You have completely misunderstood the point about debt. They were paying interest before, but the onset of deflation means that the real value of that interest has increased beyond what it was. The creditor charges interest either way, but gets even more real value in a deflationary period than if the deflation had not happened.
> Natural resources stay in the ground and people enjoy time off
Unemployment is not time off, nor is it delayed gratification.
> My point about electronics is that people delay purchases, but don't stop altogether
Yes, they delay their purchases, causing a contraction of the economy that creates real suffering, hence a loss of wealth that otherwise could have existed. Consequently most of the purchases never happen, and are therefore not 'delayed' but lost.
> Prudence is healthy; instant gratification consumerism is not.
It is prudent for the individual and destructive to total economic output. Are you trying to deny that recessions reduce people's wealth?
Yes, the price of borrowing money goes up. The only thing you're doing with your debt point is pandering to those who have taken on debt instead of saved up wealth. I'm not particularly interested in encouraging more wage slaves.
> Unemployment is not time off
If one has wealth saved up, then what is the problem? When people don't need their jobs, it creates a much healthier employer-employee relationship. How many entrepreneurs start off in personal debt?
> nor is it delayed gratification.
Maybe it's just me, but I'd rather have more minerals in the ground, and less discarded crap in the landfill. I've got no problem depleting natural resources, but forcibly driving this process through overstimulating the economy is needlessly screwing over future generations.
> causing a contraction of the economy that creates real suffering
I hate being hungover too. But man, that party was killer! If your problem is withdrawal, the solution is to avoid engaging in the first place.
> destructive to total economic output
I suppose it's pointless to argue with someone who thinks the ultimate goal is to maximize "total economic output". Let's pass laws mandating that everybody must work 16 hours a day!
Technology should be making it so we work ever less. Instead, the excess wealth is siphoned off to the bankers and government, precisely through the inflationary sleight of hand that you are advocating.
But remember, deflation is scary; why should the plebs ever see the benefits of technology?
> The only thing you're doing with your debt point is pandering to those who have taken on debt instead of saved up wealth.
I'm not pandering to anyone. I'm pointing out that deflation is a transfer of wealth. I'm not judging it, just pointing out the economic fact.
> If one has wealth saved up, then what is the problem?
If you don't care about being unemployed then that's fine. All power to you. But most people do care.
> forcibly driving this process through overstimulating the economy is needlessly screwing over future generations.
Recessions do not increase people's overall savings. They force people into bankruptcy and reduce total wealth, now and in the future. Recessions screw over future generations.
> If your problem is withdrawal, the solution is to avoid engaging in the first place.
Almost everyone suffers in a recession, not just the people who caused it.
> Let's pass laws mandating that everybody must work 16 hours a day!
That would be a reduction in wealth, as people would be forced to make economic decisions they otherwise wouldn't. I would never support it.
> Instead, the excess wealth is siphoned off to the bankers and government, precisely through the inflationary sleight of hand that you are advocating.
This is just conspiracy theory nonsense.
And I'm not advocating inflation. I'm advocating a stable price level, the kind that has enabled the economic growth that has lifted millions of people out of poverty over the last decade. Inflation and deflation are both bad. However, if we are forced to choose one or the other, it is better to choose inflation.
> If you don't care about being unemployed then that's fine. All power to you. But most people do care.
Because they live paycheck to paycheck, with perhaps a finite safety net on which to make their debt payments. The need of people to be productive is another topic, which doesn't necessarily need to be (and sometimes isn't even) fulfilled by full time day job.
> They [recessions] force people into bankruptcy and reduce total wealth, now and in the future
Yes, which is why I'd like to stop the inflationary bubble policy. Remember the dot com bust? And then 2004? Our current problems stem from patching those up by permanently lowering interest rates. Further lowering them now will just cause another bubble that will burst in several years.
> Almost everyone suffers in a recession, not just the people who caused it.
Yes, but as we're talking about monetary policy, we're talking about the people who caused it.
