Inflation, Deflation & Capacity Utilization 2

[TheCIAsucks]

I really like this guy and his explanations, but there is something very unconvincing about this one. I don't think his conclusions are justified.

[mrhnm]

@TheCIAsucks Look into Austrian Economics.

[Korianne75]

i think we are going for deflation if you look the graph at about 10:53 you can see it. We are headed in a deflationary period. But who knows maybe the devaluation of currency might inflate prices while deflation itself is dropping them.

Comment back im trying to learn this STUFF THX!!

[pdeg001]

@Korianne75 It all depends on what action the Federal Reserve takes. If the Fed keeps bailing out corporations and banks, monetizes the government debt, and monetizes loans that are in danger of defaulting, there will be massive inflation - possibly hyperinflation. If the Fed lets everything default, there will be massive deflation - worse than the 1930s. Unfortunaetly, deflation is the better action to take so markets can restructure.

[HKmovielines]

If the government issues bonds and the stimulus package. Doesn't it mean it drives up the consumption ?

In the GDP expenditure approach counts the C + I + G + (X - M) or the other hand, income approach compensation of employee + operating surplus + mixed income of self employee. In the recession period, people got cut, income goes down and people got unemployed. SO expenditure > income

[HKmovielines]

@HKmovielines. Therefore, doesnt it mean at 7:57 , the left bar goes up and the right bar goes down. So how do u define the output and consumption ?

[lorax2013]

Deflation is mostly only bad for the banks and other leveraged speculators. IMO that is why the establishment puts out the myth that deflation is bad. In reality deflation is just a normal deleveraging which occurs when overleveraging collapses. The government only fights it in order to prop up the banks and wealthy investors who would otherwise take a bigger loss. That's the shortest explanation I can give for a complex topic.

[flyingparadise]

One more point falling prices are not always bad, they are infact good at they bring realistic values to the goods, we cannot live in a world which is full of inflation all the time.

Inflation may not affect rich people a lot but it certainly wipes out the lower middle class.

[frother]

@flyingparadise

There's no inherently true price for a good. As inflation goes up, that just means that the dollar is worth less, not that the good costs more.

What you really care about is the rate of price increase of the good compared to the rate of price increase of other goods and the rate of wages increase.

[mrhnm]

@frother What I care about is getting money out of my savings account and into something like silver.

Why?

Because inflation devalues your money faster than the interest the bank gives you compenstates. Id est your money loses value every time the FED prints money. They are stealing from you.

[TallFastLoud]

@flyingparadise a) inflation is bad for the rich -- who generally have the highest savings rate -- and not bad at all for people with lower rates of savings, especially those who are able to obtain wage increase that correspond with inflation. we actually can live with persistent inflation (we always have SOME degree of inflation), which isn't bad provided it doesn't get out of control. falling prices are actually bad for people who need to borrow frequently (i.e. the worse off sectors and

[TallFastLoud]

@flyingparadise small businesses [which rely more on borrowing than issuing stocks/bonds.]) Your comment is nearly exactly the opposite of the consensus on these things.

[yahodeva]

@TallFastLoud Appreciate your views, however i believe current sacrifice in consumption and saving is what builds your future. You cannot always keep on borrowing all the time. You save today, sacrifice today and that allows to set up your future comfortably. same goes for buying a house, building a business. You save today, sacrifice today and build tomorrow. Borrowing again and again to pay back earlier debt is nothing but a ponzi scheme and that cannot be sustained forever.

[TallFastLoud]

@yahodeva well, debt is necessary to a certain degree, whether you like it or not. I do totally agree about the demerits of excessive debt. however, real wages have been stagnating for a while now in the US, meaning that aggregate demand could no longer drive growth. as Ford would've said 'you have to sell the shit to someone.' since income inequality soared and wages stagnated or fell, we had to give the lower/middle classes some purchasing power to maintain growth and that came via cheap

[TallFastLoud]

@yahodeva credit. There are three options: we can have your plan of 'no debt and no wage increases' and have torpid growth; we can increase purchasing power (but not wages) via unsustainable debt; or we can increase real wages to match productivity growth. The idea that it's a 'lesser of two evils' choice between the first two options is a sign of how far right the economic consensus has moved in this country.

[flyingparadise]

17 Current interest rates in 0% and the bubble will burst much faster and the calamity will be much bigger than the financial crisis in 2008

18 Focus should be creating more productive capacity within the US and more savings and discourage consumption which is the really problem of the US economy

19 the biggest bubble today is the US bond market, how can anyone lend US at 4.5% for 30 year it just cant happen, the yields are definately going to rise and the $ is going to lose value

[flyingparadise]

14. Recession and deflation will follow after a boom as the asset bubbles will start to burst and in the process people will lose money but they should not be bailed out by providing cheaper money

15 How far can the FED reduce interest rates, they are practically at Zero today

16 Home asset bubbles was made by the FED by keeping interest rates at 1% for more than 1 year in 2001, it took a massive bubble burst in real estate in 2008

[flyingparadise]

9. capacity utilisation is increasing a lot in other countries who are under consuming and subsidising the US consumption.

