TLT looking really bad right now

[Kshartle]

I'll bet Japanese investors would LOVE to be able to buy some 30 year bonds at 3.8%.

During a deflationary period, a 3.8% return is great.

If you say that an extended deflationary period is impossible with the government running gigantic deficits, how would you explain what has been happening in Japan for over 20 years?

I'm not saying that I think that's what will happen here; rather, what I am saying is that if it can happen in Japan it could also happen here and I just want to be protected if it does.

The myth of Japanese deflation is a massive topic. I think it's just about the most misunderstood modern economic situation and forgive me if I need to take a breather before tackling it. It's relevant but it's a huge topic and I think we can learn a lot from it. I'm up for the discussion.

Understand that I don't mean deflation in the sense that prices are falling, I mean deflation as a set of structural economic forces (especially bad demographics coinciding with contracting credit) that make economic expansion very difficult.

In the nicest way I can say it....there is so much confusion over the words inflation and deflation we almost need to ban their use   kidding.....

Yes in 20 years Japan has suffered a massive in increase in the supply of Yen and they've seen prices rise along with a sluggish economy and little growth. All this despite huge technological growth. We can point to bad demographics and a low birthrate but I suspect the economy plays a huge role in the birthrate.

The truth is Japan has been the biggest first-world developed Fiat Keynesian Inflation experiment in the world. The BOJ and government disruptions into their lives is the biggest problem with their economy. Hopefully for them the disaster the Abeonomics is going to bring will finish the experiment and they can move closer to a free market.

This is only the start of any Japanese discussion. It probably merits it's own thread.

[Kshartle]

If you are asking for an argument for how LT treasuries could possibly provide a positive real return going forward, couldn't I just point to the last few years and basically say "that's how it would work"?

Do you agree that the U.S. economy is still very fragile?  If you do, I assume that you also agree that a sharp rise in interest rates would push the economy back into recession, right?  If the economy goes back into recession, why wouldn't interest rates fall?

If you say "stagflation", I would say consider the vast differences between the U.S. economy and U.S. population when you compare the 1970s to today, especially the almost complete absence of upward pressure on U.S. wages today.

I just don't get what the catalyst is going to be for a period of sustained high inflation going forward. 

Rising prices will be caused by expansion of the money supply required to stave off collapse of the inflation dependant economy. If the money supply stops expanding the banks, municipalities, companies that have loaded up on debt to buy-back shares, and of course the Federal Government to pay off all it's obligations and keep "borrowing" will go under. I have to put borrowing in quotes because a huge portion of all new borrowing for the Feds annually is just printing from the FED.

I know I've been called an inflationist, whatever that is. Please just call me a doo-doo head, it's more appropriate. I do not think inflation is inevitable. I've just said it's required for the government to continue making it's interest payments. If the money supply stops growing the whole thing will crash. They will either come back with massive bailouts for everyone...a bazooka of inflation, or let everything crash and total upheaval. Imagine depositors losing deposits, pensions (public and private) going bust, hordes more unemployed or going to the underground economy..etc.  How are they going to keep rolling over 5-6 trillion in debt they need to to keep up interest and principle payments in this environment?

There are two choices....keep inflating or suffer a crash that makes even the vaunted risk-free treasuries outright default.

And my point is they have to expand at a rate that is higher that the current rates on the 30 year which means real returns will be non-existant.

Pointing to 2008 is not the same. The debt was less than half. The economy was much less inflation dependant. 2008 is an interesting example though. Did the money supply even contract at all to cause the crash? I think the rate of increase just slowed for a little bit. And look what they came back with. A huge expansion of M1 to keep, let's call it M3 from contracting. They have to keep uping the ante. 

[Pointedstick]

Something I feel like I've never gotten a satisfactory answer about is how there's going to be sustained or sharp inflation if people don't have the money to pay the higher prices.

Let's say the government keeps printing, and the doo-doo heads inflationistas are right and prices begin to skyrocket.

But as we know, only the people who receive the devalued printed money are going to be able to afford the higher prices since other people won't be able to keep up as fast as the prices are rising, unless this money printing literally takes the form of universal welfare or helicopter drops or a citizen's dividend type thing.

