Inflation & Deflation 3: Obama Stimulus Plan

[IBMua]

Pitty it's in such a poor resolution =((

[Haliotro]

Ron Paul 2012... our only hope of fixing the economy

[Zander101084]

VOTE KHAN FOR PRESIDENT IN 2012!!!

[100CommonCents]

Fiat Currency and Fractional Reserve Banking system = fraud.

How? If the actions of one person affect your wealth without your consent, it is stealing. It's that simple.

There are two problems with FRB, specifically:

1) decrease in wealth:

Since lending out money one does not have increases money supply which equals loss of currency value.

2) possibility of bank runs:

If everyone want there money back, and banks do not have it - bank run. This risk does not exist with a 100% reserve.

[jarpasmannen]

Fun fact: In 2007, the inflation rate was 4.08%. This was higher than any year since 1990. By the end of 2008, the inflation rate was 0.09%, the lowest rate since 1954

[alonelychild]

Khanacademy, what do you think would happen if the current bubble the FED is creating has to be burst by a shof of interests a la Paul Vocker? 20 somethint percentage year on short-term debt? To the real economy, taking into consideration the debased industrial base of US, the debt addiction and net interest costs in budget?

Do you think a sovereign default is possible in the next 10 years?

[alonelychild]

What is your name narrator of khanacademy?

[xxbondsxx]

@alonelychild Sal Khan

[alonelychild]

If I am not very much mistaken, during the Great Depression and WWII the Gold Standart was abandoned

[alonelychild]

Hyper-inflation concept for me is when currency looses its transaction capacity, when people start to trade real goods instead. That can be avoided by indexation, or inflation hedging upon daily indexes

[cyndeetrek]

I could fix this economy, but my explanation and reasoning took 1553 characters. Guess we'll never know.

[FortNikitaBullion]

The problem is the weak dollar is discouraging people to save. I think this video missed this root cause.

[AcePilot101]

Gold has tripled in value since 2001 - everything else has gone down, down, down.

$13 trillion debt is simply not sustainable.

[AcePilot101]

Keynesian theory means "priming the pump" with YOUR tax dollars.

That's why the American people aren't buying the Obama tax-and-spend Democrats.

Watch them go down in flames in November.

And in 2012 President Obama will be the ex-president.

[exstntlstfrtn]

1 @AcePilot101 Interestingly, if you look at the election patterns of the presidential and congressional elections for the past 60+ years, it tends to show that Barack Obama, a president who started his term with his party as majority in both houses of congress (assuming that majority swings in this midterm election of Obama's first term), it looks like he may serve a second term. Of course this is only statistically correlative and the reasons for this are debatable and it could have changed...

[exstntlstfrtn]

2 @AcePilot101 ...but I think after considering as many things as I can, it comes down to market stability. There are several factors contributing to market instability, but it's interesting that when a president starts his term with a party majority in congress, they tend to get a lot done, which I believe creates uncertainty in a market. If the gov't starts spending, and either raises taxes or borrows money to pay for it, someone starting a business may decide against it, or individuals who...

[exstntlstfrtn]

3 @AcePilot101 ...fear market instability change their consumption patterns, or their spending habits are forced to change such as in the example in this video. Either way, when it comes down to it, the government having the ability to get a bunch of laws passed and changes made creates instability in the market, and things tend to get worse. People then have a demand for an opposing party during midterms, congress changes, the government gets gridlocked and people develop confidence in the....

[exstntlstfrtn]

4 @AcePilot101 ...market pretty quickly (usually with in a few quarters). It makes sense that someone is reluctant to invest money in producing if they worry about what changes the tax code is going to see, and if people fear inflation, they hedge against the dollar and find other vehicles to put their savings into. The important thing is, if the gov't does get gridlocked and confidence in the market is restored, then things should turn around pretty quickly, and his 2nd term will be irrelevant.

[rspawn]

Why is it so hard to find US inflation rates from before 1913?

Maybe it's because it would show that there was no net inflation for the first couple of centuries of US history?

[knottednoodles]

i very much enjoy these videos. a question: if investment instruments have swollen the annual liquidity reserves used for speculation to over 8 times the annual global gdp, and most of the losses left to occur have to hit that sector, does that have any effect on where the stimulus is actually going.

[comebackata2]

hmm it looks like that for the US and Europe to be saved, North Korea (3rd largest army of the world) must go to war with China (world's largest economy), blow up their factories then get beaten up by coalitions of nations, and another nuclear bomb. The rebuilding Chinese infrastructure would satisfy the demand shock. :P

[MrVxtay]

great

[GFHandelfan]

if government steps in for the lack of aggregate demand, what happens when it stops the stimulus? wasn't that previous level of demand only made possible through high levels of debt?

