is the destruction of money, just like bank lending creates money. So Anything that causes the economy to turn down into recession has the capacity to cause a massive reduction in money supply and a deflationary depression by increasing the number of loan defaults. For example, the commercial real estate crisis could result in sufficient defaults to cause a banking crisis and end in a deflationary depression and the complete collapse of the economy. But the Fed knows this. So when the Fed bails out the banks, be glad they did, and be glad inflation remains. That buys individuals time to get their house in order. The Fed will bail out the banks creating more inflation which is far less dangerous than deflation at this stage of the economic cycle. It is too late in the game to let a recession run its course so the bad loans and bad businesses are purged.
Interesting and erudite but parcial. XXIst Century US economy, population dimension and global financial markets are radically different from anything we had in the past. Politics and political intervention in markets bear no resemblance to what went on in the XIXth and XXth Centuries. US federal budget deficits and FED activism in the past 40 years have become a class of their own. And compare price evolution in IT items (as was done here) with housing prices, health prices, education prices, energy costs and a slightly different story emerges. At the end of the day, there is really no precedent for a deflationary scenario in the present conditions, and if the economy stalls because prices fall and unemployment soars beyond what the electorate deems acceptable, I expect measures will be taken such as what went on in the 1930's. Because doing nothing would be political suicide. You can't build a wall against your own people. Not yet.
I disagree with his examples of deflation, at least in the electronics examples. While the price per Mb and the price per diagonal viewing inch decreased, the average price of a unit (ie. one computer) stayed pretty stable. A Mac "Classic" cost around $2400 in 1984. A top of the line Mac today costs around $2400. Furthermore, his example of deflation in the late 19th century disregarded the plight of farmers, who made up the largest fraction of the populace at the time. These guys were getting killed by deflation, as their borrowing costs rose from planting to harvest season. It gave rise to the Populists and Bimetallism.
"These guys [farmers] were getting killed by deflation, as their borrowing costs rose from planting to harvest season." 1) In the free market interest rates don't move all that much over the time it takes to borrow, plant, harvest and sell a corp. 2) Why would an experienced farmer need to borrow money for seed every year? 3) Wouldn't the small increase in interest rates be offset by an increase in the value of the farmers profits relative to prices paid for personal and business goods and services. Your Mac computer analogy fails. What would be the market price today of a computer with the features and power of a Mac "classic"? A computer comparable to a 1984 Mac would probably cost less that $300, if such a computer were even being made. Circa, 1984 I bought a 8088 PC with an upgraded 20kb hard drive. That computer along with a printer and 13" amber monitor cost me over $5000, it was a top of the line setup in its day.
@@edwaggonersr.7446 1) The interest rate did not significantly change, but the price of the product diminished over the course of the planting/harvest season 2) Farmers at the time were in a constant state of debt. They needed to initially borrow when setting up their business, and remained in debt. 3) When inflation rates are low, there is a general benefit to the holders of capital. Remember, farmers were just barely above subsistence. Their profits dropped in the only real involvement they had in the economy. These issues are easily researched by looking up Populism and its causes. It is not "my" Mac analogy; Salerno used it in his talk, and I was countering it as evidence that deflation is good. The price per unit of computer did not drop nearly as significantly as the price per Mb. Computers are made up of more than just memory and CPU, they also have power supplies, keyboards, cases, etc. So the cost to consumer did not change in that way.
@@christianlibertarian5488 "When inflation rates are low, there is a general benefit to the holders of capital." How is a farmer that owns depreciating barns, fences, plows benefited by raising the cost of replacing this capital investment when it wears out or becomes obsolete? Any businessman that needs to constantly borrow money at interest is a lousy businessman doomed to failure. Sure the price of the farmers corp dropped a little sometimes, but this was off-set by a similar drop in the price of everything the farmer purchased for his business and family. If prices were falling why, as you claim, did the cost of their borrowing rise from planting to harvest season? Didn't the farmer borrow the money before he planted his crop at a fixed interest rate? Hadn't the price of seed fallen which would require the farmer to borrow less money that he had the previous year? Why should consumers and tax payers keep marginal farmers that can't operate without a subsidy in business? You seem to make the claim that ALL farmers were lousy businessmen in need of ever rising prices to survive. Non-sense.