Assuming those don't happen, and wages for most people don't keep up with the rising prices, how are the prices going to continue rising? Won't businesses who have raised their prices and can't get more sales from the beneficiaries of the printing be eventually faced with extremely low sales, and have to either lower their prices or go out of business? Once this happens, won't that stop the inflationary cycle--at least in the part of the economy patronized by the people who didn't get the printed money?

[kka]

Pointing to 2008 is not the same. The debt was less than half. The economy was much less inflation dependant. 2008 is an interesting example though. Did the money supply even contract at all to cause the crash? I think the rate of increase just slowed for a little bit. And look what they came back with. A huge expansion of M1 to keep, let's call it M3 from contracting. They have to keep uping the ante.

There was massive deleveraging (reduction in total debt -- as gumby points out, government debt is a small fraction of total debt in our debt-based monetary system) during the crash, I think around 25%.

Is there an expiration date for your inflation prediction?  If by 2018, inflation as measured by http://bpp.mit.edu/usa/ remains under or near 3%, will you acknowledge that the next 5-year period was similar to the previous one and you were wrong?

[moda0306]

Kshartle,

T-bills are actually considered part of the broad money supply... which means trading reserves for those bills doesn't actually increase the money supply based on that measure.

So what is so precious about one measure of what is money vs another?

Both our currency and T-bonds/bills are liabilities of the federal government and very liquid assets of the private sector.  Why should trading one for the other matter that much?


What matters is not whether we hold T-bills or $100 bills, but how much of that type of "clearing money" is circulating around a certain GDP and private-money (debt) framework.  Currently, there's not enough, evidenced by our massive capacity not being fully used, and people feeling like they just don't have enough money in their checking/savings accounts.

[Kshartle]

Something I feel like I've never gotten a satisfactory answer about is how there's going to be sustained or sharp inflation if people don't have the money to pay the higher prices.

Let's say the government keeps printing, and the doo-doo heads inflationistas are right and prices begin to skyrocket.

But as we know, only the people who receive the devalued printed money are going to be able to afford the higher prices since other people won't be able to keep up as fast as the prices are rising, unless this money printing literally takes the form of universal welfare or helicopter drops or a citizen's dividend type thing.

Assuming those don't happen, and wages for most people don't keep up with the rising prices, how are the prices going to continue rising? Won't businesses who have raised their prices and can't get more sales from the beneficiaries of the printing be eventually faced with extremely low sales, and have to either lower their prices or go out of business? Once this happens, won't that stop the inflationary cycle--at least in the part of the economy patronized by the people who didn't get the printed money?

You're describing stagflation. The price level is the sum of all the goods and services divided by the money supply. It doesn't have anything to do with wages.

Most of the population is on welfare right now and it's growing. Welfare is a hot-button word, so let's call it transfer payments whereby the government takes the purchasing power of market driven productive people and gives it to others. That includes all government workers and social security recipiants. That number continues to grow. The government cannot keep sending them enough money to maintain their living standards without robbing savers of purchasing power by inflating.

Contrary to what some others might think....the government cannot take by direct tax as much as they want. To believe this is to ignore reality. If someone thinks this I have to question if they have any contact with the outside world. Eventually people will stop working. Millions and millions have already chosen this and every tax increase means more people choose this.

Inflation doesn't require a single person earning or receiving a wage.

Rising prices don't require a single person earning or receiving a wage.

Inflation/whatever only requires expansion of the money supply.

Rising prices only require the exapansion of the money supply above and beyond the total amount of goods and services available to purchase.

If 90% of barbers quit and the money supply stayed the same the price of a haircut would go up. Same thing for everything. It doesn't require more money....it doesn't require fewer workers.....it does require one of them though and the ratio to change.

Right now we're getting both....anybody just see 500k left the labor force last month? labor participation just ticked down 2/10ths or a percent. Lowest since 1978. And the FED keeps expanding. M2 is going up 7% per year. They've stopped showing M3.

[MediumTex]

Something I feel like I've never gotten a satisfactory answer about is how there's going to be sustained or sharp inflation if people don't have the money to pay the higher prices.

Let's say the government keeps printing, and the doo-doo heads inflationistas are right and prices begin to skyrocket.