[torchyboy1]

I really enjoy all of Kahn's down-to-earth educational videos, both for learning new things as well as brushing up on things I've ...we'll, majored in...I would like to add that in my opinion, any stimulus should be directed to the middle and lower classes that have a lower propensity to save, but contribute to a huge velocity in money. This added demand will enrich all, factory owners and workers, say, and with less borrowing, create the means for saving. Okay, okay, I'll run your country!.

[creysena]

Excellent presentation!

[louielamson2000]

INTEREST RATE GO UP? DOLLAR BUBBLE?

[flyingparadise]

World capacity utilisation may be high already, but US capacity utilisation is low, but the world will not keep on loaning to US permamently this will end some time.

the bond market is already reflecting the inflation prevailing in the economy

i totally disagree that the stimulus will not create inflation, it will create massive inflation in the future.

very soon no one will buy the US debt, only FED will be buying them

[sparc5]

government deficits = private sector surpluses. As in the great depression, people's balance sheets were repaired, they were able to save without decreasing GDP (paradox of thrift), and so after the war, americans found themselves in a much better position to spend. It wasn't only an export lead recovery, it was strong domestic demand also.

[TaffyAlpha]

I love the silly Libertarian comments which simply say,

"you're a keynesian idiot!!!"

without trying to form any constructive argument.

[personova]

Personal disposable income can go towards savings or deleveraging debt. Debt is usually a higher priority.

Another soak is, corp deleveraging debt. For real estate, price has a multiplying or gain effect on exposure to bad debts if they are allowed to remain in the system and written off. Which is the case through the vast amount of MBS CDOs.

[309years]

Dollar gained the status of reserve currency.All your equations depends on that value stored in the dollar. incase you haven't noticed yet , the dollar is loosing that status and the value stored in it ( Diluted) after pupmping trillions of digital dollars in the circulation. if you need 3 dollars to buy gallon of milk , and the dollar's value dropes 50% ,you would need 6 dollars to get that gallon of milk . Am i right ?????????

[stanakanats]

I already pay $8.00 for a gallon of Milk here in Hawaii!

[mikehershey32]

No. The value in the dollar is based off how much it can buy which is based off CPI. The point this guy is making is that if you print 1000 trillion dollars it won't effect anything as long as the money is locked in safe or someones mattress where it is not circulating. The added currency will not effect anything until people start using it. The % of capacity used increasing will indicate people are starting to spent their dollar, and would lead to inflation which he is worried about.

[309years]

Sal i totaly disagree with you , you missed the concept of currency "dollar" .We are now in totaly diffrent world, and should think globaly, old charts can NOT be used for analysis. intrest rate currently is 0% =(useless dollar), try to borow gold or silver from someone for 0%.currency is the container where you store value, after leaving the GOLD standard ,dollar became that container insted of gold.

[309years]

where are my comments????

[EchoesUnlimited]

Keynesian toilet logic.

[EchoesUnlimited]

what are you a humanities major?

[TheBoxerDogs]

Sorry Sal but printing money will lead to inflation for sure. What happens when capacity utilization reaches 10%? What is going to happen with all the extra printed dollars on the market? Simple: Inflation

[libertyplayground]

This is so much Keynesian BS

Learn some capital structure theory - you are treating GDP and capital as some big homogenous blob.

[jgposner]

So, you said capacity utilization is at 80% and demand drops. The US will then print more dollars to increase demand to keep us our capacity utilization up. But didn't you say it was the worlds capacity utilization. Wouldn't it present a problem is the US is the only one printing money. Wouldn't it be better if the whole world printed money together so we won't have to be the only ones going into debt? Does this make sense?

[WhitereddoG]

btw, during the war, the gold standard was not active,

[metaltect]

So...when is the US going to start a war to stop this deflationary spiral?

[30percentplusreturns]

This guy is right in what hes saying, but totally wrong. First off, he believes government statistics, whether they be the savings rate, inflation rate, or GDP. These are all bogus. Second, people like this author think we will resume growth soon and pay off all of our debts. It wont happen. The govt will keep printing money and we will keep collapsing. Sooner or later the currency will collapse and all industry will be bankrupt. The few remaining will have to charge crazy prices to stay afloat

[eddycurrent85]

and u have a bachelor of arts from art history or something?

[WhitereddoG]

watch the next video, CPI index

[30percentplusreturns]

Im not buying the deflation argument. When you print nothing out of thin air with no productivity, you will debase the currency. I dont care how much credit is contracting. Everytime I go to a restaurant prices keep going up. Gasoline is back up, insurance costs, cable, everything, is all up. Nothing is coming down. Even books are skyrocketing. The only thing going down is housing and that is because it was so overvalued. Thats not deflation, thats reverting to the mean.