@@edwaggonersr.7446 You are mistaking the 20th Century for the 19th. About 1/3 of Americans worked in agriculture in the 19th Century. They were mostly subsistence, meaning they ate what they grew. Some went for cash crops, which paid the mortgage. Very little was "store bought". As the country was expanding, a large fraction were new farmers, meaning they had to borrow to get what they needed for farming. So deflation meant their borrowing costs were high. Remember, they borrowed at the beginning of planting season, but paid after the harvest. And no, their seed costs did not decline. Putting these "lousy businessmen" out of business would have had catastrophic social consequences. You are not talking about a small fraction of the population, but a huge fraction, possibly a majority. "Consumers and tax payers" is another 20th Century concept. Taxes at the time were not income based, but were tariffs and duties. "Consumers" were city dwellers and overseas customers.
@@christianlibertarian5488 Who pays tariffs and duties? CONSUMERS. My widowed grandmother was a subsistence farmer in the 1930. She raised five kids on 40 acres of marginal farm land and never borrowed a dime. Like you say, her and the kids ate a portion of what they raised and grew. But most of what they grew was sold or traded to local stores and citizens. She was smart enough to not eat her seed corn. Grandpa was killed in an auto accident when my mother was two years old leaving grandma and the kids with the farm and a mortgage to pay. A mortgage grandma and the kids paid off in a few short years. Grandma finally sold the farm in 1966, she didn't get much for it. Yes there were probably years when the value of her animals and crops fell. but the prices she had to pay for thing she bought or traded for also fell. It's not complicated.
Besides their beloved ideological arguments ( no state, gold standard, deflation) the rest is trivial from a trained economists perspective. Trivial. But they sound as if it were Lord’s Prayer.
So from 1880 to 96 money supply must have risen by 3.25%. A rate impossible to realize in a gold standard in the long run. That’s the reason the majority of economists prefers fiat money. It’s so easy given you’re not blinded by Austrian wishful thinking.
You have 4 or 5 comments on here attacking Austrian econ. Say what you want about them, but you have a bias, an axe to grind. And one should never trust anyone with an axe to grind.
You are WRONG. You assuming that the relationship between money and production is fixed (i.e that the price of products are fixed ). The reality is prices vary according to supply and demand and that is becasue there is something called the demand , supply, price concept that is essential to understanding the dynamics of economics.
Rob: Adding to your thoughts. If the supply of money remained constant but the supply of good and services fluctuated prices would fluctuate. But the supply of money cannot remain constant, some is lost, some is hoarded, new PMs are sold into the market. Money is a good that fluctuates in value according to market supply and market demand just like any other good. Money is not a yardstick, it is a medium of exchange and a unit of accounting, good money is also a store of value. The value of PMs, when used as money, remains relatively stable relative to all goods and services. This is because as the production of goods and services increases the existing stock of PMs is chasing more and more goods and services, causing the relative value of PMs to rise. This rise in the relative value of PMs encourages more PMs to enter the market place from mining, and hoarding, which tends to even out the relative value of money vs goods and services. This phenomenon has historically always favored savers and consumers because PMs are rare and difficult to mine, smelt, alloy and coin into money. Meaning that the supply of PMs rarely keeps up with demand, unless the STATE tinkers.
@@edwaggonersr.7446 The bit I have concern about is the actual 'hoarding'. How do people hoard fiat money? If they bank it then it increases lending capacity. If they hoard it as notes under their bed so to speak then that's another reduction in money circulating in the system until they spend it again. Most of the rest I have no problem with and agree. PM's are just like other goods since they are mostly consumed by economic activity with an exception of gold of which some of which is consumed and most held as insurance against fiat currency failures. .
„Money is a good as any other good“. No, Sir. Try to buy with steel, try to calculate exactly with sand, try to store value with ice cream. Austrian Nonsense.
You can indeed store value with ice cream. Buy a ton of ice cream in the fall, refrigerate it, sell it next summer. No problem. It is a rough form of "money." You can calculate exactly with sand, to a precision at least as good as dollars. Your statements do not only not disagree with the Austrian perspective, they reinforce it.
As long as it can last, it is relatively rare, and people want it, it can be used as money. So, many goods can and have been used as the standard trade unit. Hell, we did it with gold forever. Even purple beads and buck skins have been used as a standard unit of value. I'm not getting your point. You can say they did't last, but what unit of value has remained constant in time. Gold would about the best argument you could put foreword, but it that is the case then why could't steel be. Steel bars actually were the standard unit of exchange for a long time during the slave trade. So many steel bars could buy a slave, and it was a know value. So, everyone knew it, and they could price other things based on that.