But as we know, only the people who receive the devalued printed money are going to be able to afford the higher prices since other people won't be able to keep up as fast as the prices are rising, unless this money printing literally takes the form of universal welfare or helicopter drops or a citizen's dividend type thing.

Assuming those don't happen, and wages for most people don't keep up with the rising prices, how are the prices going to continue rising? Won't businesses who have raised their prices and can't get more sales from the beneficiaries of the printing be eventually faced with extremely low sales, and have to either lower their prices or go out of business? Once this happens, won't that stop the inflationary cycle--at least in the part of the economy patronized by the people who didn't get the printed money?

As most people here know, that's always my question as well.

In the 1970s we had protectionist trade policies and strong labor unions to help facilitate wage gains in response to price increases (not to mention a lack of surplus productive capacity).  None of that is present today.  We are almost too productive for our own good.

Part of the reason that war is such a great economic event is that you are destroying stuff as a way of preventing a supply glut in the marketplace.  Imagine how happy Ford would be if half of the cars that rolled off its assembly lines had been destroyed by IEDs within six months.  Imagine how sad they would be if this arrangement ever stopped.  You might say that they would reallocate their productive resources to something else that provided more benefit to society, but the problem is there may simply not be any other such activity because of a surplus of productive capacity in their industry.

I know that the comments above sound like "the broken window fallacy", but in a world where there is simply too much productive capacity relative to consumers' wants (and ability to pay), maybe the broken window fallacy isn't as a much of a fallacy as it at first appears.

Stated differently, the discussion that we are having in the "Pointless Jobs" thread is really just another type of broken window fallacy situation.  If, however, we eliminated all of those pointless jobs what would the people who are doing them now do every day?

In many ways we have almost become too productive for our own good, but this has always been one of the problems with capitalism--i.e., it has the ability to generate enormous production, whether or not society actually wants or needs that level of production.  I think that part of what has made wars so ugly and destructive in the age of industrial capitalism is that a capitalist economy can generate an incredible amount of weapons, bombs, etc., whereas past kings and tyrants had to be careful that they didn't run out of weapons as they battled because it wasn't quite so easy to deliver more to the battlefield.

[Kshartle]

Kshartle,

T-bills are actually considered part of the broad money supply... which means trading reserves for those bills doesn't actually increase the money supply based on that measure.

So what is so precious about one measure of what is money vs another?

Both our currency and T-bonds/bills are liabilities of the federal government and very liquid assets of the private sector.  Why should trading one for the other matter that much?


What matters is not whether we hold T-bills or $100 bills, but how much of that type of "clearing money" is circulating around a certain GDP and private-money (debt) framework.  Currently, there's not enough, evidenced by our massive capacity not being fully used, and people feeling like they just don't have enough money in their checking/savings accounts.

I've never talked trading assets. It doesn't matter. I think this the MMT pseudo-keynsian confusion nonsense at work. uughghhhghgh.......do you not think the money supply is expanding?

Ok.....assets are being traded.....ummmm....but then you have to concede they both exist now where before they didn't. Gubmit creates a bond and the FED creates dollars. Through the banks the FED gets the bond and the gubmit gets the dollars. The gubmit buys something with the dollars and bids up prices for whatever it buys. Whoever gets those dollars buys something else and bids up prices for that. After a couple years the new dollars work their way through the enitire economy and the overall impact of the new dollars on the economy is a higher general price level.

Do you not think prices are higher than they were 5, 10, 15, 20, 50 years ago? Why do you think prices are higher? Because wages are higher? Because we're more productive? Why are prices higher? Because there are more dollars relative to goods and services.

Why are prices lower in gold terms since 1971...because there is less gold relative to goods and services.

[MediumTex]

Right now we're getting both....anybody just see 500k left the labor force last month? labor participation just ticked down 2/10ths or a percent. Lowest since 1978. And the FED keeps expanding. M2 is going up 7% per year. They've stopped showing M3.

That's a symptom of structural economic contraction (i.e., fewer people producing), which is not inflationary.

If I make $60,000 building widgets and actually spend about $65,000 because I am taking on debt and am forced into early retirement because my widget building job is sent to China and I now draw $23,000 from Social Security and I am careful to take on no new debt because I worry about being able to pay my bills, how exactly is that inflationary?  There is no lack of production due to me not working any more because some guy in China is cranking out just as many widgets as I ever did, and how is there more money chasing those widgets through the economy if more and more people are like me and seeing their wages (or income) declining for a variety of reasons?

