We have DEFLATION!

mike65

Yep, just announced the RPI for January was an annualised -0.1%

from rte

The latest figures from the CSO show that the country saw negative inflation as prices fell by 0.1% in January from the same time last year.

The CSO says that consumer prices in January decreased by 1.7% in the month.

It says the last time there was negative annual inflation was in 1960.
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This compares to a decrease of 0.5% recorded in January of last year.

The price of clothing and footwear fell by 13.2%; housing, water, electricity, gas and fuel dropped by 7%, while household furnishings and equipment decreased by 2.6%.

The cost of miscellaneous goods and services, health, and alcoholic beverages and tobacco all increased.

thebman

Isn't this just the euro being strong and us falling back in line with other EU countries.

Our goods were over valued and this seems to be the start of the correction as people can no longer afford to pay the inflated prices.

Économiste Monétaire

This depends on what measure you're using for inflation/deflation. It's worth looking at the sub-indices. Find it here. HICP doesn't register negative annual change; however, I prefer to annualise monthly rates, which would lead me to believe we've been in real deflation for ~3 months +.

COICOP Group|One month change|12 month change
01 Food and Non-Alcoholic Beverages|+0.2|+3.0
02 Alcoholic Beverages and Tobacco|+0.9|+6.9
03 Clothing and Footwear|-13.2|-6.9
04 Housing, Water, Electricity, Gas and Other Fuels|-7.0|-7.9
05 Furnishings, Household Equipment and Routine Household Maintenance|-2.6|-1.1
06 Health|+2.8|+5.8
07 Transport|-0.8|-4.0
08 Communications|-0.1|+0.7
09 Recreation and Culture|-0.8|+0.5
10 Education|-|+5.6
11 Restaurants and Hotels|-0.6|+3.3
12 Miscellaneous Goods and Services|+4.6|+7.7
ALL ITEMS|-1.7|-0.1

P. Breathnach

The conventional wisdom (based on more than simplistic prejudices) is that deflation is a bad thing. That thinking is based on viewing an economy as a unit of some sort. But I wonder if the "Irish economy" is as clear-cut an idea as it once was since we entered the euro: we are now a part of the eurozone economy.

Within the eurozone, perhaps some deflation might be acceptable, even desirable. But, to the extent that in many ways we also function as a separate economy, deflation is probably also bad news. There is a trade-off involved.

Some of the deflation is of the worst type: vendors selling at a loss rather than not selling at all.

thebman

I think as the cost of living comes down so must wages since we are in the euro.

I think this mostly should apply to businesses affected by the downturn and should not be used by very profitable companies to reduce wages to increase profitability further.

If there are industries where the wages are suitable for the output of the employees work then it would be unjust to reduce wages. However they still need to be in line with the cost of living and our neighbouring EU countries/economies so that we remain competitive.

Retail is in trouble though and wages are going to have to come down IMO. The dole will need to be reduced too.

We need to balance ourselves out IMO and come in line with the rest of Europe which we haven't been doing so far. Being an outlier of high wages and high costs will get us nowhere.

I don't see the problem with lower wages as long as the cost of living is reduced and people don't become more or less well off because of it. I think if employers and unions are kept in check then it can be done. The majority of employees can be reasoned with IMO and know what needs to happen or can be educated.

Your talking about keeping the most powerful lobby groups in our economy in check though and I'm not sure the government has the will to do it. Also, the people will not accept it so they can kiss the next election goodbye IMO. Do they have the guts to do this? Only time will tell, they sure as hell haven't so far though.

Anyway you guys know more than me about this stuff so I'm interested in what you have to say on it.

mike65

thebman wrote: »

I don't see the problem with lower wages as long as the cost of living is reduced and people don't become more or less well off because of it. I think if employers and unions are kept in check then it can be done. The majority of employees can be reasoned with IMO and know what needs to happen or can be educated.

Your talking about keeping the most powerful lobby groups in our economy in check though and I'm not sure the government has the will to do it. Also, the people will not accept it so they can kiss the next election goodbye IMO. Do they have the guts to do this? Only time will tell, they sure as hell haven't so far though.