@@genli5603 I believe that is correct. Many goods were used as a basis of comparing values or a median of exchange as fiat money is used today. They included tea, coffee alcoholic drink such as rum and more commonly used precious metal like gold or silver which could not be readily expanded by the authority or anyone else.
Deflation is Bad in the eyes of those economists who will be shown to be perpetrating a fraudulent belief that prices have to rise for the economy to grow. That means most economists in universities who have been pushing Keynesian style macro economics and an idea that more money expansion creates more wealth will be seen as totally incompetent.
A barter system seems to be deflationary, but in fact it is simply money maintaining its value against the increasing goods and services that can measured with it,
A great lecture.
Modern laptops are a LOT more than 20 times the speed of a circa-1970 mainframe
Try more like 100,000.
IBM System/370 Model 158 0.640 MIPS at 8.696 MHz 1972
AMD Ryzen Threadripper 3990X 2,356,230 MIPS at 4.35 GHz 2020
Ref. en.wikipedia.org/wiki/Instructions_per_second
@@jaredgarbo3679 more like trillions of times faster
This is so true at so many levels
Great to have another viewpoint, good video
I don't consider inflation and deflation as being simply general change in prices, up or down. inflation is considered to be the result of money loosing value, and deflation is considered to be money going up in value. but if money has no value then how can it go up or down in value. if I by a product for 1 once of silver and then by that product three years latter for one third once of silver, it still maintains its value, so it can't be consider inflationary or deflationary. The way I see it is that inflation and deflation is the result of money that has no value. And if the money has no value then it can't measure anything of value with it.
This lecture was made right during the repo crisis of 2019, when the fed tried to reduce the currency supply, but everything started to go awry. What timing!
They published an article in 2014. So mainly a reation of 2008.
There's a difference between a credit crunch & natural deflation. A credit crunch is a healthy, although initially painful, correction to a prior expansion of fiduciary media.
Natural deflation is simply an increase in productivity relative to the money supply. Deflation encourages real savings, which enable longer-term investments by deferring present consumption.
As Reagan said government is not the solution--it is the problem --- intelligent conversation here as opposed to name calling and grandstanding.
Fantastic video
I'd like to have seen more on the arguments of deflationphobia
the real issue of deflation goes to the issues of paying back loans. The understated thing is how much businesses are dependent upon borrowed money. If they make less on the overall they can't readily pay back the loans which makes businesses fail. of course then the response would be to have fewer competitors which would increase prices... but so it goes. If enough big companies topple on each other you get other issues in the banks and money multiplier... but the root of all this is a problem of lending.
there's different perspectives on it. Here's one I gave: www.reddit.com/r/GoldandBlack/comments/bg61vp/could_we_talk_about_deflation/
When prices are dropping the encouragement is to save rather than spend. Why buy something today of you can get it for less tomorrow? If people hoard their money then it is essentially out of circulation and not serving it's purpose as a medium of exchange.
@@earthstick You must've not listened to what he said. Let me ask you, going based on the CPI, most of what we buy are the same with most people like food, gas, healthcare, clothing etc. Will you decide not to eat today because you know the price of that meal will be worth less next year?
@@bisiriyutajudeen5728 Of course not but the only things you are encouraged to buy are essentials. If you're not selling essentials you are going to find it harder. And people are encouraged to merely exist. There is also a problem for people trying to sell. If you don't sell quick enough your profit margins are getting squeezed. Is the bank going to lend mortgages when the value of the house is dropping due to deflation? The way I see it is we had a finite currency in gold and that lead us to where we are now. People losing gold lead to the charging of interest and the limited supply lead to fractional reserve banking. Returning to a finite currency is regressive. The aim is that the supply of money must _equal_ demand. Not more and not less otherwise it does not function properly as a medium of exchange.
14:20 I’ve also been told by folks my age (26) who went to technical college or universities that state verbatim: “Collective dependence [on government] is healthy dependence.” 😢
Of course, the government replaces God in secular societies. It's the ultimate refutation of deism, atheism and the Enlightenment.