[alonelychild]

@30percentplusreturns Yes, that is correct. But bear in mind that private credit is also money creation. As matter of fact there are 800 trillions of dollars around in CDSs.

The capacity of government to create money, compared to the private banking is minimal.

[XESTISS]

@30percentplusreturns That is because you do not understand economics. That's why you don't buy it. Keep learning from Sal.

[Loserido]

That's actually one of the biggest myths about WW2. When the war was over Germany had 10% of their total industrial capacity blown to pieces and Japan was way behind the Western Countries to begin with, and Germany and France were behind USA and Britain.

It was an era of peace and industrial development, the war had little to nothing to do with it.

[brian12934]

I believe that the gold standard is more of an entire system. With the fiat money system we can fire a cannon of money to fix things but, if you were going to the hospital because your finger is infected so bad you need it cut off and they cut off your entire hand, that isn't too good of a system is it?

When the government interferes or creates fake inflation (just money), I think they cut off the hand. It should all work together, by itself. With no interference, that's what happens!

[brian12934]

I love your videos but I was thinking, so what if there was inflation on the gold standard. As you said, high capacity utilization, that would indicate that there are a lot of buyers and things are good. The inflation also represents rising labor prices and significant necessity to build machines to increase productivity that will last for as long as the business is not raided by a wall street warrior.

Inflation is good but only when the free market does it because of other balancing factors.

[brian12934]

The increase in productivity machines that enhance productivity would increase our real wealth and represent lower costs although this can not happen fast enough to keep prices down everywhere.

When an increase in the money supply triggers a bout of inflation despite the capacity, we do not get such a beautiful scenario.

The reason our country in the past paid the highest wages of any nation while producing the cheapest products I believe is an effect of such a situation.

[MrFredGSanford]

No savings? What about the people that maxed out their 401k's every paycheck? Is that not considered "saving"?

[spol07]

Keynesian B.S

[BigDeanoSyd]

Keynes was one of the great geniuses of our modern age....YOU are not!

[spol07]

oh wow

[kolorado222]

Big: Keynes' theories were rationalizations for the fascist anti-free market economies we have now. This video is an example of the fixation that Obama's govt has with domestic manufacturing capacity. 3/4 of goods consumed here are made overseas. As China and other creditors stop buying our T bonds long interest rates will go sky high. This will bring on an even weaker economy and more bailouts. The USD will fade until our factories are competitive ( 52 on the DX). Oil =$100, Gold = $2-3K

[fuckreg]

The U.S. has over 50 Trillion in unfunded liabilities. Social Security, Medicare, National Debt. They will not be able to finance these indefinitely with Treasury Bonds. 300-400 billion extra per year? Where did you get this number. Bailouts and loans from the fed exceed 8 Trillion dollars thus far. This video downplays the magnitude of the stimulus and ignores how money is created with fractional reserve banking.

[econguy87]

which category does this video fall under in the playlist?

[thecubemaster]

Thanks Sal!

[latewire]

Inflation is one thing, but what about creating yet another credit bubble and lengthening the recession?

And what about Bernanke printing trillions of dollars? Isn't that significant?

[BigBruddah101]

Insightful stuff for sure.

[siggyboss]

More money chasing fewer goods will lead to higher prices in aggregate. As factories shut down due to lower consumer demand, fewer goods will be produced. As the central bank prints to finance government or create artificial demand, more money will be produced. Capacity utilization is a result of factories closing, and individuals having more money to spend. Aside: a gold standard is a dubious idea that government wont debase the currency by limiting itself (e.g. ending convertibility).

[randomdude56]

ʇxǝʇ uʍop-ǝpısdn uı ǝʌǝılǝq ʇuop ı

[mosullivan511]

Good Video. The bigger potential currency event that is coming is when we have to continually increasing demands to bailout the derivatives market and Foreign countries stop buying our debt at which time we monetize, which has already began. That could be much greater than the stimulus and is the real threat those concerned with hyper infla are concerned about

[Sproge]

YES! The natural thing for people to do is save! That will increase the value of the dollar and is nessecary since the 80's. Bringing back the savings rate to 10% would be GREAT, however, the government KEEPS spending! How will that effect the dollar? Negatively! The government is devaluing the dollar with all this spending! Sure, we won't have hyperinflation now, but we will as soon as people start dumping the dollar because they'll see americans never pay back or save the money we've borrowed.

[Durchbrechen]

> hat will increase the value of the dollar and is nessecary since the 80's.

Now I understand better Hugh Hendry's point. He forsee deflation with a dollar rally, and he's bear on all other assets. I didn't get precisely his reasoning till now.

[Durchbrechen]

oustanding !!!! Thank you very much

[sgentry777]

Sal I'm not an angry conspiracy theorist or gold bug but --- You essentially say that unless/until capacity utilisation increases, we're unlikely to see inflation. I just wonder how places like Zimbabwe and Iceland zoomed straight from economic slowdown to hyperinflation without an increase in capacity utilisation. I'm sure there's a reason that "it's different for us".

