Never once in the history of the planet has there been a deflationary spiral. There have been corrections in price, but never a spiral. You can't horde money forever, because you have to eat, pay rent, etc. Seriously, try to find a deflationary spiral. You can't find one.
@JinGwee it isn't a bad thing when it is a consequence of increasing labor productivity and technology gains that might have come from R&D. It is a bad thing when a shock in aggregate spending or aggregate demand induced deflation. <--- this is not the deflation you want.
@omgiheartpie demand is not the problem, as keynesians would like to believe.. i would suggest reading peter schiff's "how an economy grows and why it crashes"
@JinGwee I respectfully disagree. During recessions aggregate spending, more specifically consumer spending, decreases dramatically. Since consumer spending makes up about 70 percent of GDP, an appreciable reduction in it and the subsequent deflationary spiral it induces cripples businesses. These businesses reduce capital investment when they see an aggregate demand shock; this creates uncertainty for them which makes them lay people off; this decreases spending, and the cycle persists
@omgiheartpie well,supply is more important than demand. Everyone can have demand: a baby can demand for milk, i demand for a private jet, etc. but the more important question is whether I have the capacity to produce the milk or the jet myself, or at least produce something else and trade for the stuff that i want. Recessions are always preceded by booms, and the booms are created because of money-printing, which creates artificial demand. This is unsustainable and the bubble has to burst
Deflationary spirals don't sound like too bad of a thing. Prices drop and your dollar and every other dollar in the world become more valuable. This seems to be the reverse of what they currently preach which is inflationary theft of your savings and retirement. Imagine how many people would need SSI if their savings went as far today as they did 40 years ago! I know that we need an elastic monetary supply with a growing population but what we've done is far beyond that.
Khan, you should actually describe what happens if you print money and give it to people during a deflationary spiral, because from my estimates, only .001% of people have money in their mattresses. If everyone more logically put their money in a bank, demand for dollars would decrease, lowering the interest rate and making new technology less expensive, which creates jobs, then higher demand then profits then more jobs, etc.
@Xolition Wrong! If the demand for cheerios drops because someone finds a toe in their cereal, the company has less profit which means that they cannot buy as much raw material to make new boxes of cheerios and the supply of cheerios drops. This is of course the longer term scenario and the end state of the market correction. In the short term, yes, cheerios would abound on the shelf, but they would be there because no one would buy them. Then they would get trashed or marked down.
@Xolition Dude if demand goes down there's less demand for products therefore companies wouldn't need to produce as much as before meaning that supply will also decrease and maybe there will be redundancies even in order to keep costs low. So yes as demand goes down so does supply....
I have a question concerning the "hoarding of money" that you mentioned. In a modern economy, wouldn't people try to "hoard" their money in the banking system to receive some interest on it, thus injecting a lot of capital into the system and in consequence making credit more available? Then, wouldn't people start to borrow more money and raise the demand for goods and services and thus end (or at least weaken) the deflationary spiral?
@bobby132231 I know you're not asking me, but my guess would be that you wouldn't dare spend borrowed money during deflation. When the time comes to pay it back, you'll have to work so much harder to get that same amount.
It might be worth one car when you borrow the money, but two when you want to pay it back. If you bought a car for the money, you'll need to give it and one more car to the bank in order to pay off your debt.
@TheSlowThinker I see your point. But what I meant is that the more money you have in the banking system, the cheaper credit becomes and will encourage investors to borrow money. They will be boosting the demand for goods and services (by building a factory, employing people etc.). They will be encouraged to invest, since the profits they'll receive from the business will be higher than the interest on the cheap loan. I assume the banks' responsibility as well, so they'd give mostly good loans.
@bobby132231 As far as I understand, this would work in a slowing market, but not once deflation sets in (since the best bet for everyone is to save their money while it increases in value).
The only exception I can see is getting that money to the unemployed/poor people, who out of necessity will spend it, thereby creating new demand, thereby giving businesses an incentive to invest (since now there's new money to be made).
If that doesn't work, I don't know how to stop the negative spiral.
@TheSlowThinker You'd have to add that the unemployed/poor people would have to start a business/venture that creates value, otherwise it would be a short-term stimulus program that would create a major budget deficit in the long run, but you make a very convincing argument. Thanks.
@ManlySlut So you have the supply and demand curves. When you interpose these curves into a single graph where they meet is the equilibrium price. id est the sweet spot, the optimum price that people are willing to pay that gets the producer the most profit.
Now when the government institutes things like minimum wage or various regulations this shifts one or both of the curves and makes reaching the equilibrium price impossible.
@mrhnm yeah, and when the currency has very low buying power, demand goes down because some people can't afford, or they're hording their money for when it increases in value.