There is deflation phobia because deflation often correlates with economic depressions. Yeah prices go down and debt is reduced but the majority of the people would be poor and saving what they can, and not spending. In a boom bust cycle yes you need inflation and deflation it just sucks that many people suffer during deflationary periods.
Anyone who says deflation is bad is either trying to deceive people or is deceive.
@@inherentjesse it's definitely bad for the people that hold assets.
@@Mike-mc3sh assets naturally grow and shrink. That’s not the inflation many are talking about. It’s the cost of living going up because the government is forcing money into the economy.
@@inherentjesse I said assets meaning real estates, stocks, etc. The inflation right now is in consumer prices. Deflation is good for consumer prices and a few other things. Deflation is bad for asset holders because they will lose their homes, investments, and savings. Everything goes up and down, not just assets. Consumer prices fluctuate too.
@@Mike-mc3sh the issue is now the government is forcing the inflation up artificially. Market deflation involving the cost of living isn’t going up and down. It’s going straight up and the feds want that. Even if it means killing the driving force of the economy. The middle lass
The stock market and economy still grew under deflationary monetary policy but there was still boom and bust cycles with relation to credit.
The central banks do not need to reduce the money supply to cause deflation.
A general price decline caused by increased savings or increased efficiency along with other recessionary pressures would make it impossible for many businesses to repay their debt causing layoff of workers, more debt default (destruction of money) as people default on home mortgages and a spiral of money destruction.
No inflation in UK? The largest purchase ever- house - houses are now infordabke thanks to QE
I disagree with the use of the term "gold standard" in the context of the US economy. The US has always been on a DOLLAR standard and that is the only standard in the country. Of all the metals, the ONLY metal without a floating specification was silver so that the very meaning of a US dollar was tied to a specific amount and purity of silver. THAT is the dollar standard. Then, with that standard established, there could be coins NOMINALLY denominated in dollars but their market value was determined by the metals' value in relation to the silver dollar. Contracts written with settlement in "dollars" meant silver coins and any contracts where the parties agreed to settle in gold "dollars" simply reflected that preference and fo obviously lower numbers than the silver counterpart. If the value of gold had risen then that was taken into consideration in the contract and the number used in the contract would reflect the value of the gold rather than any fixed exchange rate the government had stamped on the coin for reference purposes. Economists need to get their history correct and use proper nomenclature.
More money has created nothing but more debt.
Inflation and deflation often overlap and semantics is involved, so socio-political economical scientists will never come to a consensus.
Deflation is the Feds greatest fear for good reason. Deflation would crush our economy as buyers delay purchases and credit contracts.
yeah like it is crushing technology market right now, because people dont buy a new pc because they know in 1 year they will have a pc with 2x better performance for the same price.
I bet you fit in the category of those people who would starve to death in a deflation economy because you knew that if you waited 1 year withtou buyin food you would get richer without moving your ass.
PS: one more point why deflation is good, it would make natural selection work at faster rate.
Prices of goods go down sure... but as the man said so do costs to produce. And also those scared of deflation assume a static state of what goods/services are available... rather than reality where new innovations get introduced. Productive people see the opportunity there and would still be buying... I want a hobby CNC mill that is 2k today... to make things... but it will be 1900 next year. But I'll miss out on a year of making things if I wait.
It's pretty clear to me that Keynesians/ deflation-phobes are NOT productive people.
@@parrotboss785 bravo you must watch peter schiff 👍🙌✌
Where can I find the graph at minute 39:00?
Just take a screenshot
@@Mashwag I guess you don't understand the point of sourcing information.
Something happens ---> Demand reduces ---> Prices reduce ---> Revenue reduces ---> Profitability reduces ---> Wages and Employment reduces ---> Demand further reduces
Savings increase-> investment banks lower interest rates-> entrepreneurs invest in the distant future-> labor, land & capital goods are shifted, not made idle for literally no reason
Depositors forgoing present consumption results in a larger reserve for banks. This allows banks to lower interest rates. Lower rates signal to entrepreneurs that they should borrow now, & long term investments are encouraged due to their greater uncertainty, & thus, greater sensitivity to lower rates. Consumers forgoing present consumption frees up scarce resources for entrepreneurs to invest in the present, & the investments are backed by real savings, which means consumers will have the means to buy these future goods.
Isn’t it cool how every price in the market has a coordinating function? Isn’t it cool how car manufacturers don’t need to know why the price of steel is falling for this market signal to impact their actions, coordinate production, & establish equilibrium?
