DemonKia
Posts: 5521
Joined: 10/13/2007
From: Chico, Nor-Cali
Status: offline
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To amplify on what you posted, Tazzy . . . . .
Economics is confusing & difficult to understand for economists; for those of us outside the discipline it can be muddy water indeed . . . . . & Inflation & deflation are particularly opaque topics. Deflation, in particular, is both very noxious, & difficult for all of us who've never lived thru significantly deflationary periods to understand. The following article does a rather excellent job of explaining how this has been playing out in recent events (I've excerpted the gist):
http://theautomaticearth.blogspot.com/2009/07/july-5-2009-unbearable-mightiness-of.html
...inflation is an increase in the supply of money and credit relative to available goods and services, while deflation is the opposite.....
...An understanding of the scale of the inflation we have lived through requires far more than looking at CPI or even casting an eye over conventional money supply measures. It is necessary to appreciate the role of credit and the massive scale of a credit expansion that largely took place in the unregulated shadow banking system. Credit is the critical factor, as the 'moneyness' of credit in a myriad different manifestations drove the expansion of the effective money supply....
...one of the drivers of the credit bubble has been the ever-broadening definition of money. As the global economy expanded without a hic-up, more and more instruments came to be used as a store of value or medium of exchange or even a standard against which to value other things—in other words, as money. Thus mortgage-backed bonds and even more exotic things came to be seen as nearly risk-free and infinitely liquid. In Noland's terms, credit gained "moneyness," which sent the effective global money supply through the roof. This in turn allowed the U.S. and its trading partners to keep adding jobs and appearing to grow, despite debt levels that were rising into the stratosphere....
..."We have a credit based economy and anyone watching money supply and not watching credit is simply wrong. This is a statement of fact, not idle conjecture."...
...credit only functions as equivalent to money during the expansionary phase. Once the credit ponzi scheme has reached is maximum extent, the quality of 'moneyness' disappears. As the value of credit collapses, so does a money supply of which credit has come to comprise the vast majority. This is deflation, not the fall of prices, and there is precious little central bankers can do about it other than to play a desperate confidence game, hoping that they can obscure reality long enough for confidence to return by itself....
...”With a few months of hindsight, it's now clear that debt-as-money was not one of humanity's better ideas. When the U.S. housing market -the source of all that mortgage-backed pseudo money- began to tank, hedge funds found out that an asset-backed bond wasn't exactly the same thing as a stack of hundred dollar bills. The global economy then started taking inventory of what it was using as money. And it began crossing things off the list. Subprime ABS? Nope, that's not money. BBB corporate bonds? Nope. High-grade corporates? Alas, no. Credit default swaps? Are you kidding me?
No longer able to function as money, these instruments are being "repriced" (a slick little euphemism for "dumped for whatever anyone will pay"), which is causing a cascade failure of the many business models that depend on infinite liquidity. The effective global money supply is contracting at a double-digit rate, reversing out much of the past decade's growth.”...
...”Although Japan was rapidly printing money, a destruction of credit was happening at a far greater pace. There was an overall contraction of credit in Japan for close to 5 consecutive years. Property values plunged for 18 consecutive years. The stock market plunged from 40,000 to 7,000. Cash was hoarded and the velocity of money collapsed.
These are classic symptoms of deflation that a proper definition incorporating both money supply and credit would readily catch. Those looking at consumer prices or monetary injections by the bank of Japan were far off the mark. Yes, there was deflation in Japan. Furthermore, if deflation can happen in Japan, then there is no reason why it cannot happen in the US as well.”...
I particularly like that they quote Mish, cuz I generally find Mish annoying & frequently 'wrong', & thus when data points converge from very different perspectives, there may be something of substance there, in my book . . . ..
quote:
ORIGINAL: tazzygirl
quote:
How We Get Out of the Great Depression II
By Steven Stoft, March 2, 2009
Here we go again: Hoover got us in, and WWII got us out. Bush got us in, and
to his credit, starting trying to get us out. Though, mostly he threw money at bankers.
In the Great Depression, Roosevelt tried deficit spending, but he was too timid. Then he stopped in 1937 and the economy nose-dived. It took the humongous deficits of WWII to pull us out of the Great Depression. Those deficits blasted the economy from depression into overdrive.
It goes on from there.
http://zfacts.com/p/318.html
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