deflation; where did the money go?

Supposedly, we are now descending experiencing deflation,. which causes, or results from, recession.
My question is: where did the money go? We have seen
major inflation over the last 5 years (housing and commodities), which is, as we know, a monetary phenomenon - the Fed has run the printing press full blast, with their 'easy money' policy.
Now, bust follows boom, and prices fall... but the money is still out there, yes/no? Demand should be constant, with boatloads of bux chasing goods.... where are all the dollars? Hw can general price level drop?
--
Rich


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On Sat, 29 Nov 2008 22:17:09 -0800, RichD wrote:

If you print up money and give it to people who already have more money than they know what to do with, then these people will have even more money that they have no use for. They have and will continue to use this money to bribe the Congress to make damned sure that the Fed and the elected government protects them and their control at the expense of the rest of the economy.
The only way to approach this is to create money and give it to people who actually will spend it. That causes people who have money to invest it because if they don't do so then the inflation monster will get them.
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.  

Or let describe an hypothetical situation which is not so different...
(Sorry for the syntax, French is my native tongue.) Money is just a social contract between some individuals or groups of individuals to exchange some hours of works against other hours of work. Like the plumber/teacher who are promissing to offer X hours of their work to a third party if some construction workers accept to offer X hundreds of work right now and to build them a house. Let say that I'm a plumber and that some farmer needs me to do a job of 6 hours; he offers me a note (a contract) which says that I can collect 40 dozens of eggs and 100 pints of milk in the comming years for my work. But he doesn't need more than 6 hours of job from me. Now I want a new car and the car maker does not want to exchange my note because it's not enough. I will falsify the note and add a few zeros so that I can offer 4000 dozens of eggs and 10000 pints of milks that all the people involved in the process of car making can collect latter on. I'm acting like a sperculator who cheat and falsely promiss a reward to some pigeons who join a pyramide scheme, or someone who claim that he can purchase debts because the people who have the debt have a triple A rating and will pay me/them interest. The present economic crisis stems from a growing number of lies that were introduced in the system, false promises of a reward later on, people who suddenly felt rich (artificial home prices or stock) and who borrowed to purchase expensive goods that they didn't need so much.
So the people involved in the process of making a car feel rich, they accept to do overtime, cancel a weekend that they planned to take, and if many people falsify their own notes, the car maker can borrow to expand his business and hire people and lure them with higher salaries ( workers who used to do computers, truck drivers who used to deliver beer, farmers, former electricians) because making cars is suddenly more lucrative than doing these other jobs. The car makers will even create jobs because he needs to purchase equipment to build his cars. Students who planned to become accountants will even change their mind and borrow to become specialised workers in the car industry. Everybody feel richer and the economy is booming until the farmer reject the note and claims that he never promised 10000 pints of milk to anyone. Is it a solution to print extra notes and promiss the farmer a yatch or 5 new tractors if he accept the falsidied note? Money is just a medium, it has to be based on something. It must represent what people are ready to give (hours of work) in exchange of goods and services. If many people lied in the chain and a large number exhanged in good faith a false promise that someone gave to them there wil be several loosers, wether you like it or not. And refusing to accept the truth and introducing an extra distorsion in the system with extra notes won't cure the problem because money has to represent something that exists, true promises based on something else than thin air. The problem is not one of money shortage, it is misallocation of money, false promises, lies who introduced a distorsion and pushed people to become skeptical regarding notes (loans, stoks, expected profits). Such a distorsion needs to purge itself when people accept that they lost something. Some people won, more people lost because the capital/time was wasted. You cannot rebuild the transparency that needs to back those billions of social contracts/notes with further notes, or you can just postpone the resolution of the problem and make it bigger.

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The money "printed" by the Fed is still out there if none of it returns to the Fed.

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On Sat, 29 Nov 2008 23:09:02 -0800, Rich Uncle wrote:

Unfortunately, it is controlled by people who would rather not spend it and who already satisfy their desires by spending only a tiny, tiny fraction of what is flowing in. The secret of restoring the economy is to tax away a good amount of that flow and redistribute it to the bottom of the economy in the form or stimulus. There is also the idea of keeping capital gains tax rates lower than other income rates so as to encourage investment as opposed to hoarding.

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Michael Coburn wrote:

We've had an abysmally low savings rate, something that has allegedly "saved" us from the fate of Japan.
Would then a corollary of this observation be that a low savings rate indicates a "maldistribution" of income? Of course, the distribution of income isn't something that's under any ... rational control to begin with.... the Hayekian point is that we're simply not smart enough to do this.
Also, nobody's talking about demographics - the Boomers are retiring *now*.

--
Les Cargill

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On Sun, 30 Nov 2008 13:09:02 -0500, Les Cargill wrote:

Well, Hayek wasn't smart enough.

Why would people talk about the demographics? There is nothing that can be done about it. It is as it is.

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It was good of you to repeat what you considered point; otherwise I'd have missed appreciating it properly (hope I'm not sounding like an Eliza-type program).
A very interesting and valid point, Sir. Sounds similar to the existence of a liquidity trap.
Just to pour a little cold water, it could be that some of the people who would rather not spend it might be saving to a point when they feel they have enough for whatever they wish to spend on.
I'm not able to figure out what you mean by taxing away some of that flow; could you kindly elaborate a little more on it, Sir?