10. as CHina has pegged its currency to $, US has been able to export a lot of inflation and still have the luxury of running up huge trade balance.

11. if the currency was not pegged, then US would never have been able to consume so much

12. Deflation and recession are not bad they correct the imbalance like fever which fights imbalance in the body

Continued

[flyingparadise]

4. each $ printed creates 10 more $ by fractional banking reserve

5. so the money supply grows and creates a lot of asset bubbles.

6. consumption driven debt is really not sustainable in the long run.

7. FED is deliberatly running up asset bubbles to thwart the recession.

8. When the financial crisis hit the FED has 2 choice

1. Inflation - Making cheap money available, promoting more consumption, pushing recession later

2. facing the recession now and correct long term imbalance

[flyingparadise]

Actually i dont agree with the outcome,

1. Inflation is actually not rice in prices but rising prices are a symptom of inflation. Inflation is defined as increase in monetary supply

2. if capacity utilisation was determining the price rise or fall, then zimbabwe would have a huge deflation but they are having hyper inflation.

3. US consumption is massively financed by other countries which can be seen in the -ve trade balance and -ve savings rate.

Other points to follow in the next

[srvkkar]

@flyingparadise I agree, "inflation is not rice."

[personova]

Sal, I would like to point out that this recession may break from some of the established historical trend data.

The reason is, the economic base of the US has fundamentally changed. Even more so with the socialist interventions and the fiscal irresponsibility of government.

[jonnniefivemiles]

Great stuff, man. Thanks for making these.

The only thing I would bring up (in the spirit of education) is that one should really qualify a statement like "it isn't the money supply that drives inflation.. but capacity utilization... velocity of money" with an acknowledgment that many renowned economists would disagree with that, and that some have made serious arguments for "velocity of money" being a non-concept and certainly not the driving force of real inflation.

[high5flyer]

Bingo! Savings as a % of Disposable Personal Income has been negative for some time. I knew the economy was in some trouble when I saw this fact while doing a project for my Business Forecasting class.

[Workinbus]

Debt is inherently DEFLATIONARY...There has NEVER been a case of hyperinflation where a nation's debt was denominated in it's own currency!......This guy is right..We're in a classic deflationary spiral....Forget hyperinflation.....

[siggyboss]

Zimbabwe, Germany, and the US (Continental dollar).

[pjblabla]

I recommend watching the you tube channel

crashof2008

[siggyboss]

I found that channel last year. He's right that the Federal Reserve caused our problems, but incorrectly believes it's a matter of leadership. Fractional reserve lending and fiat money have inherent structural problems, and only exist because the state supports them.

The bureaucrats at the Federal Reserve are no better than the bureaucrats at the Reserve Bank of Zimbabwe. Zimbabwe likely has better data being a police state.

Check out misesmedia and Austrolibertarian.

[Nintendomanwill]

This fool isn't just an establishment shill, he's implying that in times of downturn which allegedly can't happen with enough consumption, we should force people to support commerce whose wares they do not desire as if the volume of production is all that matters-so don't let that overproduced housing market slow, and don't let factors of production clear to more harshly felt scarcities!

& to say that velocity of exchange is inflation is doublespeak: it reflects consumer desires to businesses.

[getnbusy2nite]

@Nintendomanwill Well The velocity of exchange is codified in the Quantity Theory of Money.  That is why we have low rising prices despite the Federal Reserve's Quantitative Easing and an increase in the monetary base. M0 is increasing rapidly but M1 and M2 are sluggish. I'm not disagreeing that velocity equals business desire, but increased exchange demand does lead to higher prices. Wasn't Mises a founder of this concept in "The Theory of Money and Credit"?

[getnbusy2nite]

@siggyboss What about the Gold Standard in Practice such as the British Bank Charter Act of 1844, or that if you take the total amount of gold ever mined at current values it would equal half our GDP? How about you mention that M0 has no effect on inflation anymore as does M1+M2, or our highest periods of inflation were on the Gold Standard? Or that contemporary recessions are shorter and farther apart than before?

Shouldn't one also pay attention to the problems of the Gold Standard as well?

[siggyboss]

@getnbusy2nite The Gold Standard is simply entrusting the state to maintain the ratio of fiat money it creates to the amount of gold in its vaults. In gist, it's idiotic to trust any state to guarantee any ratio forever. The temptations are great: no need to raise (or collect) taxes; no need to stop spending; blame business for rising prices.

