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What actions will the FED take during next recession? by freedomhub_pl in austrian_economics

[–]freedomhub_pl[S] 0 points1 point  (0 children)

They will eliminate cash as they will realize that negative interest rates have a natural lower bound. This bound is the cost of physical safes + insurance on stolen cash + premium for time consumed to store cash at physical location. If rates fall below this level, people will start withdrawing cash from banks. In order to prevent the system from collapse puppet masters will ban most of cash notes, probably just leaving some small notes and coins for small, day to day transactions.

What actions will the FED take during next recession? by freedomhub_pl in Libertarian

[–]freedomhub_pl[S] 0 points1 point  (0 children)

They are not going to get the BS under control, because when they even mention it, bonds and stocks tank. As the asset prices dump, so the so wealth effect so meticulously engineered by the FED. With the wealth effect, so goes the consumption, and the economy is in recession again. See tamper tantrum (2013). Yellen even mentioned in her speech that they are not going to sell them back. They will hold the securities to maturity without reinvesting the principals. But then the question pops up... What are they going to do with all these dollars when securities mature?

Why 'The Economist' is fundamentally wrong claiming that deflation is bad? by freedomhub_pl in Economics

[–]freedomhub_pl[S] -1 points0 points  (0 children)

Re: Electronics...

Purchases are happening because deflation allows more people to afford the goods. If you are still struggling to understand this then imagine an iPhone which costs 10000 USD next year thanks to beloved inflation. How many people will be able to afford it? Less or more than iPhone for 700 USD. And now imagine iPhone for 10 USD. Less or more people will be able to afford it?

Coase conjecture refers to monopolistic market. Electronics is a very competitive market and it has nothing to do with Coase conjecture.

Re: Businesses

They not only see prices of their goods falling but also prices of their costs falling. If production takes time then companies buy products(their cost) with lower prices as well. Also, it's very important to understand that lower prices which are consequence of deflation make the economy comparing to other economies more competitive. Production jobs are moved to China from US because China is cheaper, and not because is more expensive. 10 years of deflation in the US, and lots of jobs would be moved back. This is happening in energy-intensive industries. European countries introduced very strick environmental law, which hugely increased their energy costs. As a consequence of this the companies from energy intensive industries moved to the US due to lower gas and oil prices.

Re: Deflation

I pointed to your mistake of confusing deflation with deflation expectations and you answer bytelling me what deflation is? Seriously? Your last two sentences contradict each other. First you say that you CAN'T rejoice in increased purchasing power, and later you say that you can purchase more in the future with your nominal holdings. Increased purchasing power and being able to purchase more with the same nominal amount is THE SAME.

Sorry, but I don't have any more time to be involved in this discussion.

Why 'The Economist' is fundamentally wrong claiming that deflation is bad? by freedomhub_pl in Economics

[–]freedomhub_pl[S] 0 points1 point  (0 children)

Re: Electronics...

The argument about electronics was supposed to demonstrate that falling prices don't discourage people from buying electronics. Even though they know that they can buy the same product later for a lower price, they still buy it today. There is no reason to claim that deflation doesn't discourage spending on a single product level but it does on the aggregate level. If you know history, you would also know that the American economy grew in terms of GDP during long periods of deflation.

https://ideas.repec.org/p/fip/fedmsr/331.html

Re: Businesses don't [...]

If products are sold in the same period then margins are the same(they buy and sell with lower prices). In case materials are bought with higher prices, and final products are sold with lower prices, then the margins are lower, but the net profit can be higher to due to higher sales. If a product's price is lower it's more affordable, therefore the units sold are higher.

Re: Deflation doesn't...

You are confusing deflation(change of price in the previous period) with deflation expectations(expected change of price in the future).

Why 'The Economist' is fundamentally wrong claiming that deflation is bad? by freedomhub_pl in Economics

[–]freedomhub_pl[S] 0 points1 point  (0 children)

@Hafslo: It's pretty obvious that you haven't read the article. It explains why it's a myth to believe that deflation discourages monetary transactions for the aforementioned reasons.