> That would be a reduction in wealth, as people would be forced to make economic decisions they otherwise wouldn't.
Well if you've got a problem with the "forcing", then how about just government subsidies of 5x salary to those who work 16 hours a day? Flooding the market with cheap money is the same kind of manipulation which causes people to make economic decisions they otherwise wouldn't.
> This is just conspiracy theory nonsense.
I'm not saying they meet up an plan this, or even do it consciously, but there most certainly is a parasitic economy that receives all of the newly introduced money first, and therefore gets its benefits before the effects of the inflation are felt. Furthermore, the wealthy are able to hire "asset managers" to help them avoid the inflation, while the little guys have their savings eroded.
> I'm advocating a stable price level ... However, if we are forced to choose one or the other, it is better to choose inflation.
And if you haven't noticed, prices aren't anywhere near stable, but are generally on the rise. One can't claim to be for "stable prices" but also be against any possible drop. There will always be fluctuations, so suppressing any downwards movement will always produce a net upwards trend, not stability.
But the main problem is that technology disagrees. To maintain a stable price index while technologically influenced goods are dropping requires everything else to go up. When efficiency is increasing, why should prices be stable?
I have plenty of savings but I still don't want to lose my job. I did not spend recklessly, but the recession could hurt me nonetheless. I am saving for retirement, but I can't do that without work.
> which is why I'd like to stop the inflationary bubble policy
The current monetary policy of all the Western governments is inflation targeting (with the exception of the US, which uses a triple mandate, of which inflation targeting is the most important part). The intention of inflation targeting is to act as an anti-cyclical force in the naturally pro-cyclical credit markets. Left to their own devices, financial institutions would increase credit levels in good times and decrease them in bad times, producing a succession of bubbles and busts. Monetary policy acts against this by pushing up interest rates when it believes there is too much credit and pushing them down when there is too little. It's barometer of whether credit levels are too high or too low is some chosen measure of consumer inflation. In this way, monetary policy reduces the inherently boom/bust nature of financial markets.
There is no 'inflationary bubble policy'. The markets themselves have an inherent tendency towards bubbles. They have existed since the beginning of modern financial markets, long before the current monetary policies were put in place. The claim that central banks inadvertently caused the dot com crash, or other bubbles, is a hotly contested subject in economics. It is not at all certain that it's true, and in any case is something that requires years of study and masses of evidence to resolve. What is certain, however, is that there is no policy of producing bubbles or inflation. The policy is to prevent it. In terms of stabilising consumer prices, inflation targeting has been one of the most successful monetary policies in all history, and the economic growth that has been part of the Great Moderation has lifted millions of people across the world out of poverty. In fact, more people have been lifted out of poverty under inflation targeting than under any other period of stability in history.
> Well if you've got a problem with the "forcing", then how about just government subsidies of 5x salary to those who work 16 hours a day?
How would they pay for it? Presumably by allocating resources from elsewhere, producing no net benefit.
> Flooding the market with cheap money is the same kind of manipulation
Central banks do not flood the market with cheap money. Inflation targeting is a policy whereby the market determines the quantity of money in the economy, and the central bank sets interest rates to encourage or choke off demand for credit. The result is stable consumer prices, at which the central banks have been uncannily successful.
> there most certainly is a parasitic economy that receives all of the newly introduced money first
Money is created through bank loans. The banks and the government do not receive the money first. The person who borrows is the first recipient. If the total amount of credit in a day grows, then the central bank will have to increase the quantity of base money through the purchase of bonds. If it shrinks, then it will sell bonds to reduce the quantity. The first people to see this money are therefore people who trade in the bond market, not banks and not governments. As far as I am aware, there is no evidence that bond traders profit unduly from this. The central bank simply operates as another trader in the market.
> Furthermore, the wealthy are able to hire "asset managers" to help them avoid the inflation, while the little guys have their savings eroded.
