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View Diary: “Thank God I had a buddy at Burger King who could help me out” (274 comments)

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  •  only due to europe imploding (1+ / 0-)
    Recommended by:
    gjohnsit

    math shows this can only end one way ... badly.

    Either deflation or inflation is going to wreck this world economy.  There is no good options here

    Bad is never good until worse happens

    by dark daze on Thu Jun 07, 2012 at 11:01:58 AM PDT

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    •  some inflation would be a good thing right now (2+ / 0-)
      Recommended by:
      ozsea1, Dr Swig Mcjigger

      Even Krugman thinks so.  Part of the problem is that governments are so mindlessly afraid of inflation for one reason or another that they're going too far in the other direction: teetering on the edge of a deflationary spiral - i.e. a second Great Depression worthy of the name.  Some rich people benefit from deflation, but only in a "better to reign in hell" sense.

      Enormous amounts of money have simply disappeared.  A shrinking money supply means prices go down, which is the definition of deflation.  Less money means less buying: also deflationary; austerity - deliberate budget cuts - also mean less buying.  The private sector sitting on its hands, refusing to hire people or buy stuff because consumer demand is so weak: also deflationary.  High unemployment and people with jobs cutting back on purchasing: also deflationary.

      The trend is deflationary, so inflationary policies - within reason - would actually make the economy healthier.  Businesses can work with rising prices in a way they can't with falling prices, because falling prices mean less money to be made period.  If the private sector is too paralyzed by fear to do its job, then government spending - good old Keynesianism - is the only option.

      Oh, but then government debt is going to get bigger and the bond vigilantes are going to attack our credit rating!  Even if these bond vigilantes exist - which for the USA they don't - policies designed to appease them at the cost of the economy as a whole is like auctioning off an empire to raise money to pay off a band of horse raiders.  They're not the biggest threat right now.  Yes, Keynesianism is supposed to be counter-cyclical: raising taxes and cutting spending is what you do when the private sector is booming and the economy doesn't need government support.  We don't have the discipline to do that, but the other side of the equation - deficit spending to keep the economy functioning when the private sector is paralyzed is still valid and necessary.

      No matter how bad our debts might be, the fact remains that no-one can cut their way out of a recession, and trying to do so is actually makes your long-term prospects worse.  In a recession, short-term policy must be inflationary, and in a depression, medium-term policy must also be inflationary.  Only once the economy is able to run strong under its own power do you have the luxury of paying down debts.

      •  either way we are screwed (0+ / 0-)

        I agree with your points, as also some inflation would help the conservative saver.  For the last several years there are no safe places to place your money and earn any type of interest.  Its gamble in the ponzi market or no yields for you. ( Sort of the Feds plan actually)

        But the real problem is, the incredible debt loads that countries need to service just will not allow any type of inflation...ever.  Look at Europe, a 7% yield is the death knell over there. 7% is not historically that high, now it will collapse a country.

        The game is over, The debt has checkmated us, just because we are trying to play the final moves out, doesnt change the outcome.

        Bad is never good until worse happens

        by dark daze on Thu Jun 07, 2012 at 11:36:55 AM PDT

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        •  then it's time for some creative thinking (0+ / 0-)

          This is a classic catch-22.  Austerity will only make things worse by depressing economic activity, which does make you a bad investment, which makes it harder to borrow money and/or attract investment.  However, the bond vigilantes will come after you if you try to stimulate your economy by spending money you obviously don't have, lowering taxes, etc., which also makes it harder to borrow money ... but perhaps not necessarily harder to attract investment.

          There's an assumption here that private debt markets are the only place where governments can go to borrow money.  I'm not convinced that's true.  WWII was financed in part by war bonds; regular people bought them and the government paid them back with interest after a fixed term.  Also, lots of times in the private sector the money from banks and/or investors is only made available once a convincing case for the profitability of a planned venture is made.  Governments could try something similar and think up a big plan - not for a goddamn bankruptcy auction where the world comes in to pick the corpse clean, but to expand, diversify, and generate many opportunities for productive economic activity that would justify putting your money back into places like Greece and Spain - and say: "Look, we can do this.  We want to do this.  You want us to do this.  All we need is the money."

          No-one's making any progress playing by the regular rules here, much less by martyring themselves to protect big banks, and economic collapse is not a good outcome.  The villains here are the people eager to kill the goose rather than wait for it to lay some more golden eggs.  It's their conventional wisdom that needs challenging.  People are talking like everywhere in Europe that's not Germany has become Somalia: a place where no-one in their right mind would want to live or do business, and these countries really aren't helping by smothering their own economies in order to keep their credit ratings up.

          To those who say the New Deal didn't work: WWII was also government spending

          by Visceral on Thu Jun 07, 2012 at 12:18:26 PM PDT

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          •  but your forget (0+ / 0-)

            we basically already did that, and now the worlds governments are loaded with debt, so much debt that it can never ever be repaid without inflating fiat to become almost meaningless.

            Debt is the elephant in the room. It makes it mathmatical impossible to do anything.

            World either goes through deflation or inflation or default. My guess it will be default, only problem is you need ww3 to pick who defaults.

            It ends ugly, but then again this society was never sustainable to begin with.

            Lets just hope it is replaced with a better one and not some quasi tech police state, which would be my guess as to what comes next.

            Bad is never good until worse happens

            by dark daze on Fri Jun 08, 2012 at 07:24:49 AM PDT

            [ Parent ]

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