I know little, but I do know that the above is the crux of the matter and unions will squeal like Ned Beatty at any suggestion of a wage decrease. The idea would only have any traction at all if it could be shown that prices were falling across the board in a sutained fashion and by then we'd be in such sh-1-te the whole fiscal context would have changed anyway. The country would be knackered.

whizzbang

I think you will find it is actually "negative inflation"
http://www.rte.ie/news/2009/0212/inflation.html

deflation is a dirty word.

1huge1

When they say transport is down 4% do they maen like buses, trains etc because they have all gone up in price over the past year.
Or are they referring to the price of petrol?

johnnyskeleton

P. Breathnach wrote: »

The conventional wisdom (based on more than simplistic prejudices) is that deflation is a bad thing. That thinking is based on viewing an economy as a unit of some sort. But I wonder if the "Irish economy" is as clear-cut an idea as it once was since we entered the euro: we are now a part of the eurozone economy.

Within the eurozone, perhaps some deflation might be acceptable, even desirable. But, to the extent that in many ways we also function as a separate economy, deflation is probably also bad news. There is a trade-off involved.

Some of the deflation is of the worst type: vendors selling at a loss rather than not selling at all.

My understanding is that Ireland is ahead of the curve, but the rest of the eurozone certainly seem to be heading towards deflation.

It doesn't really matter whether deflation is acceptable or not, the ECB's mandate is price stability this means avoiding inflation over 2% but also avoiding deflation.

http://www.ecb.int/mopo/strategy/pricestab/html/index.en.html

Time Magazine

1huge1 wrote: »

When they say transport is down 4% do they maen like buses, trains etc because they have all gone up in price over the past year.
Or are they referring to the price of petrol?

Page 55 of this PDF. Tranport costs about 13.3% of our expenditure. Of that 5.7% goes on purchasing vehicles (price of cars), 6% goes on operation of vehicles (oil, insurance) and 1.6% goes on "transport services" (public transport, price of flights).

johnnyskeleton

The Economist wrote: »

Page 55 of this PDF. Tranport costs about 13.3% of our expenditure. Of that 5.7% goes on purchasing vehicles (price of cars), 6% goes on operation of vehicles (oil, insurance) and 1.6% goes on "transport services" (public transport, price of flights).

So would it be fair to assume the majority of the drop is in the price of new cars, which have fallen off a cliff? Petrol dropped after the drop in oil prices, but prices at the pumps seems to have steadily increased since then, I don't know about insurance as it is hard to judge on a month by month basis the change in a yearly expense, and public transport has gone up while flights have gone down.

ardmacha

The only inflation is additional direct taxes, e.g. petrol, wine there should be a tax free index as well. Britain is experiencing zero inflation and their decline in GDP is going to more like Ireland's than anyone else's. The Bank of England is talking about printing money which will drive Sterling down, so we are not importing inflation and some predict -4% inflation. This could be our saviour relative to the Eurozone, a real decline here and a small increase elsewhere in the Eurozone over the 2008-2010 would go some way towards restoring competitiveness.

Welfare payments should index linked as always, i.e. -4%, and tax free allowances and bands should be reduced, in addition to to any higher rate tax increases.

Économiste Monétaire

1huge1 wrote: »

When they say transport is down 4% do they maen like buses, trains etc because they have all gone up in price over the past year.
Or are they referring to the price of petrol?

