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?
Reply to
RichD
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.
Reply to
Michael Coburn
No evidence of that yet.
There isnt even a technical recession yet.
Same place it always goes when a bubble bursts.
Much more with housing than with commoditys.
Its MUCH more complicated than that.
Wrong.
Nope, quite a bit of it is just gone, with the significant drop in real estate and stock market prices.
It never is. Particularly when the mindless hysterics start running around in ever decreasing circles claiming that the sky is falling.
Much less than there used to be, with the credit crunch.
Quite a few of them are gone, with the significant drop in real estate and stock market prices.
That happens when demand drops. Most obviously with commoditys.
Reply to
Rod Speed
Yes, the money is still there, but not in the hands of those likely to spend it.
Put simply, there are
a) people who have money but don't want/need to spend it yet, and
b) people who don't have money, but do want/need to spend.
Up until recently, it was easy for the b) group to spend the a) group's money. The a's would put their money in the bank, and the bank would lend it to the b's. High house prices enabled the b's to borrow money cheaply, especially since the banks and rating agencies were stupid enough to think any loan secured against a house was rock solid.
Now because of the credit crunch the banks need to recapitalise, and so the money they are lending to the b's is drying up, therefore so is spending. Also the b's have less to borrow against (lower equity in their houses).
So the money is the same, but it's not being transferred to those likely to spend it in the same way as before.
Reply to
Andy Pandy
Perhaps you would like to refer to the following posting:-
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regarding the root of the subprime housing loans crisis?
Why do you housing as a monetary phenomenon? I think you think to take into account the securitization and associated collaterization of mortgage-backed securities also.
Also, why do you regard commodity price increases over the last 5 years, if not the past decade, as a monetary phenomenon? Do you mean there was no substantial increase in world-wide demand due to economic development in other countries?
Reply to
Rich Uncle
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.
Reply to
Michael Coburn
there has been a very small amount of overall deflation. m3 has fallen very very slightly, due to loans being repaid.
the trouble is people confuse asset prices falling with deflation. a share falling in value from a hundred dollars one day to ten cents the next is not deflation. there is still the same amount of money in circulation. people's perception of how much the share is worth is all that has changed.
I am much more worried about inflation. the monetary base is increasing rapidly. output is falling. government deficits are huge.
Reply to
orangatang1
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*.
Reply to
Les Cargill
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?
Reply to
Rich Uncle
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.
Reply to
orangatang1
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.
Reply to
Michael Coburn
consumers doesn't spend, market lacks liquidity. Fed money sinks into bad loan abyss, the market doesn't have as much money as it appears when millions lost jobs. When there are goods w/ less buyers, deflation is a mean to get rid of excess goods. After some period of inflation, deflation happens as it happened in Japan
Reply to
Sushi Fish
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.
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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.
Reply to
Michael Coburn
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.
Reply to
Michael Coburn
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.
Reply to
orangatang1
Michael Coburn wrote
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.
Reply to
Rod Speed

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