[getnbusy2nite]

@siggyboss Ok but have you actually researched the Gold Standard in Practice or have you just accepted empty promises on an ideological premise. Go ahead and research the Bank Charter Act of 1844, or the bad deflationary pressures of huge gold infusions in the 1840's and 1850's that lead to a rise in debt/asset ratios.

[siggyboss]

@getnbusy2nite I'm not going to spend time researching an individual law unless there's a reason. You haven't addressed the obvious problems of a state controlling the money supply, but prefer to emphasize a particular incident regardless of trends (inflation).

As to your 'bad' deflationary incident, what's bad about money appreciating in value? At the same time, what's 'good' about money losing value? What are you going to do when the conquistadors return from the Americas with Inca gold?

[klitschko88]

at least for now.

[netmasta10bt]

Again he is discussing price inflation/deflation. Not monetary inflation. All this money being pumped into banks and through stimulus is monetary inflation and it will cause prices to rise especially for imported goods. American's are getting poorer compared to other countries, which means a net loss of buying power.

[BigBruddah101]

Cap Util should only be high in the short run given expansion and the entering of new firms would occur, no?

If high Cap Util continues in long run, would indicate another issue: lack of info to key expansion, barriers to entry, excessive demand, lack of capital/saving/investing?

Didn't we leave a true gold standard in 1933 (not 1971) when gold redemption clause on money was repudiated in defiance of Section 8 of the constitution, allowing dollar to fluctuate and government to revalue/print?

[netmasta10bt]

The USD was pegged to $20 oz of gold. The Federal Reserve was instituted in 1913, WW2 started 1914, ensue monetary inflation via debt. In 1933 Roosevelt made it illegal to own gold. Then revalued the dollar to $35 oz. Bretton Woods starts in 1944 which pegs major world currencies to the USD because it was gold backed. US citizens still unable to redeem for gold, non US could do so with impunity. 1971 Nixon removed USD gold backing, (to pay for Vietnam) and Bretton Woods ended.

[Xapthy]

I believe greed & lack of education plays a major factor in the equation on whether the market will express their demand or not.

In Australia come Monday, a high percentage of the population will be receiving 'stimulus' money. However reports are indicating that major retailers are already experiencing an increase in sales; an expression of demand? Hrmm.

[high5flyer]

Things are going to happen much differently in each country depite how intertwined we are from the Global Economy. Harry S. Dent Jr. who believes deflation will occur in America has said that Australia will do better than any other country due to its demographics, which he believes is the key factor that determines demand.

[siggyboss]

Under deflation, people eventually increase their spending. If a Mercedes-Benz drops in price by half, more people will buy the cars. In fact, computers have experienced massive price decreases, and the volume of sales have surged.

[Depatres]

Im no economy expert but..

I believe deflation also means lower wages and unemployment; better actually deflation is a result. Prices drop because cap. ultilization drops, people have less money to spend or are more careful when spending, lowering demand and suddenly there is a gap between production and demand. Yes its a blessing for those who were prepared or lucky or are gadget fanatics from Europe, but overall degrading for economy on the long run.

[siggyboss]

How have continually cheaper computers been degrading for the economy? Are more people employed in the computer industry? Saving for retirement is no a rat race either. Forget cap. utilization because it's bunk. Common sense says general price decreases are a good thing.

[Depatres]

But now, people will rather save money + its harder to get credit to buy things), rather than than buying. (which what all the economists are afraid of). Because companies arent able to sell things as quicly as before first lower their production, invest less into innovation (survival mode - cap .utili drops) and later start lowering prices so they can sell what stored in warehouses. Prices drop yes, but some have lost their job anyway so its meaningless to them.

[Depatres]

So now the thing is not to fall into the deflation cycle which happened in Japan in the 90's after the housing buble burst. They call it the 10 lost years. How not to go the same way, I do not know..

[siggyboss]

That's the byproduct of a central bank / fractional reserve (fraudulent) lending that is expanding and shrinking the money supply, causing continual booms and busts. It's impossible for bureaucrats to find the magic number in a economy with trillions of interrelated prices. It's better to have a stable money supply, and general price decreases as goods increase in supply via productivity.

[getnbusy2nite]

@siggyboss Actually if you look at the data from the National Bureau of Economic Research (NEBR), you will notice that when measuring the length of recessions, the length of time in between, and the loss in output, all indicators (on average) where better after the Great Depression than during or Before it, including when the Federal Reserve was not created.

[siggyboss]

@getnbusy2nite I don't care when the NEBR declares there's a recession. Also, the NEBR always declares the beginning and end of recessions months after the fact.