[Pointedstick]

Inflation doesn't require a single person earning or receiving a wage.

Rising prices don't require a single person earning or receiving a wage.

Inflation/whatever only requires expansion of the money supply.

Rising prices only require the exapansion of the money supply above and beyond the total amount of goods and services available to purchase.

If 90% of barbers quit and the money supply stayed the same the price of a haircut would go up. Same thing for everything. It doesn't require more money....it doesn't require fewer workers.....it does require one of them though and the ratio to change.

I feel like we're getting to the meat of our disagreement now.

In your example, 90% of barbers quit, and let's say that the price of a basic haircut rises to $1,500.

So these remaining barbers put up new signs saying "High quality haircut, only $1,500!"

And they wait for a customer to enter the store.

And they wait. And they wait. And wait and wait and wait.

Meanwhile, the bills keep rolling in and the barbers aren't barbering because the price they've set is simply higher than what people are willing to pay.

It seems to me that after the initial price inflation, unless the people who ordinarily pay those prices can't do so, then the prices will need to fall or else the remaining sellers will go out of business.

Right? I mean, prices don't exist in a vacuum. As a seller myself, I can't raise my prices higher than what my customers are willing to pay irrespective of what the money supply is doing.

[MediumTex]

I've never talked trading assets. It doesn't matter. I think this the MMT pseudo-keynsian confusion nonsense at work. uughghhhghgh.......do you not think the money supply is expanding?

If the money supply is expanding relative the supply of goods and services, why do you think that we aren't seeing significant price increases across the whole economy?  Shouldn't that be happening?

I guess it also depends on what the increased supply of money is spent on too.  If I received a $10,000 check from the government tomorrow, it wouldn't be inflationary if I spent it to pay down debt, right?

[Kshartle]

Pointing to 2008 is not the same. The debt was less than half. The economy was much less inflation dependant. 2008 is an interesting example though. Did the money supply even contract at all to cause the crash? I think the rate of increase just slowed for a little bit. And look what they came back with. A huge expansion of M1 to keep, let's call it M3 from contracting. They have to keep uping the ante.

There was massive deleveraging (reduction in total debt -- as gumby points out, government debt is a small fraction of total debt in our debt-based monetary system) during the crash, I think around 25%.

Is there an expiration date for your inflation prediction?  If by 2018, inflation as measured by http://bpp.mit.edu/usa/ remains under or near 3%, will you acknowledge that the next 5-year period was similar to the previous one and you were wrong?

You think the money supply decreased by 25%? Ok, I'd be interested to see that and would not dispute it. I just wasn't aware it was that severe. Sure it might have been. That would at least provide a good way to measure if a crash was coming. If anybody can say what the total drawdown in the money supply was prior to the top in the market that would be awesome. I doubt it would take as much of a reduction this time to crash it since it's 100% on inflation life-support at this point.

I haven't made an inflation prediction. I've just said that inflation is neccessary for the government to maintain it's interest payments and at current rates you're not going to get a long-term real return in LTBs.

So no, I think the price level could stay flat or fall from here. But that would mean rising rates or outright default. The last one might take a lot longer than 5 years...hard to say. The government could always try an asset sale. The last one is the only way out for them I think. Maybe they'll rent out the White House.

[Kshartle]

Inflation doesn't require a single person earning or receiving a wage.

Rising prices don't require a single person earning or receiving a wage.

Inflation/whatever only requires expansion of the money supply.

Rising prices only require the exapansion of the money supply above and beyond the total amount of goods and services available to purchase.

If 90% of barbers quit and the money supply stayed the same the price of a haircut would go up. Same thing for everything. It doesn't require more money....it doesn't require fewer workers.....it does require one of them though and the ratio to change.

I feel like we're getting to the meat of our disagreement now.

In your example, 90% of barbers quit, and let's say that the price of a basic haircut rises to $1,500.

So these remaining barbers put up new signs saying "High quality haircut, only $1,500!"

And they wait for a customer to enter the store.

And they wait. And they wait. And wait and wait and wait.