[sparc5]

People are saving more/buying less these days pressuring companies to lower their prices in order to sell. Secondly, the amount of credit money flowing in dramatically decreased, and so far the fed hasn't printed enough money to cause hyperinflation at current lending levels. Theoretically the fed could cause hyperinflation should they choose pay for gov spending with printed money, or freak people out that they will do that people will buy fearing inflation comes instead of save prices rise

[mkabbz]

Wow that's a whole new perspective, thanks

[stellaconcepts]

Khan, You need to understand that when the dollar is dumped from reserve banks around the world, and the debt obligations of the US become exponetially increasing, that hyperinflation will set in. its not about whether people save or not, or nomial prices of goods - the world banks will set their USD into the market - hyperinflation... that happens when no-one wants USD - this isn't a normal economical cycle... thats the problem with these vids your doing.. its based on a normal contraction

[sparc5]

that's the next stage of the crisis, not what is happening presently. They can raise taxes, increase the reserve requirements, or even increase interest rates to combat this. The exchange rates and capital flows however are something of another story.

[oreeceo]

What if the Dollar loses value? the trillion people are saving every year will buy less, I can't see how you can't avoid inflation when inflation is the increase of money supply.

[gte987t]

Thank you for the videos. I had no idea these complex principles I've heard of over the years had such straight forward underpinnings. I'll definitely be coming back.

[Y3rMawm]

Gold Standard created from BW was flawed.

While I respect your background, videos, and teaching ability as a possible future of education in this country.....One thing they never teach in the Keynesian Dr. of MBA skewl is to take a truly holistic approach to the global econ, and to consider all input factors.

They never teach you that all fiats eventually end at 0.

I suggest further investigation as to exactly what happened during WWII to cause inflation.

[mouljran7]

as much as i enjoy yuor videos and i learn a lot from you, i have to diagree this time. what you re explaining are the effects of inflation... inflation is the increase of money supply and soon or later the scenario you explained as inflation will happen caused by this increase.. it s just a matter of time.. i d rather buy gold now and hord it than rush to it when inflation effects start kicking in and might be too late..

thanks for the video and please keep them coming..

[sparc5]

Mouljran, the money supply changes aren't the only cause of inflation. You have to look at velocity of money also, as well as many other factors. For example if guys like you hoard gold, the price of it will rise (inflate) regardless of money supply. For a very good document examining the various theories of inflation do a google search for Causes of Inflation in Turkey: A Literature Survey with Special Reference to Theories of Inflation

[Prolocater]

Do you like Obama?

[thoughtchallenge]

The stock market bubbles and the savings decline coincide with the advent of 401K plans. 401K plans began Jan. 1 1980. 401K plans tend to be blind shotgun approach to investing, worst yet it's difficult to take your money out. The next bubble is just beginning. Most people haven't a clue what the P/E ratios, Market Cap, or market share of the stocks they are buying. They just see a statement every 3-6 months. and call that savings.

[heymrnickerbocker]

This really just goes to show that Wall Street is the problem. If the money people "invest" actually went to the company they "think" they are investing in the company would have more capital to invest and pay bills and they wouldn't need loans from bailout banks.

[bossman068410]

mmm Cheap Credit...... I wonder what makes that possible? The government sanctioned monopoly of the money supply of the FED RESERVE manipulating the market. This crisis has NOTHING to do with the free market when you have a monopoly.

[bossman068410]

Study HISTORY. Have you ever here of the recession of 1921? It had worse circumstances than today's crisis. It Lasted only a year. What did THEY DO? CUT SPENDING AND TAXES.

[tianya1389]

One factor should be considered is the reserve currency role of US dollar. Right now the debate on this has become more popular. What if most other countries lost confidence on US$? I do believe that the whole world has to be considered when discussing inflation since it is the world currency.

[grimshawr]

Why don't you work for CNBC and teach America how to fix itself? We crave satisfactory explanations of what is going on! WE CRAVE IT I SAY!!!!

[nuprincenj]

your right and thats why i'm a gold and silver bug because how is the government going to contract the money supply fast enough......

[Lucky7wins]

maybe we had the worse inflation when we were on the gold standard, but remember that the President took all the gold from the american people, so infaltion was not measured with gold even though we had the gold standard.

If the US people had their gold, inflation would have not been a problem.

[JenniF00F00]

The Fed counterfeiting is the problem, and has been the problem since 1913.

[Lucky7wins]

i have not even seen this video....but i can already say....keep up the explanations.

p.s great job at explaining what the toxic asset buy out will do.

[KumoReimizu]

You have a good understanding of things!!