If you're using GDP to determine the loss of output, that's meaningless in a world of fiat money. The US uses fiat money that continually losses value (on average), and the respective prices for unchanged goods would continually increase (on average). For example, Zimbabwe likely has the largest GDP growth rate seen in decades.

[getnbusy2nite]

@siggyboss We are not Zimbabwe though, we have never had inflation above 20% (we had this while on the gold standard as well btw). We have never seen a drop in GDP as extreme since the Great Depression. Besides a percentage drop is the same whether in real or nominal terms.

What's wrong with examining data to ensure accuraccy? Economics isn't a flush-and-rush game. The data still shows an average of cycles every 4.1 years from 1854-1945 and 5.6 years for 1945-2001.

[siggyboss]

@getnbusy2nite The US suffered hyperinflation (>100% inflation) in its very beginning. The "continental currency" collapsed during the American Revolution. Patriots were decimated beyond mere statistics. Of course, we aren't Zimbabwe but that never mattered.

The statistics you utilize are worthless in a world of fiat money. GDP real is still meaningless because one can't measure price inflation accurately due to innovations and disuse; only monetary inflation can be accurately measured.

[getnbusy2nite]

@siggyboss You're pulling the Revolutionary War on Me??? Come on that's reaching for a twig...we were barely a country then, most historians don't even place our real political and economic solidification until after the War of 1812.

Ok fine I won't discuss GDP with you but you cannot discount the cycle improvements.

[siggyboss]

@getnbusy2nite Simply admit you didn't know the US suffered hyperinflation at its inception. It's why we have Art. I Sec. 10 Cl. 1 in the US Constitution. Even the phrase, "Not worth a continental" is still in use. How can you complain after 'pulling' an incident from another nation in 1844?

I'm not going to waste time disproving all the bunk you learned in Keynesian economic classes. All states foment nonsense to justify their monopoly on money, while it debases the same money for its benefit.

[getnbusy2nite]

@siggyboss I did know (love history) but it's not worth mentioning for apodictic reasons. We were not an established country, jsust a band of rouges who's capital had to move from city to city without an established infrastructure while in war. Britain in 1844 had been an established nation for some time with international markets much like we are today and they attempted the gold standard and it failed because they didn't take into account depositors convertibility or interest rates.

[siggyboss]

@getnbusy2nite I don't care if the nation doesn't meet your definition of established, or any other ambiguous requirement. The continental currency was certainly established and used by the people. The same money was issued under law and was fiat money. You'd likely have continentals in your pocket this very moment if they hadn't collapsed in value via hyperinflation.

Gold, silver and copper alone have served as money for centuries. However, they can't be debased to the benefit of any state.

[getnbusy2nite]

@siggyboss But I just gave you a perfect example where the gold standard failed, the currency school of Ricardo (a proponent of Say) attempted this. Logic would dictate it be worth your examination lest your ideology blinds you.

Recessions were worse and inflation (under an established government and country with borders, not some hogwash you propose) was not controlled. Asset prices were more erratic with unmanageable inflows of specie. We even had more on average recessions per yer!

[siggyboss]

@getnbusy2nite I never wrote that I favor the gold standard (state controlled ratio of gold to fiat money). However, if I do favor letting the market determine what is money (e.g. gold, silver, lead, or whatever).

[getnbusy2nite]

@siggyboss But markets do choose, world wide even. Our currency is measured against other currencies by an exchange rate. Weaker currency means lower yields on investment and (possibly) high inflation (also lower imports, higher exports). People would then demand, especially in democratic countries, currency reform.

I see what you mean though, you want people to have more say in what they can use as a medium of exchange domestically, but they do have some say in their market actions.

[siggyboss]

@getnbusy2nite The markets do not choose: legal tender laws. Need another one? You must pay your taxes in US dollars. One more? If gold or foreign currencies appreciate, it's a taxable gain. If the US dollar appreciates, there is no taxable gain. This isn't the market, but the state forcing people to use money it can debase for its benefit. The world uses US dollars after the Allies transferred their gold to the US during WWII, and received money in return; Nixon broke that deal in the end.

[getnbusy2nite]

@siggyboss But if the large mass of people do not want to use US dollars (assuming we keep our democracy) the government will be forced to change or adopt reform. Your ramblings of "forced exchange mediums" are more concurrent with Zimbabwe or Iran, we are not like them.

Bretton Woods, and the world didn't use dollars, their currencies were pegged to the dollar and ours was pegged to gold. Did you also know countries who dropped the gold standard recovered more quickly in the Great Depression?

[siggyboss]

@getnbusy2nite Do you honestly believe the state is so naive as to not know the benefit of controlling what is money? That it wouldn't take steps to protect it? If you don't, why can't I print it?