Meanwhile, the bills keep rolling in and the barbers aren't barbering because the price they've set is simply higher than what people are willing to pay.

It seems to me that after the initial price inflation, unless the people who ordinarily pay those prices can't do so, then the prices will need to fall or else the remaining sellers will go out of business.

Right? I mean, prices don't exist in a vacuum. As a seller myself, I can't raise my prices higher than what my customers are willing to pay irrespective of what the money supply is doing.

It's called supply and demand. As supply goes down prices go up to meet the demand that will support the higher price.

Since so many prices are distored by government and not market driven it's understandable why people get confused.

Imagine there is one barber in the entire world. Do you think the price of a haircut from him would be higher than the current average price? It's the same principle regardless of how much you reduce supply by.

[MediumTex]

Imagine there is one barber in the entire world. Do you think the price of a haircut from him would be higher than the current average price? It's the same principle regardless of how much you reduce supply by.

If there were only one barber, the price of a haircut might be less than it is now because people would have so completely arranged their lives around not having access to a barber's services.

Think about it like this: imagine if there were only one Baptist preacher in the whole world.  Would the tithes that support his salary be enormous?  I doubt it.  He might even have a church full of empty pews each Sunday because people simply wouldn't know what he was talking about if he was the only person in the world delivering that particular message.

[Pointedstick]

It's called supply and demand. As supply goes down prices go up to meet the demand that will support the higher price.

Since so many prices are distored by government and not market driven it's understandable why people get confused.

Imagine there is one barber in the entire world. Do you think the price of a haircut from him would be higher than the current average price? It's the same principle regardless of how much you reduce supply by.

Wait, now I'm confused. Is the price level a function of supply and demand in the marketplace? You said:

As supply goes down prices go up to meet the demand that will support the higher price.

…Or are prices a function of the quantity of money? You said:

Rising prices don't require a single person earning or receiving a wage.

Inflation/whatever only requires expansion of the money supply.

Rising prices only require the exapansion of the money supply above and beyond the total amount of goods and services available to purchase.

[Kshartle]

If the money supply is expanding relative the supply of goods and services, why do you think that we aren't seeing significant price increases across the whole economy?  Shouldn't that be happening?

I guess it also depends on what the increased supply of money is spent on too.  If I received a $10,000 check from the government tomorrow, it wouldn't be inflationary if I spent it to pay down debt, right?

It would still be inflationary unless your creditor was a bank that did not maintain their outstanding loan level by re-loaning due to increased credit risk/bad economic outlook.

The price level has not increased by the same amount as the monetary expansion. 500 billion or so dollars a year go overseas due to countries trading dollars for goods. They take our paper and print their own to maintain exchange rates and send us cheap stuff. We import goods and export inflation.

That being said......has the price of food not gone up in 5 years? Gas? Electricity? The prices for essential things have gone up. Maybe home prices haven't but they had gone sky high in the previous years. A lot of it is just that people can't afford the things they used to so there is less demand for those (cars, plane tickets). The effect of the inflation doesn't neccessarily have to translate into higher prices, it can just be a lower living standard.

So exporting the dollars and changing consumption patterns have kept the price level from rising at the same level as the money supply. To the extent this continues we should expect the price level to continue to lag the expansion.

Imagine our creditors stop importing the dollars. Imagine they demand real payment in the form of balanced trade. Our import costs will go way up. Imangine a robust economy where there was higher demand for non-essentials? Then we would be feeling the full effects of the inflation.

[moda0306]

Kshartle,

T-bills are actually considered part of the broad money supply... which means trading reserves for those bills doesn't actually increase the money supply based on that measure.

So what is so precious about one measure of what is money vs another?

Both our currency and T-bonds/bills are liabilities of the federal government and very liquid assets of the private sector.  Why should trading one for the other matter that much?


What matters is not whether we hold T-bills or $100 bills, but how much of that type of "clearing money" is circulating around a certain GDP and private-money (debt) framework.  Currently, there's not enough, evidenced by our massive capacity not being fully used, and people feeling like they just don't have enough money in their checking/savings accounts.

I've never talked trading assets. It doesn't matter. I think this the MMT pseudo-keynsian confusion nonsense at work. uughghhhghgh.......do you not think the money supply is expanding?