@ManlySlut Or will they want to get rid of it as fast as possible like in hyperinflation? It's so confusing when all the laws of economics are based on human superstition.
@mrhnm close, the value of an item is whatever two fools decide it will be. The seller and buyer mutually agree on a price and that is immediately the market price for said good. The overall or average market price may be different, but at that instant, those two people decided the worth of that good on the market. Need proof? Go buy a car and see how much you can get them to come down from the sticker price. Tip, go at the end of the month and not during a "sale".
Hm. I liked your presentation and agreed with almost everything you were saying. It seems to me however that the "helicopter dropping money" actually could have an effect if money dropped in a "good" way, resulting in money in the hands of consumers willing to buy (and thereby create new demand). These consumers would be those who previously had nothing, like the unemployed.
Never once in the history of the planet has there been a deflationary spiral. There have been corrections in price, but never a spiral. You can't horde money forever, because you have to eat, pay rent, etc. Seriously, try to find a deflationary spiral. You can't find one.
CharlotteBaseball25 3 weeks ago
@CharlotteBaseball25 Well said. Also, as prices get lower, fewer people save/hoard. Christmas proves this even in the depths of recessions.
00dfm00 3 weeks ago
according to austrian economics, Deflation is not a bad thing.
It is only those keynesians and politicians who try to make this look scary
JinGwee 2 months ago
@JinGwee it isn't a bad thing when it is a consequence of increasing labor productivity and technology gains that might have come from R&D. It is a bad thing when a shock in aggregate spending or aggregate demand induced deflation. <--- this is not the deflation you want.
omgiheartpie 1 month ago
@omgiheartpie demand is not the problem, as keynesians would like to believe.. i would suggest reading peter schiff's "how an economy grows and why it crashes"
JinGwee 1 month ago
@JinGwee I respectfully disagree. During recessions aggregate spending, more specifically consumer spending, decreases dramatically. Since consumer spending makes up about 70 percent of GDP, an appreciable reduction in it and the subsequent deflationary spiral it induces cripples businesses. These businesses reduce capital investment when they see an aggregate demand shock; this creates uncertainty for them which makes them lay people off; this decreases spending, and the cycle persists
omgiheartpie 1 month ago
@omgiheartpie well,supply is more important than demand. Everyone can have demand: a baby can demand for milk, i demand for a private jet, etc. but the more important question is whether I have the capacity to produce the milk or the jet myself, or at least produce something else and trade for the stuff that i want. Recessions are always preceded by booms, and the booms are created because of money-printing, which creates artificial demand. This is unsustainable and the bubble has to burst
JinGwee 1 month ago
Deflationary spirals don't sound like too bad of a thing. Prices drop and your dollar and every other dollar in the world become more valuable. This seems to be the reverse of what they currently preach which is inflationary theft of your savings and retirement. Imagine how many people would need SSI if their savings went as far today as they did 40 years ago! I know that we need an elastic monetary supply with a growing population but what we've done is far beyond that.
dlstb 2 months ago
also see on youtube, True News 49: Deflation Panic!
stevenwagner 3 months ago
see the deflation section on stuffexists (dot) com
stevenwagner 3 months ago
Khan, you should actually describe what happens if you print money and give it to people during a deflationary spiral, because from my estimates, only .001% of people have money in their mattresses. If everyone more logically put their money in a bank, demand for dollars would decrease, lowering the interest rate and making new technology less expensive, which creates jobs, then higher demand then profits then more jobs, etc.
Thatmakessense356 3 months ago
Uhhh if Demand goes down, Supply goes up (not down)..
Xolition 4 months ago
@Xolition I got 5's on AP Macro and Micro econ. Sorry, your wrong.
Thatmakessense356 3 months ago
@Xolition Wrong! If the demand for cheerios drops because someone finds a toe in their cereal, the company has less profit which means that they cannot buy as much raw material to make new boxes of cheerios and the supply of cheerios drops. This is of course the longer term scenario and the end state of the market correction. In the short term, yes, cheerios would abound on the shelf, but they would be there because no one would buy them. Then they would get trashed or marked down.
dlstb 2 months ago
@Xolition Dude if demand goes down there's less demand for products therefore companies wouldn't need to produce as much as before meaning that supply will also decrease and maybe there will be redundancies even in order to keep costs low. So yes as demand goes down so does supply....
