Lots of people would argue that the purpose of government in a recession is to reduce the depth of the valley through various measures. Of course, the flip side to that is that the money to pay for the measures should be accumulated when times are flush (which unfortunately wasn't done).

Thank you,
Thomas Maloney

Thank you,
Thomas Maloney

Yes, even in a deflationary environment, people will buy some non-zero level of things, if just to stay alive (food for instance). But it really becomes advantageous to make purchases later rather than now, so people end up holding out. For TVs, I'll say that people are holding out already to some degree, but since it's confined to a single sector the overall effect is not so great.

In terms of savings, in a deflationary environment nobody would choose to borrow from a bank to construct something, (except at a bare bones level) because again, everything's cheaper later. Mass layoffs would not be good, because there'd be no other place this labor can go. What good is labor, if it can't be put to use doing stuff that people would pay for? Foregoing consumption now for future use can be GOOD, if the future use really ends up happening. If it does not, then its not so good.

FWIW, modern central banks are generally charged with two missions. (1) Provide price stability (no inflation or deflation). (2) Make conditions favorable for economic growth. It's of course not easy to achieve both of these missions. Crony capitalism is of course a bad thing. Having honest officials goes a great way toward reducing it.

Electronic goods *are* deflationary in nature yet people still buy them by the truckload. What a stupid example.

If you needed a TV, and TVs are selling for $100, and will sell for $100 next week, you may get it now or later. But if you knew they'd cost $80 next week, you'll probably hold out for the lower price. But if everyone started to hold out for a lower price, then nothing gets sold now, prices continue to fall (merchants trying to lure the nonexistent customer), and people hold out even more. At some point, we'll have layoffs galore, and laid off people of course won't buy, no matter how low the price.

Savings are good, in the sense that they permit future investment and protect against shocks on the proverbial rainy days. But saving money for the sake of saving money's actually a bad thing. In the extreme case, it can even become idolatrous. You're correct in that saved money is lent out by banks for production. So the borrower is actually *spending* the money that was saved. In a deflationary environment, there'd be few borrowers because it would be cheaper to get whatever tomorrow, rather than today.

Inflation doesn't really help pay off debt in the long run, because just as the original poster noted, WE cannot create something from nothing. Lenders, in an inflationary environment, will raise interest rates to compensate for the effects of inflation.

“Hoarding” money is just saving money. Money that people save is then used by banks to loan out as capital for new entrepeneurs. Capital comes from savings (or is supposed to.) Thats how you get the interest rate. If there are less savings, it becomes more expensive to borrow money to invest, and vice versa. New products can be built for people and people win.

Even if people were hoarding their money by piling it into a mattress somewhere, this would make all of the dollars in circulation worth more since there are not as many dollars in circulation, therefore prices would drop to reflect this. People win.

The person who wrote this article is either
1. Completely off base in terms of economics and the effects of inflation.
2. Does not follow his religion and uses it as a way to deceive.
Ill give him the benefit of the doubt and say #1.

We agree on the implications of this statement, but I extrapolate them further—to government monetary policy. Because it is political unacceptable for a politician to preside over a downturn in our economy, it is in their best interests to delay a recession—a natural part of life, we must remember—for as long as possible. Long term planning is forsaken for short-term political gain; often interest rate manipulation, as DITE and xfree9 explained, is the easiest way to go about that. Our society’s unwillingness to go through the undulations of the economy, and thus delude itself from top to bottom with endless prosperity, is the fundamental reason for this crisis.

The current economic downturn can be directed primarily at government involvement in the creation of “easy money” during the so-called “boom” of the past 8 years. Investors and speculators would not have gone into risky investments, interest rates would not have been so low as to encourage borrowing money by those who couldn't afford it, and housing prices wouldn't have spiked so high because of the speculation and risky investment.

When the government tells banks that they'll back risky investments if they fall through, and banks loan money to high-risk borrowers that they would otherwise not have loaned money to, how exactly is that a “free market” at work?

This is untrue. A stable money supply, historically a gold standard, means that the increased number of goods and services results in a reduction in the price of those services.

Money is not “created.” Money is a medium of exchange agreed-upon by a society. When money is added to the system, in ancient times they called it “debasing the money supply,” because what the emperor or caesar had to do was trim off edges of the coins, and add new coins. The economy suffers when it happens.

As said in the article, “creation” is a divine act. If we want to “create money,” we are out of bounds with our earthly authority, and it must be stopped. Creating money in our system is a huge factor in our economic state. It's also the cause of our booms and busts, which are artificial. The “free market” had nothing to do with it because a “free market” would not have money creation involved.

The boom-bust cycle is caused by an inflation of the money supply, which is created by a central bank with permission to add money to the system. Prices increase as a result. The poor suffer first and foremost because the producers in the economy (aka “the rich”) are the first recipients of the new money, and don't experience the negative effects on the economy; indeed, they benefit. In short, central banking in the United States hurts the poor, and benefits the rich. If you want to look at the biggest reason for income inequality from a political perspective, end the federal reserve system and return to a gold standard. History has proven time and again that a stable money supply does not favor the rich over the poor, does not result in inflation, and that prices fall over time, even while wages are rising.

Government policies encouraged risky lending and then subsidized the risk for those companies that bought risky mortgages. So when the government takes the natural regulator of risk out of the market, people and companies are encouraged to make bad economic decisions.

“If we had an all-cash economy, the necessary money creation would be an all-government show: the federal mint would simply print more bills or stamp out more coins”

Just not true. Most money is “created” when stuff gets cheaper. If product A originally costs $100 dollars, then due to technology or increased efficiency the cost of making product A goes down, the price will go down. If the cost goes down $50 and the price goes down to $25, the company will have $50 more per product sold and the consumer will have $25 more dollars.

The reality is, all investment is “speculation.” And we need investment expenditures to ensure long term economic growth. People living in this economic downturn are still exponentially better than an those living in an economy with no speculation.

Lately, our new administration has indulged heavily in this type of creation of fiat money. We issue treasury bonds, and the Federal Reserve buys those bonds by printing money. We (the people) 'support' the printing of that money – -at least for a period of time – - with our creative labor. However, history has shown that this little series of tricks finally catches up with a society. See the photos of Germans, during the hyperinflation of the 1920's, burning stacks of their Reichsmarks, rather than spending them to buy coal. The heat generated by the burnking of the paper money was actually more valuable than the money itself, and exchanging the money for coal was also self-defeating. If we continue to do what we currently are doing, as a society, we also will experience this hyperinflation. We at least ought to be aware of this as we plunge over the abyss.