Ok.....assets are being traded.....ummmm....but then you have to concede they both exist now where before they didn't. Gubmit creates a bond and the FED creates dollars. Through the banks the FED gets the bond and the gubmit gets the dollars. The gubmit buys something with the dollars and bids up prices for whatever it buys. Whoever gets those dollars buys something else and bids up prices for that. After a couple years the new dollars work their way through the enitire economy and the overall impact of the new dollars on the economy is a higher general price level.

Do you not think prices are higher than they were 5, 10, 15, 20, 50 years ago? Why do you think prices are higher? Because wages are higher? Because we're more productive? Why are prices higher? Because there are more dollars relative to goods and services.

Why are prices lower in gold terms since 1971...because there is less gold relative to goods and services.

I don't think anyone on the Keynesian/MR side is saying prices haven't risen.  And yes, it's due to an expansion of the money supply in excess of productive capacity.  However, this isn't some kind of hyperinflationary endgame, it's 40 years of inflation somewhere between -1% and 12% in a given year, with the vast majority of years between 2% and 4%.  And even more interestingly, the government that is issuing this currency has been nice enough to give us interest that quite often eats up that inflation at no default risk.  And you didn't really even need to hold many dollars at any given time anway.  Inflation is just simply not that big of a deal, and is mostly avoidable... heck, it's not that difficult to put you in a position to benefit from an inflationary period, much less break even or be mildly negatively impacted.



I'll acknowledge that these assets have been added to the economy, but trading one for the other is a non-event for the most part... yes, taking Asset Type B (interest bearing risk-free bond) out by putting a non-interest-bearing asset that's otherwise identical out there.

But that just serves to set a floor for interest rates in the private sector.  It doesn't give us more fuel to "bid up" the price of assets.  If I magically had $1 Million in T-Bills (or bonds) tomorrow in my TD Ameritrade account, I would have all the fuel I need to go bid up the price of all the wonderful things I'd buy with all that fiat wealth.  But if you turn $1 Million of T-Bills I already own into cash, I haven't become any richer in real or nominal terms.  Nor has the government become any richer or poorer in real or nominal terms.  I am not going to go out and buy anything I wouldn't have before just because I'm no longer getting paid interest.

[Kshartle]

If there were only one barber, the price of a haircut might be less than it is now because people would have so completely arranged their lives around not having access to a barber's services.

Come on man. Imangine there was one 1967 Mustang in the world? Or one brain surgeon then?

You are really grasping at straws here to argue against the most basic economic principle of supply and demand. You are just being argumentative about nonsense.

[MediumTex]

That being said......has the price of food not gone up in 5 years? Gas? Electricity? The prices for essential things have gone up. Maybe home prices haven't but they had gone sky high in the previous years. A lot of it is just that people can't afford the things they used to so there is less demand for those (cars, plane tickets). The effect of the inflation doesn't neccessarily have to translate into higher prices, it can just be a lower living standard.

As I have posted before, if you compare prices today to 2008, here is what you find:

The price of gasoline is lower.

The price of electricity in many parts of the country is lower due to lower natural gas prices.

The price of food has risen at about 2% per year over the last five years.

The price of housing for most people has fallen due to falling housing prices and falling interest rates.

The prices of other things like computers, TVs, appliances and furniture have also fallen over the last five years.

The two ares where I have seen sustained strong inflation in recent years have been the cost of health insurance and concert tickets.

[Kshartle]

Wait, now I'm confused. Is the price level a function of supply and demand in the marketplace? You said:

Combo. The general price of a good or service is a function of the supply and demand for it. Since we price most everything in dollars you have to factor in the supply of dollars. If we used something else we'd have to factor that in instead.

This is why the dollar price of something can go up while the Euro price can go down. There are essentially three factors because we have such volitile money supplys.

[MediumTex]

If there were only one barber, the price of a haircut might be less than it is now because people would have so completely arranged their lives around not having access to a barber's services.

Come on man. Imangine there was one 1967 Mustang in the world? Or one brain surgeon then?

You are really grasping at straws here to argue against the most basic economic principle of supply and demand. You are just being argumentative about nonsense.

I'm really not.

If something becomes too expensive no one will buy it.  That's all I'm saying.