Bestbeatstherest 1 month ago
Ben Bernanke as helicopter pilot..ha
CSRealist 7 months ago
Supply goes up when demand goes down.
jkirschling 7 months ago
I love deflation because its not inflation
mnmmoose14 7 months ago
Awesome helicopter!
kroovyandcal 7 months ago
I'm pretty sure the govt makes people work for the money it prints, maybe not very much, but still.
triforcelink 7 months ago
@triforcelink They throw you in jail if you don't accept their paper as legal tender.
mrhnm 7 months ago
*employment
samthemoron 7 months ago
After seeing how people turn into animals on those "black friday" video's, I think dumping money from a helicopter would be rather irresponsible. ^^
noxure 7 months ago
is next video about "liquidity trap"?
atmark666 7 months ago
Sal,
I have a question concerning the "hoarding of money" that you mentioned. In a modern economy, wouldn't people try to "hoard" their money in the banking system to receive some interest on it, thus injecting a lot of capital into the system and in consequence making credit more available? Then, wouldn't people start to borrow more money and raise the demand for goods and services and thus end (or at least weaken) the deflationary spiral?
bobby132231 7 months ago
@bobby132231 I know you're not asking me, but my guess would be that you wouldn't dare spend borrowed money during deflation. When the time comes to pay it back, you'll have to work so much harder to get that same amount.
It might be worth one car when you borrow the money, but two when you want to pay it back. If you bought a car for the money, you'll need to give it and one more car to the bank in order to pay off your debt.
TheSlowThinker 7 months ago
@TheSlowThinker I see your point. But what I meant is that the more money you have in the banking system, the cheaper credit becomes and will encourage investors to borrow money. They will be boosting the demand for goods and services (by building a factory, employing people etc.). They will be encouraged to invest, since the profits they'll receive from the business will be higher than the interest on the cheap loan. I assume the banks' responsibility as well, so they'd give mostly good loans.
bobby132231 7 months ago
@bobby132231 As far as I understand, this would work in a slowing market, but not once deflation sets in (since the best bet for everyone is to save their money while it increases in value).
The only exception I can see is getting that money to the unemployed/poor people, who out of necessity will spend it, thereby creating new demand, thereby giving businesses an incentive to invest (since now there's new money to be made).
If that doesn't work, I don't know how to stop the negative spiral.
TheSlowThinker 7 months ago
@TheSlowThinker You'd have to add that the unemployed/poor people would have to start a business/venture that creates value, otherwise it would be a short-term stimulus program that would create a major budget deficit in the long run, but you make a very convincing argument. Thanks.
bobby132231 7 months ago
Comment removed
mrhnm 7 months ago
I think I worked out Supply:demand.
Demand / Supply = Price
ManlySlut 7 months ago
@ManlySlut The equalibrium price is where the supply and demand curves meet.
mrhnm 7 months ago
@mrhnm There's an equilibrium price now?
ManlySlut 7 months ago
@ManlySlut It isn't that there is one "now" as if it magically popped into existence. But one does exist.
mrhnm 7 months ago
@mrhnm Well yeah, I was more asking what it was.
ManlySlut 7 months ago
@ManlySlut So you have the supply and demand curves. When you interpose these curves into a single graph where they meet is the equilibrium price. id est the sweet spot, the optimum price that people are willing to pay that gets the producer the most profit.
Now when the government institutes things like minimum wage or various regulations this shifts one or both of the curves and makes reaching the equilibrium price impossible.
mrhnm 7 months ago
@mrhnm Alright, but that value is of course relative to the total money supply without a commodity standard.
So whenever inflation happens, surely demand goes down and a new equilibrium is set?
ManlySlut 7 months ago
@ManlySlut Well the value of the item depends on demand, i.e water in a desert is worth more than water next to the Mississippi.
Inflation is the loss in the buying power of a currency.
mrhnm 7 months ago
@mrhnm yeah, and when the currency has very low buying power, demand goes down because some people can't afford, or they're hording their money for when it increases in value.
ManlySlut 7 months ago
@ManlySlut Or will they want to get rid of it as fast as possible like in hyperinflation? It's so confusing when all the laws of economics are based on human superstition.
ManlySlut 7 months ago
@ManlySlut Yep.
mrhnm 7 months ago
@mrhnm close, the value of an item is whatever two fools decide it will be. The seller and buyer mutually agree on a price and that is immediately the market price for said good. The overall or average market price may be different, but at that instant, those two people decided the worth of that good on the market. Need proof? Go buy a car and see how much you can get them to come down from the sticker price. Tip, go at the end of the month and not during a "sale".
dlstb 2 months ago
Bless you.
cosmosgato 7 months ago
LOL, Appropriate that you made this now...
DackIsBack 7 months ago
Amen to that brother
15551cue 7 months ago
Hm. I liked your presentation and agreed with almost everything you were saying. It seems to me however that the "helicopter dropping money" actually could have an effect if money dropped in a "good" way, resulting in money in the hands of consumers willing to buy (and thereby create new demand). These consumers would be those who previously had nothing, like the unemployed.
TheSlowThinker 7 months ago
@3:30..Sal should have drawn helicopter Ben inside the helicopter.
Xenthoid 7 months ago 2
Cool!
Jonabooty 7 months ago