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overtheedge
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Blaming deflation

- Alasdair Macleod - Finance and Eco.

When banks borrow short and lend long, any drop in lending puts the bank on the hook for maintaining solvency and liquidity. Fractional reserve banking is completely dependent upon keeping the dance floor filled with borrowers.

The new and improved definition of deflation is loss of demand for loans. Demand is NOT about desire, but rather capability to service the debt.

The classic definition would have the quantity of money and money substitutes in decline. As the author rightly pointed out, it ain't so no more.

We also have another problem that government hired economists can't relate to. When consumer monies and credit get tight, the consumer is unable to make larger purchases. The government hired help is incapable of understanding consumer economics from the inside. The average consumers don't delay purchases while waiting for a decline in prices. For most of the masses, THERE IS NO DELAYED GRATIFICATION. No lay-away, no saving, no cookie jars filled with grandma's egg money. The consumer can't service any more debt. In many cases, they can't service existing debt. As long as the cheap and easy money was rolling in, consumer debt growth was ubiquitous.

1. Government economists get a paycheck.
2. Government economists had the 2.0 GPAs in college. Quality costs more than the bargain brand.
3. It is fundamentally impossible for government economists to understand consumer insolvency and the markets when you are still getting a nice paycheck (item #1 above). Ergo ... ,
4. It is impossible to understand the problem when it is outside your frames of reference.
5. It is impossible to grasp the scope of the problem when the statistics are purposely manipulated to distort the data to favor government policies.

6. Statistics are a study of history. There is no such thing as statistics looking forward. Statistics can't be generated for something that doesn't exist as yet. Any and all forward guidance is just repackaged auguries derived from reading goat entrails. And the taxpayers pay the economists for auguries that fail every month.

The only deflation is in the consumer's wallet. Most was self generated due to consumer arrogance and idiocy.
Idiot: n, incapacity to learn. If a person refuses to learn a subject, they are incapable of learning it. The maximum effective range of an excuse is zero meters.

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Beginning of the headline :With the Eurozone going to the extreme of negative interest rates and the IMF belatedly revising downwards their expectations of US economic growth, deflation is now the favoured buzzword. It is time to untangle myth from reality and put deflation in context. Keynesian and monetarist economists commonly use the word to describe the phenomenon of falling prices, or alternatively a rising value for money. Deflation is loosely meant to be the opposite of inflation. But the term inflation originally... Read More

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