If you look at the transport sub-index, which I linked: (Base 2006)

Description|Dec 2006 base expenditure weight %|Current Index|% change 1 month|% change 12 months
Purchase of vehicles|5.7319|98.6|-0.1|-2.1
-Motor cars|5.6398|98.7|0.0|-2.0
-Motor cycles|0.0373|100.2|-0.4|0.3
-Bicycles|0.0549|96.3|-2.5|-0.8
Operation of personal transport equip.|5.9606|100.8|-1.9|-9.2
-Spare parts & accessories|0.3444|104.5|0.0|1.9
-Fuels & lubricants|3.7506|93.8|-4.5|-18.5
--Petrol|2.9759|93.8|-4.3|-18.5
--Diesel|0.7604|93.4|-5.5|-19.3
--Motor oil|0.0143|110.1|-0.2|5.1
-Maintenance & repair|0.7045|115.8|0.1|7.2
-Other services|1.1611|113.0|3.6|10.9
--Motor tax|0.8380|114.3|4.1|14.3
--Other vehicle costs|0.3173|109.6|2.1|2.3
--Driving licences|0.0058|100.0|0.0|0.0
Transport services|1.6008|106.9|0.9|10.4
-Rail transport|0.2189|116.5|8.3|13.0
-Road transport|0.9286|113.4|3.1|11.6
--Bus fares|0.3926|120.3|7.0|16.0
--Taxi|0.5360|108.2|0.0|8.2
-Air transport|0.4009|86.1|-9.6|6.0
-Sea transport|0.0290|111.8|0.9|3.9
-Combined transport|0.0183|119.1|8.6|14.4
-Other transport|0.0051|92.2|0.0|-7.1
Total|13.2933|100.6|-0.8|-4.0

thebman

johnnyskeleton wrote: »

My understanding is that Ireland is ahead of the curve, but the rest of the eurozone certainly seem to be heading towards deflation.

It doesn't really matter whether deflation is acceptable or not, the ECB's mandate is price stability this means avoiding inflation over 2% but also avoiding deflation.

http://www.ecb.int/mopo/strategy/pricestab/html/index.en.html

Well if we go below 2% then things have spiralled out of our control have they not?

Things would most likely snowball from there IMO.

A little negative inflation at the moment isn't a bad thing. We desperately need to increase our competitiveness in the EU to get jobs back.

At the moment they are leaving way faster than we can attract them.

nesf

P. Breathnach wrote: »

The conventional wisdom (based on more than simplistic prejudices) is that deflation is a bad thing. That thinking is based on viewing an economy as a unit of some sort. But I wonder if the "Irish economy" is as clear-cut an idea as it once was since we entered the euro: we are now a part of the eurozone economy.

Within the eurozone, perhaps some deflation might be acceptable, even desirable. But, to the extent that in many ways we also function as a separate economy, deflation is probably also bad news. There is a trade-off involved.

Some of the deflation is of the worst type: vendors selling at a loss rather than not selling at all.

One very simplistic way of looking at it: If wages and prices fall in tandem you're fine because purchasing power isn't effected. The problem is that wages are generally a lot stickier than prices. So what tends to happen is that prices fall a lot faster than wages which is initially good because purchasing power increases unfortunately those prices have to pay for the wages that haven't been decreasing so unless companies have been running huge margins you'll start to see job losses which aggravates the underlying problem with is the recession that is causing the deflation in the first place.

If wages weren't sticky then you'd see them fall in tandem with prices since people would "rationally" accept any pay cut that left their purchasing power unchanged vis a vis before the recession. The problem is people and labour markets don't act this way.

xOxSinéadxOx

haha negative inflation! :pac:

Hunchback

funny as it sounds, i think negative inflation is the correct economic jargain, just as economists say "negative profit", when they mean loss. its a bit cumbersome but ...:)

xOxSinéadxOx

well I'll take your word for it but it still sounds funny!

P. Breathnach

nesf wrote: »

One very simplistic way of looking at it: If wages and prices fall in tandem you're fine because purchasing power isn't effected.

Similar considerations apply to inflation. Things just don't move in parallel. And it's more than wages and prices as broad categories. Pay rates and price levels are bubbling up and down all over the place.

The problem is that wages are generally a lot stickier than prices. So what tends to happen is that prices fall a lot faster than wages which is initially good because purchasing power increases unfortunately those prices have to pay for the wages that haven't been decreasing so unless companies have been running huge margins you'll start to see job losses which aggravates the underlying problem with is the recession that is causing the deflation in the first place.