Similarly, entrepreneurs don’t need to think about how lower interest rates come about in a free market when consumers forgo present consumption, freeing up scarce resources for investment, & guaranteeing consumers will have money to spend on the future consumer’s goods these investments will yield. All they need to know is borrowing at 2.5% is better than borrowing at 10%. It really is something, isn’t it?
People still have to buy food, clothes etc. A deflationary system redirects resources to the things that matter.
Your talks would be more interesting if you dropped all the “ok’s”
Ok
So far as I can tell by analyzing the actual data and ignoring the conventional wisdom, the actual cause of the Great Depression was the evaporation of real wealth that transpired when so much was squandered in the stock market bubble of the late 1920s. Without the addiction to gambling on stocks, without the government controls on the economy, and without the intervention of the Roosevelt administration the United States economy would have recovered quite rapidly from what would have been little more than a slow down due to lower European demand as their economies recovered from the Great War.
I've been studying bitcoin recently and my concern with it is that of deflation. There is a limit to the amount of bitcoin that can exist. Some sources quote the maximum is 23 M bitcoin, others state 21M but either way it is finite. If bitcoin were ever to replace fiat currency then given that the population is rising and the amount of goods and services to be traded is rising, once we reach maximum bitcoin the supply of money will halt and the amount of goods chasing those bitcoin will increase. So prices in terms of bitcoin will decrease. In fact the rate of increase in bitcoin is logarithmic so demand will exceed supply before then. The whole things looks like it has been constructed as a virtual gold standard - complete with miners.
I'm aware of the alternative problem of inflation and the devaluing of money and how it encourages people to spend soon rather than save - because the value of money is going down over time. However during deflation surely people are encouraged to save instead of spending. If no one wants to spend any money because the value of money is increasing over time then how are people going to sell anything? Isn't this the problem with deflation? If everyone sits on their money then it is as if the money is not there and it does not function as a medium of exchange.
My thoughts are that the problem with fiat currencies is not that they can be supplied infinitely because they have no backing, far from it. A currency with no limit has a boundary removed. It can meet any rate of demand such as when the rate of goods and services is rapidly increasing. The problem is people are irresponsible with the rate of money supply and increase the money supply faster than demand. The optimal is for the rate of money supply to equal the rate of demand and then prices will remain static.
What you are saying is that I won't be spending any money, because while it sits in my bank account, it racks up more and more value and therefore the economy will stagnate. However I believe that it is a complete opposite to that. When people are not scared of losing money, or their income, they tend to spend more. They buy more food, better clothing, more interesting entertainment. However when they earn money and they know that the longer money sits on the bank account, the smaller value it has, it pushes people to NOT spend anything extra + it pushes them to speculate and invest into financial economy without strengthening the real economy.
I believe that the biggest problem with gold reserves was the physical properties of said payment methods and therefore government creating a panic around people that there wont be enough of it. If you take bitcoin though, if there is not anymore units, you just divide it into smaller fractions, digitally. There it is, problem solved. Now service would cost almost no money at that point - a visit to a cinema would cost 0.00000x1 bitcoins, but the value of the service would be equal to wages and on top of that people with savings would be richer every day, therefore spending more for the services and living happier lives.
@@Memes-bs4bi When you divide bitcoins in order spread them across a greater number of people the value increases. There was a restaurant that allowed people to pay for their food in bitcoins directly. But they found people stopped doing this and payed in standard currency instead because the value of bitcoin was always increasing. When you have inflation people are encouraged to spend quickly instead of save. Take it to the extreme of hyperinflation and you have to spend as soon as you are payed because tomorrow your money may be worth a fraction of what it is worth today.
@@earthstick of course you'd spend thé garbage currency instead of the one that rises in value. What I am saying is once you would not have other choice than spend directly with bitcoins, then it would be different.
@@Memes-bs4bi Of course you would have no option but to spend the bitcoin eventually but when the currency is rising in value you are encouraged to spend as late as possible. The opposite is true for a currency that is devaluing. Another consequence is that people who are trying to make a sale are encouraged to offer as much as possible to get that currency. I have listened to the argument against infinite fiat currency and am sympathetic but I don't see the problem being that fiat currencies are infinite. That is a benefit, any demand for currency (due to an increasing population) can be met. The problem is inflation of the currency that exceeds demand. We need a system that enforces the rate of currency increase to equal the demand. Then the value of money stays the same.
