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●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The more federal budgets are cut and taxes increased, the weaker an economy becomes. .
●Liberals think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
●Austerity is the government’s method for widening the gap between rich and poor.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Everything in economics devolves to motive, and the motive is the Gap.
Over the years we have published many posts about inflation (a general increase in prices). [See all the “inflation” links on the left side of this page.]
Inflation and its opposite, deflation, are complex. They are not just a simple matter of the government spending too much or too little money. See: Federal deficit spending doesn’t cause inflation; oil does In fact, too much or too little government spending seem to be the least cause of inflation or deflation.
Inflation and deflation are the result of complex relationships among the Supply and Demand for money and for goods and services. See: The economics of chaos. What we know for sure. The value of money (inflation) formula/u>.
Debtors (except for the federal government) generally welcome inflation, because the money necessary to pay debts is easier to obtain during inflationary periods. (The federal government doesn’t care about inflation, since it creates dollars ad hoc, when it pays bills.)
Inflation and deflation are all but impossible to measure, because the goods and services being purchased continually change. Today’s cars, appliances and jobs are different from yesterday’s. The CPI (Consumer Price Index) is an estimate of many estimates, all of which have changed over time.
All this complexity leads to the title question, “Why not deflation?”
We all would rather pay less than pay more, and we have seen examples of the terrible damage excessive inflation can cause. So again, why not deflation?
The standard logic is: When people anticipate the lower prices of deflation, they delay buying, waiting for those lower prices, and this delayed buying negatively impacts the economy.
It all sounds so logical, but is it true?
One place to find the answer is the electronics industry. Today, I saw an advertisement for a 60″ TV set: $499.00. Just a few years ago, I paid $5,000 for a set of similar dimension, and it wasn’t nearly as good as the one being sold today. Talk about deflation!
Today’s smart phones give you much more value for the dollar than did the portable phones of yesteryear. Pay less + Get more = Deflation.
The deflation in electronics has not caused the kind of delayed buying economists fear so much.
One might point to holiday sales as an example of delayed buying. People defer making some purchases in September, waiting for those “50% Off” sales in November.
But a few months delay has scant effect on economic growth, especially when those holiday sales actually encourage bargain hunters to buy more than they would have otherwise. People might temporarily delay purchases, but over time, people buy what they want — especially if prices are lower.
One might give the example of Japan, the government of which has been trying to create inflation as a way to stimulate the economy:
And indeed, at various times, GDP and inflation appear to move together. Does this indicate that deflation is recessionary — or does it indicate that recessions cause deflations — or most likely, does it indicate these two complex events are connected only tenuously and coincidentally?
Here is the picture for the U.S.:
The common belief: Federal spending is stimulative and also is inflationary, so reduced federal spending must be recessionary and also deflationary. So stimulus and inflation must “go together,” while recession and deflation also must “go together.”
But it doesn’t seem to be true.
I’ve searched for evidence that deflation causes delayed spending which, in turn, causes recession, and I can’t find any. I’ve come to think it’s one of those beliefs that sounds reasonable — something like “the federal government must live withing its means” — but hasn’t a factual basis.
If you’ve found evidence to support the reduced spending –> deflation –> recession pattern, please let us know.
Until then, we’ll view it as a myth, and a harmful myth at that, for it forces us into an unnecessary inflation.
Rodger Malcolm Mitchell
Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually. (Refer to this.)
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here and here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
The Ten Steps will add dollars to the economy, stimulate the economy, and narrow the income/wealth/power Gap between the rich and the rest.
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
1. A growing economy requires a growing supply of dollars (GDP=Federal Spending + Non-federal Spending + Net Exports)
2. All deficit spending grows the supply of dollars
3. The limit to federal deficit spending is an inflation that cannot be cured with interest rate control.
4. The limit to non-federal deficit spending is the ability to borrow.
THE RECESSION CLOCK
Vertical gray bars mark recessions.
As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.