If you are going to cite something like a work of art in the form of a classic car or a service that could save someone's life then there will always be a bid in the market for a product or service like that.  But if we are talking about haircuts, pet rocks, or hula hoops I think that above a certain price level no one will buy them.  It's an important distinction, and maybe it's just describing the shape of the demand curve at various price points for different types of products and services.

[AdamA]

Something I feel like I've never gotten a satisfactory answer about is how there's going to be sustained or sharp inflation if people don't have the money to pay the higher prices.

Let's say the government keeps printing, and the doo-doo heads inflationistas are right and prices begin to skyrocket.

But as we know, only the people who receive the devalued printed money are going to be able to afford the higher prices since other people won't be able to keep up as fast as the prices are rising, unless this money printing literally takes the form of universal welfare or helicopter drops or a citizen's dividend
type thing.

Assuming those don't happen, and wages for most people don't keep up with the rising prices, how are the prices going to continue rising? Won't businesses who have raised their prices and can't get more sales from the beneficiaries of the printing be eventually faced with extremely low sales, and have to either lower their prices or go out of business? Once this happens, won't that stop the inflationary cycle--at least in the part of the economy patronized by the people who didn't get the printed money?

As most people here know, that's always my question as well.

In the 1970s we had protectionist trade policies and strong labor unions to help facilitate wage gains in response to price increases (not to mention a lack of surplus productive capacity).  None of that is present today.  We are almost too productive for our own good.

Part of the reason that war is such a great economic event is that you are destroying stuff as a way of preventing a supply glut in the marketplace.  Imagine how happy Ford would be if half of the cars that rolled off its assembly lines had been destroyed by IEDs within six months.  Imagine how sad they would be if this arrangement ever stopped.  You might say that they would reallocate their productive resources to something else that provided more benefit to society, but the problem is there may simply not be any other such activity because of a surplus of productive capacity in their industry.

I know that the comments above sound like "the broken window fallacy", but in a world where there is simply too much productive capacity relative to consumers' wants (and ability to pay), maybe the broken window fallacy isn't as a much of a fallacy as it at first appears.

Stated differently, the discussion that we are having in the "Pointless Jobs" thread is really just another type of broken window fallacy situation.  If, however, we eliminated all of those pointless jobs what would the people who are doing them now do every day?

In many ways we have almost become too productive for our own good, but this has always been one of the problems with capitalism--i.e., it has the ability to generate enormous production, whether or not society actually wants or needs that level of production.  I think that part of what has made wars so ugly and destructive in the age of industrial capitalism is that a capitalist economy can generate an incredible amount of weapons, bombs, etc., whereas past kings and tyrants had to be careful that they didn't run out of weapons as they battled because it wasn't quite so easy to deliver more to the battlefield.

You just blew my mind.  Great post.

[Pointedstick]

Wait, now I'm confused. Is the price level a function of supply and demand in the marketplace? You said:

Combo. The general price of a good or service is a function of the supply and demand for it. Since we price most everything in dollars you have to factor in the supply of dollars. If we used something else we'd have to factor that in instead.

This is why the dollar price of something can go up while the Euro price can go down. There are essentially three factors because we have such volitile money supplys.

If sounds like we might actually be in agreement. If you're telling me that monetary expansion will tend to raise prices, but the maximum level of those prices is dependent on people's ability to afford them, then I think I'm with you.

[moda0306]

Let's talk about supply and demand for a second:

The demand for safe, liquid assets has gone way up since early 2008, the supply has changed with deficit spending, but NOT with QE, as QE is just a swap of one safe, liquid asset for another.

The demand for loanable funds has gone way down since 2008 (and probably back up a little bit), the supply is ambiguous, becuase the government will make it infinite if the economy can handle it without overheating (too much inflation).  So all things being equal we'd expect interest rates to go down in general.

The aggregate demand in this country is not at full capacity of what our country can supply, so an increase in "confetti" in the economy can easily be absorbed by that productive capacity without creating inflation.

[Bean]

What if yields drop to 1% over the next 10 years?  Is that long enough to be long-term?

What if it starts raining Gatorade? Will the elecrolytes make the crops grow better?

Why stop at 1%? How about negative 50%?

super far behind in this thread, but this comment is amazing

Brawndo the Thirst Mutilator, it is what plants crave!