If you are holding a bunch of debt and your income drops and there are fewer jobs due to lowered birth rates you’re screwed. It doesn’t happen in a bubble.
You have to remember that the federal reserve works for the federal government, not for the people. With deflation comes lower tax receipts for the federal government, which would mean that government would need to either shrink the scope of it's operations, or raise taxes, neither of which is palatable to a self-interested politician. They obviously would prefer to inflate more fiat dollars into the system which they can conveniently spend themselves to increase the scope of government, buying votes in the process. They can potentially even reduce tax rates, buying more votes. The inflation tax is one that most people don't realize they pay, and so politically, imposing this inflation tax is the way any selfish government would address a potential bout of deflation. They aren't scared of deflation, but they see it as an opportunity to steal value from the people that the people won't notice. Why waste a gift like that?
Not only do savers lose purchasing power though the inflationary money supply, but they also lose any potential benefits they would have received due to the deflation.
In other words, the government sees falling prices, and they say to themselves, "Why would we let our citizens enjoy lower prices and an increasing standard of living when we can intercept those benefits for ourselves and the people are unlikely to know that they were stolen from?"
The federal reserve was enacted, after all, as an end-run around the constitutional requirement that all government issued money must be backed by gold and silver. The bankers of the time, being more conniving than even the worst politicians, came up with this scheme and presented it to the politicians of the day with the promise that now the government can spend as much as it wants to to pay for whatever programs and wars it chooses to engage in. All the bankers want in return for helping the government enact this scheme is that they also are granted the ability to create money out of thin air when they issue loans. What could go wrong?
Its a miracle that we've lasted as long as we have under this system.
"constitutional requirement that all government issued money" Where exactly do I find Constitutional authorization for the government to issue money? I've looked, maybe I missed it.
This is a paranoid view at best. The Fed has two mandated (by Congress) goals, stable money and full employment.
@@christianlibertarian5488 Stable money, to me, means having a constant value, or as close to constant as they can manage. Now they tell us that stable value means at least 2% inflation each year. After watching this video, how is it paranoid to think that the government has simply become dependent on stealing the purchasing power or it's people's prior savings?
@@edwaggonersr.7446 Reposting, it shows on my page still, but youtube commenting system still has some kinks to work out, I suppose.
The fifth clause of the Article I, Section 8 gives the federal government the power to mint coins and article 1 section 10 prohibits the individual states from making legal tender of any money except for gold and silver. No bills of credit, it says.
@@gt5713 Are we talking past each other. We seem to be in agreement that the government has no Constitutional authority to create currency, or money. The government is not in the business of mining, smelting, refining and alloying PMs. I government is authorized to coin refined and properly alloyed PMs brought to it by private citizens. For this service the government charged a small fee called seignorage, i.e., provide the treasury with 100 oz. of properly refined and alloyed metal and get back the equivalent in PM coins less about 2%. Private banks provided customers with on demand redeemable notes in various denominations; competitor banks, and private citizens kept them honest by the threat of a bank run. Only a foolish banker would issue more bank notes than there was PMs in the vault. This system worked quite well. It was actually a separation of state and money. It was not a gold standard; it was simply PMs used as money and bank notes used as on demand redeemable money substitutes. It was the job of the US Treasury to make sure the purity and weight of each coin was not debased; this is how you determine the value of a coin.
Sounds like the speaker does not understand that in our monetary system, money is debt!!!!!
Debt that goes into default is the destruction of money, just like bank lending creates money.
So Anything that causes the economy to turn down into recession has the capacity to cause a massive reduction in money supply and a deflationary depression by increasing the number of loan defaults.
For example, the commercial real estate crisis could result in sufficient defaults to cause a banking crisis and end in a deflationary depression and the complete collapse of the economy.
But the Fed knows this. So when the Fed bails out the banks, be glad they did, and be glad inflation remains. That buys individuals time to get their house in order.
The Fed will bail out the banks creating more inflation which is far less dangerous than deflation at this stage of the economic cycle.
It is too late in the game to let a recession run its course so the bad loans and bad businesses are purged.