Agreed. That ties to what I said about some of our deflation being of the worst type.

If wages weren't sticky then you'd see them fall in tandem with prices since people would "rationally" accept any pay cut that left their purchasing power unchanged vis a vis before the recession. The problem is people and labour markets don't act this way.

I have this little thought experiment: leave the euro and return to the punt at 1.27; devalue, say to 1.00; rejoin the euro. It would have the same effect as wages and prices falling in tandem. Both are so unlikely to happen that they remain as ideas to occupy our idle minds.

I suspect the present crisis will last a minimum of two years. In that time, I expect that we will see widespread pay cuts (but by no means evenly distributed). People in the public service should brace themselves for another blow, perhaps a 10% wage cut; people on social welfare will face cuts to reflect price falls; the minimum wage may be reduced; many employers, perhaps whole sectors, will implement pay cuts with the grudging assent of their staff. But not many people in Ireland will die of deprivation.

nesf

P. Breathnach wrote: »

Similar considerations apply to inflation. Things just don't move in parallel. And it's more than wages and prices as broad categories. Pay rates and price levels are bubbling up and down all over the place

Yeah, looking at the change in real wages is interesting. For example, purely because I had the data to hand already:





In 2008 in 1988 pounds we pay public servants £505.53, in 1988 we paid them £334.65. This I imagine is reflected in the private sector too.

shayser

Would anyone have a graph of 2008 monthly inflation rates for Ireland?

nesf

shayser wrote: »

Would anyone have a graph of 2008 monthly inflation rates for Ireland?

http://www.cso.ie/px/pxeirestat/database/eirestat/Consumer%20Prices/Consumer%20Prices.asp

You can get table data there and make a graph from it.


Edit: Here I did it up for you (in case you don't have access to Excel at the moment)

sceptre

whizzbang wrote: »

I think you will find it is actually "negative inflation"
http://www.rte.ie/news/2009/0212/inflation.html

deflation is a dirty word.

Heavens to betsy. RTE noospeek.

sceptre

CKonetheonlyone wrote: »

funny as it sounds, i think negative inflation is the correct economic jargain, just as economists say "negative profit", when they mean loss. its a bit cumbersome but ...:)

I've occasionally heard it used for convenience (particularly when distinguishing between a negative inflation rate and a zero inflation rate) but typically the word "deflation" seems to be the word used when you're not just pretending that everything is secretly OK.

Still, when prices are inversely increasing and the economy is un-growing, does what we call it really matter all that much when people are negatively ecstatic about the entire diswonderfulness of it all, especially with the recent increase in job ungrowth, which affects young fiscal, fiduciary and care dependents of wage earners, who after all are the individuals whose welfare and continued wellbeing we should really be considering.

I'd like to thank Helen Lovejoy for the last part of the above

Hunchback

sceptre wrote: »

I've occasionally heard it used for convenience (particularly when distinguishing between a negative inflation rate and a zero inflation rate) but typically the word "deflation" seems to be the word used when you're not just pretending that everything is secretly OK.

Still, when prices are inversely increasing and the economy is un-growing, does what we call it really matter all that much when people are negatively ecstatic about the entire diswonderfulness of it all, especially with the recent increase in job ungrowth, which affects young fiscal, fiduciary and care dependents of wage earners, who after all are the individuals whose welfare and continued wellbeing we should really be considering.

I'd like to thank Helen Lovejoy for the last part of the above

lolol not to non-un-badly badly put

thebman

nesf wrote: »

One very simplistic way of looking at it: If wages and prices fall in tandem you're fine because purchasing power isn't effected. The problem is that wages are generally a lot stickier than prices. So what tends to happen is that prices fall a lot faster than wages which is initially good because purchasing power increases unfortunately those prices have to pay for the wages that haven't been decreasing so unless companies have been running huge margins you'll start to see job losses which aggravates the underlying problem with is the recession that is causing the deflation in the first place.

There are many that would say that is the case in Ireland (although probably without any evidence). Assuming that it was the case and margins fall to a more average level, what then?