This is one of the many reasons why inflation is a bad thing. I agree that inflation is bad. That's why I support inflation targeting. Its raison d'être is to prevent inflation and deflation. It is incredibly good at it.
> To maintain a stable price index while technologically influenced goods are dropping requires everything else to go up.
If the quantity and demand for money and the number of products on the market were fixed, then the decrease in the nominal price of one good would necessarily cause an increase in the nominal price of others. Even if every good were being produced at lower real cost (i.e. with less labour, material and capital input) the 'average' nominal cost of products would stay the same. So you are right, the price of other goods has to go up. That's not a consequence of inflation targeting, but a standard economic result about nominal prices.
> I have plenty of savings but I still don't want to lose my job
And when management asks that you work 10 extra hours a week for the same amount of pay? You're in a much better position if you have several months of living expenses to painlessly tap into.
> Monetary policy acts against this by pushing up interest rates when it believes there is too much credit and pushing them down when there is too little.
Well they're certainly avoiding the whole "pushing up" part. If they were smoothing the cycles out in a sustainable manner, we wouldn't be talking about negative interest rates. Instead, they lower interest rates and keep them there because economic reality is politically inconvenient.
> In fact, more people have been lifted out of poverty under inflation targeting than under any other period of stability in history
How much of this can be attributed to natural technological progress rather than economic planning? And what percentage of the excess wealth (compared to an undriven economy) has been actually used to raise people out of poverty? It's not sustainable progress to get the masses out of poverty if you've used up most of the natural resources in the process.
> Money is created through bank loans. The banks and the government do not receive the money first. The person who borrows is the first recipient.
The person who borrowed is the second recipient, the bank takes the first cut through fees and increased interest. The government gets to tap into the supply through perpetual deficit spending.
> If the quantity and demand for money and the number of products on the market were fixed, then the decrease in the nominal price of one good would necessarily cause an increase in the nominal price of others
But the average (index) remains constant only if you ignore the option to save money for the future, and assume that everything earned must be immediately spent (which is precisely what were debating). When prices go down, total amount of money spent on goods should go down. This money will be saved to give one security and mobility. The price of labor should then rise, and people should be working less. Instead, the savings are eroded through inflation, and workers are kept on a constant treadmill.
What I really have to ask, if these central banks are really doing the optimal benevolent thing, then why do they violently shut down competition? Surely the currency they "stabilized" should win out in the market over possible competitors.
> And when management asks that you work 10 extra hours a week for the same amount of pay?
What? I completely fail too see what your point is here. Why would my management ask me to work 10 extra hours a week? What does that have to do with deflation?
> Well they're certainly avoiding the whole "pushing up" part.
How come rates go up then? What evidence do you have that they're 'avoiding' the pushing up of rates? Where is all the consumer inflation that they are allegedly creating?
> If they were smoothing the cycles out in a sustainable manner, we wouldn't be talking about negative interest rates.
Yes they would, because we are entering a potential depression. Smoothing out means cutting when things are bad and increasing when things are good. You have to act at both ends to achieve stable prices.
> Instead, they lower interest rates and keep them there because economic reality is politically inconvenient.
You are very good at making outlandish claims and not so good at backing them up. What evidence do you have that central banks have departed from their mandated inflation targeting regime?
> How much of this can be attributed to natural technological progress
Almost all of it, but technological progress cannot happen without a stable economy. People don't build factories unless they believe they can realise a steady income.
> And what percentage of the excess wealth (compared to an undriven economy) has been actually used to raise people out of poverty?
We do not live in a driven economy. We live in an economy where the value of money is kept stable in order to counteract the economy's natural tendency towards boom and bust. What do you mean when you say the economy is 'driven'? Give an actual economic definition of this term.
> It's not sustainable progress to get the masses out of poverty if you've used up most of the natural resources in the process.