We are dealing with debt from the Civil War…
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Interesting and erudite but parcial. XXIst Century US economy, population dimension and global financial markets are radically different from anything we had in the past. Politics and political intervention in markets bear no resemblance to what went on in the XIXth and XXth Centuries. US federal budget deficits and FED activism in the past 40 years have become a class of their own. And compare price evolution in IT items (as was done here) with housing prices, health prices, education prices, energy costs and a slightly different story emerges. At the end of the day, there is really no precedent for a deflationary scenario in the present conditions, and if the economy stalls because prices fall and unemployment soars beyond what the electorate deems acceptable, I expect measures will be taken such as what went on in the 1930's. Because doing nothing would be political suicide. You can't build a wall against your own people. Not yet.
I disagree with his examples of deflation, at least in the electronics examples. While the price per Mb and the price per diagonal viewing inch decreased, the average price of a unit (ie. one computer) stayed pretty stable. A Mac "Classic" cost around $2400 in 1984. A top of the line Mac today costs around $2400.
Furthermore, his example of deflation in the late 19th century disregarded the plight of farmers, who made up the largest fraction of the populace at the time. These guys were getting killed by deflation, as their borrowing costs rose from planting to harvest season. It gave rise to the Populists and Bimetallism.
"These guys [farmers] were getting killed by deflation, as their borrowing costs rose from planting to harvest season." 1) In the free market interest rates don't move all that much over the time it takes to borrow, plant, harvest and sell a corp. 2) Why would an experienced farmer need to borrow money for seed every year? 3) Wouldn't the small increase in interest rates be offset by an increase in the value of the farmers profits relative to prices paid for personal and business goods and services.
Your Mac computer analogy fails. What would be the market price today of a computer with the features and power of a Mac "classic"? A computer comparable to a 1984 Mac would probably cost less that $300, if such a computer were even being made. Circa, 1984 I bought a 8088 PC with an upgraded 20kb hard drive. That computer along with a printer and 13" amber monitor cost me over $5000, it was a top of the line setup in its day.
@@edwaggonersr.7446 1) The interest rate did not significantly change, but the price of the product diminished over the course of the planting/harvest season 2) Farmers at the time were in a constant state of debt. They needed to initially borrow when setting up their business, and remained in debt. 3) When inflation rates are low, there is a general benefit to the holders of capital. Remember, farmers were just barely above subsistence. Their profits dropped in the only real involvement they had in the economy. These issues are easily researched by looking up Populism and its causes.
It is not "my" Mac analogy; Salerno used it in his talk, and I was countering it as evidence that deflation is good. The price per unit of computer did not drop nearly as significantly as the price per Mb. Computers are made up of more than just memory and CPU, they also have power supplies, keyboards, cases, etc. So the cost to consumer did not change in that way.
@@christianlibertarian5488 "When inflation rates are low, there is a general benefit to the holders of capital." How is a farmer that owns depreciating barns, fences, plows benefited by raising the cost of replacing this capital investment when it wears out or becomes obsolete? Any businessman that needs to constantly borrow money at interest is a lousy businessman doomed to failure. Sure the price of the farmers corp dropped a little sometimes, but this was off-set by a similar drop in the price of everything the farmer purchased for his business and family. If prices were falling why, as you claim, did the cost of their borrowing rise from planting to harvest season? Didn't the farmer borrow the money before he planted his crop at a fixed interest rate? Hadn't the price of seed fallen which would require the farmer to borrow less money that he had the previous year? Why should consumers and tax payers keep marginal farmers that can't operate without a subsidy in business? You seem to make the claim that ALL farmers were lousy businessmen in need of ever rising prices to survive. Non-sense.
@@edwaggonersr.7446 You are mistaking the 20th Century for the 19th. About 1/3 of Americans worked in agriculture in the 19th Century. They were mostly subsistence, meaning they ate what they grew. Some went for cash crops, which paid the mortgage. Very little was "store bought". As the country was expanding, a large fraction were new farmers, meaning they had to borrow to get what they needed for farming. So deflation meant their borrowing costs were high. Remember, they borrowed at the beginning of planting season, but paid after the harvest. And no, their seed costs did not decline.
Putting these "lousy businessmen" out of business would have had catastrophic social consequences. You are not talking about a small fraction of the population, but a huge fraction, possibly a majority. "Consumers and tax payers" is another 20th Century concept. Taxes at the time were not income based, but were tariffs and duties. "Consumers" were city dwellers and overseas customers.