I haven't seen anything that says who recovered more quickly, or if they even have the same measuring techniques. Nevertheless, I'd expect it because it re-inflates the bubble with more liquidity, which will cause a bigger crash, which they will re-inflate even larger, etc. A tiger by its tail.

[getnbusy2nite]

@siggyboss Yes I will credit that there is the temptation to debauch the currency under a fiat system (even Keynes made this point), but we have transparent markets and are globally connected to the rest of the world economy. With so much foreign powers holding our debt and invested in our currency it's not worth it.

How can you return to gold standard where if you take into account all the gold EVER MINED at current prices it would only equal half our GDP?

[siggyboss]

@getnbusy2nite Hilarious! Do you honestly believe a nation with large debts in money it can create at whim would never debase its currency? Do you think politicians never lie too?

The answer to that question is within it: current prices. Current prices of gold (or anything that can't easily be increased in supply) will rise, as they do in every nation debasing the fiat money. If you're suggesting there isn't enough gold, the world has used gold/silver for longer than any fiat currency.

[getnbusy2nite]

@siggyboss I'm not saying the temptation isn't there, I'm just saying there is a stark difference between nations that have debauched currency and those that have not, and one should not compare oranges to whatever fruit you want to satisfy ones ideology.

Exactly, they would rise substantially and feed speculation on the gold market through artificial increase. We may have to stock up on an entire assortment of commodities to match our economic output and lower costs...it's not practical.

[siggyboss]

@getnbusy2nite All states debase their currencies; the rate is the only difference. Otherwise, there's no benefit to the state if it never debases the fiat money.

Gibberish. One man says millions of people can't do something because he can't envision it. The Soviets were wondering who will run the grocery stores if they didn't.

[getnbusy2nite]

@siggyboss So you're perfectly happy with the idea of finite resources being channeled to stockpile large amounts of commodities, commodities that could be used for production, thus making input costs more expensive, to match money and output to these commodities regardless of the fact that it has been tried and failed in practice.

I don't disagree with your desire to see a stable currency...but a commodity standard is not a practical answer.

[siggyboss]

@getnbusy2nite Who are you to allocate resources for millions of people? Aren't they allocating precious high-quality cotton (a commodity) to make US dollars?

A commodity standard is in your pocket right now! You call it 'change': quarters, dimes, nickels, pennies. They all use to contain gold, silver or copper less than three generations ago. Good grief!

[getnbusy2nite]

@siggyboss And they are doing so for good reasons over gold or silver: Cotton is cheaper, abundant, easy to produce, plus people are ok with using dollars as a medium of exchange.

There's a reason why we went away from gold and silver and large copper amounts. Gold and Silver are scarce, more expensive, harder to store, transport, and extract than copper (the little we use) and nickle.

A medium of exchange need not have high intrinsic value, it merely acts as a measurement of the value itself

[siggyboss]

@getnbusy2nite States choose a commodity that is abundant, easily duplicated and only allow themselves to make copies of it. They aren't concerned about resources.

I have to explain the basics of money. If you store value in something you want it to be rare (maintain its exchange value), expensive (small amounts transfer large value), malleable (divisible without loss of value) and sturdy (doesn't easily deteriorate via use).

Intrinsic value is meaningless. All values are subjective.

[getnbusy2nite]

@siggyboss You don't want to "waste time" because you can't question the obvious data that's out there. AND I'M NOT KEYNESIAN and we just don't study Keynes. I actually learned Austrian on top of Marxian, Monetarist, and Neo-Classical economics in both grad and undergrad school (what is every theory not Austrian suddenly Keynesian?)

Whatever was good about the Austrian School is lost in ultra-conservative dogma (same problem with Keynes but different spectrum). Such great contributions too

[siggyboss]

@getnbusy2nite Your 'obvious data' is essentially static on a disconnected television. Using GDP nominal/real in a world of fiat currency is just nonsense.

I assumed you're a Keynesian because the vast majority of the mainstream economists and universities subscribe to that theory. I never even mentioned the word Austrian.

[getnbusy2nite]

@siggyboss "Gold standard!", "GDP is nonsense" and Keynes bashing. The only conclusion is Austrian or Libertarian with strong bias.

There are limits to using GDP as a barometer, but it's a measure of the countries output. Now if you're worried about fiat money, your worried about inflation, and by the quantity theory of money if one measures GDP in terms of REAL amounts the effect of fiat currency is removed to a baseline.

You don't want to look at GDP fine, but we have had fewer cycles.

[siggyboss]

@getnbusy2nite I don't believe in Austrian economics or Russian physics. I believe in what works.

The limits of GDP are its inability to work. Every nation reports GDP using fiat money as the base, and you have to consider it regardless of 'worries'.