Sustainability is entirely orthogonal to monetary policy. Neither have any affect on each other,
> The person who borrowed is the second recipient, the bank takes the first cut through fees and increased interest
No, they are the first recipient. Why do you say they are the second? They get the money first, therefore they are the first recipient. The bank gets interest, but interest accrues after the loan has been made. Your claim makes no sense.
> The government gets to tap into the supply through perpetual deficit spending.
So once again, it appears that the borrowers are the first recipient!
Your last part shows you don't understand the economic laws of nominal pricing. There's no point me discussing this, as you could go and look up the theory yourself.
> why do they violently shut down competition?
They don't. Very few countries have laws restricting what currency you can use. Many people have created alternative currency systems. But very few people use them precisely because national currencies win in the market.
> Why would my management ask me to work 10 extra hours a week? What does that have to do with deflation?
You're advocating a system which discourages saving. I'm pointing out a situation where lack of savings has a negative consequences for quality of life.
> Where is all the consumer inflation that they are allegedly creating?
The fundamental problem with inflationary policy is that it makes it so that dollars from the past purchase less food today than they would have previously, even though it is much easier to produce food today. You're calling it "consumer inflation" to avoid the glaring fact that every widget that has gotten easier to produce but yet remains the same price represents pure inflation. And as the rate of technological progress increases, this gap will grow ever larger.
> Yes they would, because we are entering a potential depression. Smoothing out means cutting when things are bad and increasing when things are good. You have to act at both ends to achieve stable prices.
But the fact they've hit zero shows that the average target has been chosen incorrectly over multiple cycles. Negative isn't just a curious property of a freely-tunable parameter - it's paying borrowers to take on debt with the hope that they'll spend it on something.. anything.. please?
Investors are understandably weary, and low rates can only mitigate this to an extent. Worthy investments would still be made with 1-2% rates, lower rates only perpetuate "no money down" and "users first profitability second" wishful thinking. The only thing that will fix general confidence is time.
> What evidence do you have that central banks have departed from their mandated inflation targeting regime?
I can't really claim that the central banks have deviated from their stated goal, when their stated goal is to devalue the currency as much as they can without pissing consumers off.
2002-2004. These were good times, yet the rate is solid at the lower end of the scale. A war should make creditors cautious, but rates were kept low to avoid any kind of economic slowdown that would make people realize an elective aggressive war has consequences.
The fact we're now talking about paying borrowers to take loans is precisely the consequence of failing to to keep the rates high enough.
> What do you mean when you say the economy is 'driven'?
Driven - Stimulated by an external source (rather than being left to steady-state)
> Sustainability is entirely orthogonal to monetary policy.
You haven't addressed my point. You can't claim it a virtue to lift masses out of poverty if they have the same proportion of wealth and the increased magnitude only comes from depleting natural resources as fast as possible. When the price of resource extraction goes up, the economy will slow back down, and they'll be left in deeper poverty.
> Why do you say they are the second?
The borrower pays the bank for the privilege of having access to the newly printed money. If the bank did not have first stab at the money, they wouldn't be able to attach their own conditions. Capiche?
> Your last part shows you don't understand the economic laws of nominal pricing
No, you're making an invalid assertion that the immediate consumer supply is fixed. By raising the prices of goods through monetary inflation, you short circuit the proper path which involves reduced demand for employment.
> Many people have created alternative currency systems
And they're allowed to exist as long as they stay local curiosities. When they grow and start attracting widespread attention, they are raided and neutered like Liberty Dollar and E-gold.
> Natural resources stay in the ground and people enjoy time off
Unemployment is not time off, nor is it delayed gratification.
> My point about electronics is that people delay purchases, but don't stop altogether
Yes, they delay their purchases, causing a contraction of the economy that creates real suffering, hence a loss of wealth that otherwise could have existed. Consequently most of the purchases never happen, and are therefore not 'delayed' but lost.
> Prudence is healthy; instant gratification consumerism is not.
It is prudent for the individual and destructive to total economic output. Are you trying to deny that recessions reduce people's wealth?