@@christianlibertarian5488 Who pays tariffs and duties? CONSUMERS. My widowed grandmother was a subsistence farmer in the 1930. She raised five kids on 40 acres of marginal farm land and never borrowed a dime. Like you say, her and the kids ate a portion of what they raised and grew. But most of what they grew was sold or traded to local stores and citizens. She was smart enough to not eat her seed corn. Grandpa was killed in an auto accident when my mother was two years old leaving grandma and the kids with the farm and a mortgage to pay. A mortgage grandma and the kids paid off in a few short years. Grandma finally sold the farm in 1966, she didn't get much for it. Yes there were probably years when the value of her animals and crops fell. but the prices she had to pay for thing she bought or traded for also fell. It's not complicated.
Besides their beloved ideological arguments ( no state, gold standard, deflation) the rest is trivial from a trained economists perspective. Trivial. But they sound as if it were Lord’s Prayer.
Is it trivial though? That does not seem to be the case in academic discourse
So from 1880 to 96 money supply must have risen by 3.25%. A rate impossible to realize in a gold standard in the long run. That’s the reason the majority of economists prefers fiat money. It’s so easy given you’re not blinded by Austrian wishful thinking.
You have 4 or 5 comments on here attacking Austrian econ. Say what you want about them, but you have a bias, an axe to grind. And one should never trust anyone with an axe to grind.
What is Austrian wishful thinking? Make your case, don't just spout bull shit.
You are WRONG. You assuming that the relationship between money and production is fixed (i.e that the price of products are fixed ). The reality is prices vary according to supply and demand and that is becasue there is something called the demand , supply, price concept that is essential to understanding the dynamics of economics.
Rob: Adding to your thoughts. If the supply of money remained constant but the supply of good and services fluctuated prices would fluctuate. But the supply of money cannot remain constant, some is lost, some is hoarded, new PMs are sold into the market. Money is a good that fluctuates in value according to market supply and market demand just like any other good. Money is not a yardstick, it is a medium of exchange and a unit of accounting, good money is also a store of value. The value of PMs, when used as money, remains relatively stable relative to all goods and services. This is because as the production of goods and services increases the existing stock of PMs is chasing more and more goods and services, causing the relative value of PMs to rise. This rise in the relative value of PMs encourages more PMs to enter the market place from mining, and hoarding, which tends to even out the relative value of money vs goods and services. This phenomenon has historically always favored savers and consumers because PMs are rare and difficult to mine, smelt, alloy and coin into money. Meaning that the supply of PMs rarely keeps up with demand, unless the STATE tinkers.
@@edwaggonersr.7446 The bit I have concern about is the actual 'hoarding'. How do people hoard fiat money? If they bank it then it increases lending capacity. If they hoard it as notes under their bed so to speak then that's another reduction in money circulating in the system until they spend it again. Most of the rest I have no problem with and agree.
PM's are just like other goods since they are mostly consumed by economic activity with an exception of gold of which some of which is consumed and most held as insurance against fiat currency failures.
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„Money is a good as any other good“. No, Sir. Try to buy with steel, try to calculate exactly with sand, try to store value with ice cream. Austrian Nonsense.
You can indeed store value with ice cream. Buy a ton of ice cream in the fall, refrigerate it, sell it next summer. No problem. It is a rough form of "money." You can calculate exactly with sand, to a precision at least as good as dollars. Your statements do not only not disagree with the Austrian perspective, they reinforce it.
As long as it can last, it is relatively rare, and people want it, it can be used as money. So, many goods can and have been used as the standard trade unit. Hell, we did it with gold forever. Even purple beads and buck skins have been used as a standard unit of value. I'm not getting your point. You can say they did't last, but what unit of value has remained constant in time. Gold would about the best argument you could put foreword, but it that is the case then why could't steel be. Steel bars actually were the standard unit of exchange for a long time during the slave trade. So many steel bars could buy a slave, and it was a know value. So, everyone knew it, and they could price other things based on that.
Try to eat money as an after dinner sweet or make steel from it.
Slaves, horses, cotton, tobacco, and ginseng were used in early Tennessee as means of exchange when money was scarce.
@@genli5603 I believe that is correct. Many goods were used as a basis of comparing values or a median of exchange as fiat money is used today. They included tea, coffee alcoholic drink such as rum and more commonly used precious metal like gold or silver which could not be readily expanded by the authority or anyone else.