[getnbusy2nite]

@siggyboss Right, but you can still use GDP by measuring it in more accurate components that provide a better idea of economic well being: Real GDP to account for higher prices/devalued currency, GDP-per Capita or Worker to account for standards of living, REAL-GDP-PER CAPITA to account for both. GDP by Purchasing Power Parity (PPP) to account for the relative price of goods between to countries.

These are relevant economic measurements.

[siggyboss]

@getnbusy2nite You can measure the frequency of red pixels on a discontented television producing static. That doesn't make any more relevant. All GDP, real or nominal, is worthless in a world of fiat currency. The bureaucrats can't take into account innovation and disuse involving trillions of products consumed on an individual's subjective basis of value. You can try to ignore the elephant in the room all you want.

[getnbusy2nite]

@siggyboss But many of the economies who you are applying this erroneous analogy to do not produce merely "static," they produce a wide variety of goods which people consume, desire, and demand daily that have value, which is full of color. Innovation can be captured in higher REAL-GDP-PER-CAPITA as standards of living increase and we produce more goods available to each individual or export for greater incomes as a society.

Again, leave your false ideology at the door.

[siggyboss]

@getnbusy2nite There isn't an ideology, but an observation. You still can't measure innovation and disuse involving trillions of products consumed on an individual's subjective basis of value. Otherwise, what's the real GDP of Zimbabwe? No one believes whatever number they produce. Why not if it's so easy to get the real GDP? Because it's impossible as Zimbabwe debased their fiat money at record rates. All states debase fiat money at some rate, and thus their respective GDP is meaningless.

[getnbusy2nite]

@siggyboss People apply a value to a good *codified in its Price* or value of exchange. "I will exchange $4 for Good A" sends a very important signal. "Everything is worth what its purchaser is willing to pay for it," and if a multitude of goods with different dollar-exchange-denominated values (or any medium of exchange) are summed, you get the product of an economy at current values. You can take PPP to base the value of one country to a country you find favorable.

Measurable Statistics.

[siggyboss]

@getnbusy2nite Nonsense. If Good A adds or removes an option, and the price changes or stays the same, one cannot determine if its value has risen. The value of the option depends on the individual; the option could decrease the value to the individual. If Good B changes in any way, that implies a change in the value of Good A if the transaction occurs or not because the choice is available. If the interest rates change, that changes the value for all products that need financing. On and on.

[getnbusy2nite]

@siggyboss Right, but then at any given year we capture the totality (more or less) of these finally produced goods based on an equilibrium price and quantity of production which based on Supply and Demand, which is a market process that accounts for user preferences.

Price changes are codified in an inflation rate, that's why you use Real Values. Can we calculate goods produced every second? NO but then that's unrealistic. With future technology maybe, then that good will be added to GDP :)

[siggyboss]

@getnbusy2nite One must capture the totality of ALL products and services to detect a systemic change; unknown large price movements could occur. I forgot to add price changes in other nations are affecting prices here. Then let's add the fact prices may appear for a day or years. This is an impossible task. GDP of any sort is meaningless.

The obvious solution is to just measure the money supply. Of course, that brings too much attention to the man behind the curtain (e.g. the central bank).

[getnbusy2nite]

@siggyboss We can grab the effect of price changes between nations with PPP, I got everything for anything you can throw at me. Money supply increase is codified in an inflation rate. Even if GDP is not perfect at a given point (since it is an estimate), we can measure changes in Real Growth, or Income per Capita Growth, and Money Supply is published openly in reports by that same Central Bank that you imply as secretive.

[siggyboss]

@getnbusy2nite Nations don't even measure prices changes the same way. You still have to measure every single price for trillions of products to avoid not recording huge price movements. Heck, some nations likely don't even collect this data. Impossible, or are you going to send statisticians to Panama and elsewhere?

GDP isn't perfect and doesn't work.

[getnbusy2nite]

@siggyboss We have a network of Standardized Economic Accounting Practices codified by many international institutions, chief among them the OEDC, which set standards on these measurements.

Yes GDP is not perfect, but it can work if properly applied and has gotten better over time with advances in technology and information gathering.

btw let me just say I am enjoying our conversation. Don't know what time it is where you are but I need to go to sleep soon. We can resume later. Thanks again.

[siggyboss]

@getnbusy2nite Once can't just have 'many' international institutions involved, but all of them in the loop. By the way, how is one going to deal with different currencies? Exchange rates are changing by the second every day; unpublished on weekends while prices are still changing. I know of Generally Accepted Accounting Principles, but nothing of Standardized Economic Accounting Practices.

It's just impossible, and GDP nominal/real is an enigma. Good night and you're welcome.