=================================================> On Sat, 29 Nov 2008 23:09:02 -0800, Rich Uncle wrote:

========================On Nov 30, 2:17 pm,

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On Sun, 30 Nov 2008 10:13:21 -0800, Rich Uncle wrote:

A progressive income tax was actually conceived as a tax on "economic rent" and was not actually intended to tax wages at the median. All income taxation should be at or above the median wage and any taxation close to the median wage should be at a low percentage. But leaving that aside for now, Obama's plan to increase taxation on income above $250k and to return that taxation to the level that existed in 1993 is an example of "taxing away some of that flow" by an additional 3% or 4%. It may be that such incomes would need to be "saved up" to buy a new yacht or a vacation cabin near the ski slopes or perhaps a Leer Jet, but we should not confuse this with saving for a down payment on the starter 3 bedroom in the burbs.

I would add another tax bracket at $1M and another at $3M and each bracket would be higher. Most people do not "earn" $1M a year. They will not stop what they are doing because they are taxed more heavily. That is the test that indicates that the income is unearned. If the behavior of the payer of the tax or the prospective payer of the tax is not altered by the existence of the tax then the income is unearned. The payer will not alter his or her behavior because the "position" or the "ownership" is the key to the realization of the income; not any actual labor on the part of the person realizing the income. Such income is called "economic rent".
More importantly, and in the case of very large incomes in excess of, say $5M, the income is simply stored away in US government bonds. There is no reason to risk any of this money.
http://www.greatervoice.org/essays/Money_For_Nothing.php But it is important to keep "capital gains" and "dividends" tax rates lower than the rates on income from bonds or (supposed) wages above $250k.

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Irrelevant to what it turned into.

Mindlessly silly. Those below the median wage should be paying for govt too.

Even sillier. That wouldnt raise anything like enough revenue for modern first world govts and what the voters want them to do.

So small a difference that it wont make any real difference, just equity.

Hardly anyone lives in starters.

You have always been completely irrelevant.

Like hell it does.

Gets sillier by the minute.

In spades.

Hardly any of those are that stupid.

Just more mindless bullshit.

Wota wanker.

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Liquidity traps and martians are the two most tangible things that exist in the world. And Elvis is alive. Unfortunatelly Keynes seems to do well these days too.
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On Sat, 06 Dec 2008 04:25:09 -0800, jean-francois wrote:

Sir Keynes is very much in vogue and it is because he got a lot of things absolutely right. But he did not have the benefit of true fiat money at his disposal. We do.
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t
You guys (monetarists) speak as if Fiat money was a marvellous invention that came into light in 1913 or so. Fiat money did exist even during the Roman empire when they started to put less silver into coins, the French used it during the revolution, the Americans during their own revolution, the Chinese, and always those systems finished in the gutter for the same reason. It was too easy or government to increase their spendings and distribute favours, just printing more money was enough. And of course at some point it loose all of its value. The present system will finish the same way for the same reason.
The present crisis was never supposed to happen if we take the monetarist point of view in, let say the year 2005. House prices were not supposed to be overvalued. Now the economy is in free fall and your 'solution' (increasing the liquidities) may just improve slightly the situation for some weeks or months in the year 2009, but it fails to take in account that money is supposed to be a medium between people who want to exchange hours of works and goods against other goods or hours of works. Earlier I gave an example where I would have falsified a note and add two zeros in order to get 20000 pints of milk or so, the misallocation of ressources and capital that follows, etc... Introducing new (false) notes to promiss 5 tractors when you have no way to create or deliver them for free, so adding other lies to the system in order to cool the minds and lead everybody to start back to work may work for sometimes but eventually the whole system has to blow up. Many work for stuff for which there is an artificial demand, many still believe that they are richer than they are and spend on stuff they shouldn't, or let say promiss hours of work that they can't deliver to someone else.
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My goodness! Krugman mentioned the existence of Earthlings just like you, and its true.

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People hoarding does not the problem. when someone deposits money in a bank it does not just sit in a vault somewhere. the bank lends many times the amount deposited to other people. nor is the problem banks hoarding. banks are largely insolvent. having lent money they don't have to people who can not pay them back, they have no money to hoard.
'stimulus' is a nonsense idea. some sectors of the economy are too big, others too small. untill businesses in the oversized sectors are allowed to fail and the resources they use liquidated the crisis will continue. giving money to failing businesses only prolongs the problem.
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On Sun, 30 Nov 2008 10:31:00 -0800, snipped-for-privacy@googlemail.com wrote:

These are the opinion of a conservative that believes that there is some limit to the amount of money and that huge incomes end up in a bank. Both of these are false beliefs.
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clearly there is no limit to the amount of money a government can print. but there is a limit to how much is being produced and consumed.
and that huge incomes end up in a bank.  

please explain what you believe people are hoarding. i assumed that by hoarding you meant they were keeping their money in a bank as spending or investing the money does not sound like hoarding to me.
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On Sun, 30 Nov 2008 14:28:48 -0800, snipped-for-privacy@googlemail.com wrote:

If you buy a T-Bill you are putting money out of the reach of the normal economy. That would be hoarding money. If you put it in a savings account at the bank, that would be hoarding.
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Wrong when you consider what the govt does with that money.

Wrong, as always.

Wrong, as always.
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buying a tbill is financing government debt. if you buy a long term treasury close to maturity you must buy it off someone, who then gets your money. if you put the money in a bank it gets lent. in our system savings and investment are the same thing.
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