[getnbusy2nite]

@siggyboss I'm sorry I didn't mean to imply Standerdized etc... with capital letters. It's not a set in stone rule like GAAP but the OEDC and other global institutions do enforce economic measurement standards.

Well GDP is measured in the domestic currency, but any exports of goods or services to foreign countries are sold for foreign currency then converted back to domestic currency which is then added to the nations GDP

Also once again price comparisons between countries is noted with PPP

[siggyboss]

@getnbusy2nite Off the top of my head, I've gone through ~9 serious problems with measuring GDP. On top of that, human error and state purchases/sales just makes this garbage-in-garbage-out to me. This isn't statistics, but nonsense that keeps bureaucrats employed.

Salvador Allende believed he could represent the entire Chilean economy in a complex formula. Heck, the Soviets had seven decades.

[getnbusy2nite]

@siggyboss They are not "serious", and I have offered an exact remedies that individuals with your same grievances formulated to address these issues. There are other measurements that account for more problems such as Geary-Khamis Dollars. Your argument would have more weight if these measurements did not reflect economic activity or personal well being that historically occurred, but we an see for example that falling real-gdp during the 1970's accounts for the high inflation at the time.

[getnbusy2nite]

@siggyboss In addition to the above comment, if you are worried about what people pay in terms of prices of goods, one can also examine the second method of Capturing GDP other than G+C+I+NX. One can also measure it by National Income which adds up all forms of compensation, interest payments, and profits (virtually all the money exchanged in the economy). That is also easier and more accurate to track due to technology

[getnbusy2nite]

@siggyboss The dynamics are different! Computers are reduced in price because of innovation, the firms are expanding, and they can reap larger profits by reaching greater markets while increasing in asset and capital value. In deflationary spirals, the usual causality is demand decreases sharply thus causing a sudden drop in prices with non of the above productivity, just larger debt/asset ratios and uncertainty.

[siggyboss]

@getnbusy2nite Computers are just products.

More gibberish: 'deflationary spirals' just happen in your world. Suddenly, people don't want to buy anything. In reality, demand is infinite and only supply is limited.

[getnbusy2nite]

@siggyboss AH...Say's law of market, and the postulation that General Gluts could not occur from his 1803 work "A Treatise on Political Economy"...a postulation he later recanted in 1829 with "Cours Complet d'Economie Politique Pratique" when analyzing the Panic of 1825-26.

If demand was infinite, where was all the demand for the huge supply of labor and capital in the Great Depression? People change their demand across time for goods. If you're right, then there would be no business failure.

[siggyboss]

@getnbusy2nite Funny! There is infinite demand. The actual exchange only occurs for a given price. Labor was too expensive, and the state (Hoover and Roosevelt) didn't want wages to fall.

There are business failures because entrepreneurs didn't correctly predict the changing demand. People may demand apples instead of bananas, but they always demand food.

[getnbusy2nite]

@siggyboss An acceptable hypothesis, though the thought that a Glut is impossible even without Government was retracted by the same person who stated the theory of exactly what you just stated (no general gluts can occur due to a market clearing at some point), Jean-Babtiste Say

But if demand was constant even jumping from good to good, some markets would lag, others would rise to an equilibrium, but we experience recessions when ALL sectors seem to lag to a new low...demand is not infinite.

[siggyboss]

@getnbusy2nite I never wrote a glut is impossible; obviously possible for a single product. There can be glut of apples as people switch to bananas. It's impossible to have a long-term glut for the majority of products in an economy. To see a massive glut the state must impose a perpetual price ceiling, and demand only becomes a transaction at a lower price. Demand is infinite.

[getnbusy2nite]

@siggyboss You are invoking a theory of Say, that a General Glut (I left out "General" in the earlier post, I'm sorry if it caused confusion, merely an effort to save space) is impossible because demand is infinite and there is no General falling of demand for goods in all sectors unless with government intervention.

That same guy Jean-Babtiste Say recanted that stern position was impossible in 1829 when analyzing the Panic of 1825...happy to provide you with citation.

[siggyboss]

@getnbusy2nite I don't know how you're applying Say's theory, and if you can't explain it I don't know how you know I'm saying something against it.

Provide the link if you wish. I want to see how a stockmarket crash (demand for equity) eliminates the demand for food. In the recent 2008 crash, the food companies saw their stock prices rise because investors were confident people had to eat.

[getnbusy2nite]

@siggyboss Replace (dot) with a "." in the link.

delong(dot)typepad(dot)com/sdj­/2010/06/is-macroeconomics-har­d.html

For a Shorter Version:

delong(dot)typepad(dot)com/sdj­/2010/04/the-two-faces-of-jean­-baptiste-say.html

I just used Google Finance to do a stock analysis between S&P500, Whole Foods, McDonalds, and Wendy's/Arby's Group. All "Food" Indices declined from Sep08-Mar08. Granted All Food indices did better and MCD saw a small uptick but all still declined...Demand not Infinite.

[siggyboss]

@getnbusy2nite Say doesn't say a general glut is possible. Read, "They sold goods for half what they had cost." There's your demand, at half what they cost. Demand shifted as the central bank increased the money supply, and then shifted back afterwords.

Aside: Once again the state controlled money supply is causing havoc.

[getnbusy2nite]

@siggyboss Wow you use the tactic of not citing everything? Here is what he said right after:

"Business assets **could not be sold at any price.** As every type of merchandise had sunk below its costs of production, a multitude of workers were without work. Many bankruptcies were declared among merchants and among bankers..." He also notes a deflationary spiral, and actually the Bank of England was not a full Central Bank, it had no "responsibility doctrine" at that time and was mostly private

[siggyboss]

@getnbusy2nite Say is embellishing. He wrote "They sold goods for half what they had cost." before that sentence. You really believe people were in bread lines, and no one would buy an apple for 1/10000 of a US cent or even barter? Are we in Wizard of Oz?

Supply and demand don't care about "responsibility doctrine" nonsense if you control supply like the Bank of England.

[getnbusy2nite]

@siggyboss Oh so now you get to decide and interpret what he means??? Let the record show that I did nothing but state the facts, and I'm not believing in anything than what is written. He stated a General Glut in Business Assets and Labor to clear! If you connect the entire statement many would sell for a loss even at half price and be forced out of business adding to the General Glut!

I would argue that an institution with that much power without oversight, unlike today, is FAR more dangerous

[siggyboss]

@getnbusy2nite You interpreted what he means, so get over it. Here's you doing it again, "If you connect the entire statement..." Obviously, you're wrong. Common sense tells you that the market cleared at a lower price after demand shifted from the Bank of England's intervention. Again, do you really believe people in bread lines won't buy an apple for 1/10000 of a US cent or even barter?

The Federal Reserve now has more power over the money supply in the US because it's mostly digitized.

[getnbusy2nite]

@siggyboss I'm stating what he said in its entirety, not using pitiful tactics like picking a snippet then hyping it like a Fox News anchor. "every type of merchandise had sunk below its costs," even at half price it could still be below cost leading to eventual bankruptcy.

But we have oversight over its practices! It wasn't like that back then. The fact that you can examine this data and make argumentative criticisms is because there is oversight.

[siggyboss]

@getnbusy2nite You're assuming no business could survive such a drastic price decrease, but history proves that wasn't true. In reality, not all prices dropped evenly (consumer goods dropped the least, industrial goods the most). Still, demand is there regardless of profitability.

Oversight is a meaningless political term. I have no control over the Federal Reserve, and there's a lot of data it doesn't release; it's being sued by Bloomberg for a simple list of which banks received money.

[getnbusy2nite]

@siggyboss Not assuming anything, simply stating what was written by a person who analyzed the experience first hand. Unless you lived in 1825 your argument is all hypotheses.

There were no minimum wage laws at the time and the Bank of England (BoE) did not interfere in injecting the market so labor and production should have cleared. Interestingly enough the only thing that prevented the BoE from total default and was an infusion of gold "stimulus" from the Bank of France.

[getnbusy2nite]

@siggyboss Yes Computers are just products, BUT they are produced by firms who invest in them and wish to turn a profit and survive because demand for their products is stable. A large drop in demand for the product translates into less profitable capital and assets, and can lead to higher debt/asset ratios. Furthermore it endangers future investment in the same product.

[Y3rMawm]

Cap Utilization is too general to be of use. This is of no surprise considering the Keynesians who will be publishing it.

This is not about whether govt can fill enough gaps with stimuli...reflating housing prices just delays the INEVITABLE price discovery process in the R/E markets. Only the markets will figure it out...despite govt's best efforts

[thoughtchallenge]

People talk a lot about the stimulus as if it were all government spending, but in fact much of it is tax cuts, and tax breaks. Also, worth noting is that much of the tax cuts simply replace the one from last year.

[pongman]

If Sal would stop making videos he could be the next Secretary of Treasury.

[DavidAKZ]

US GDP. 80% consumption and 20% defence ?

[DavidAKZ]

Can you translate the relationship of capacity utilisation to demand in the context of Credit Default Swaps (CDS) ,, Structured Investment Vehicles (SIV) and derivatives

[KumoReimizu]

your smart!!

im still smal, but ill grow to be big and strong~^z^

[dNcream09]

your as good as my maths teacher and he is good...ok maybe hes not that good or else i wudn't be on youtube lukin 4 a better teacher

good video...