Honestly I don't have a clue where you go from there. Employers will claim wages must now fall and employees/unions will argue that the companies are doing fine.

I don't think wages are as sticky in Ireland as they are in many other countries. I think we have less unionised workers than other EU countries. The public sector is our biggest problem IMO as will fight any reduction tooth and nail with the unions shouting about getting punished for the private sector.

Afuera

This is terrible news for Ireland as the biggest problem with deflation is its effect on debt (we currently hold the most debt per capita in Europe). The velocity of money tends to take a huge drop in deflationary environments which unfortunately can lead to a negative feedback loop. This is the kind of thing that strikes fear into the hearts of Central Bankers because there is no silver bullet that can be used to pull yourself out. Setting 0% interest rates does not reinflate when the velocity of money goes below a certain level (just ask the Japanese about that one). Many other Central Banks around the world are currently facing deflation also (hence the amount of "quantitative easing" proposals floating around at the moment), however as I said at the beginning, Ireland's high level of debt coupled with the lack of control of it's currency is starting to look like the perfect storm.

thebman

Afuera wrote: »

This is terrible news for Ireland as the biggest problem with deflation is its effect on debt (we currently hold the most debt per capita in Europe). The velocity of money tends to take a huge drop in deflationary environments which unfortunately can lead to a negative feedback loop. This is the kind of thing that strikes fear into the hearts of Central Bankers because there is no silver bullet that can be used to pull yourself out. Setting 0% interest rates does not reinflate when the velocity of money goes below a certain level (just ask the Japanese about that one). Many other Central Banks around the world are currently facing deflation also (hence the amount of "quantitative easing" proposals floating around at the moment), however as I said at the beginning, Ireland's high level of debt coupled with the lack of control of it's currency is starting to look like the perfect storm.

I agree with you but those people were always fooked anyway IMO.

The only that might save us is the fact that it will probably benefit all of Europe to devalue the currency since everyones banks are in the crapper and most countries have personal debt issues at the moment.

johnnyskeleton

thebman wrote: »

Well if we go below 2% then things have spiralled out of our control have they not?

Things would most likely snowball from there IMO.

A little negative inflation at the moment isn't a bad thing. We desperately need to increase our competitiveness in the EU to get jobs back.

At the moment they are leaving way faster than we can attract them.

I agree with you, but does Trichet? If the ECB's mandate is to avoid deflation then I don't see why they won't take steps to prevent it and bring the eurozone back to ~2% inflation. This most likely means lower (even zero) interest rates and/or printing a lot of money.

BroomBurner

nesf wrote: »

One very simplistic way of looking at it: If wages and prices fall in tandem you're fine because purchasing power isn't effected. The problem is that wages are generally a lot stickier than prices. So what tends to happen is that prices fall a lot faster than wages which is initially good because purchasing power increases unfortunately those prices have to pay for the wages that haven't been decreasing so unless companies have been running huge margins you'll start to see job losses which aggravates the underlying problem with is the recession that is causing the deflation in the first place.

If wages weren't sticky then you'd see them fall in tandem with prices since people would "rationally" accept any pay cut that left their purchasing power unchanged vis a vis before the recession. The problem is people and labour markets don't act this way.

So reduce minimum wage to stem the tide.

Though whether companies that do not base their wage scale on MW will follow suit would remain to be seen.

silverharp

thebman wrote: »

The only that might save us is the fact that it will probably benefit all of Europe to devalue the currency since everyones banks are in the crapper and most countries have personal debt issues at the moment.

Who are you going to devalue against? and for what benefit exactly. Will BMW sell any more cars for instance if the Euro gets cheaper against the $?

nesf

BroomBurner wrote: »

Though whether companies that do not base their wage scale on MW will follow suit would remain to be seen.

Or whether their employees would accept such a wage decrease. This is going to be very hard on SMEs who wouldn't have the depth in reserves, economies of scale or mark-up to absorb price drops for very long before having to push it onto their employees through either job cuts or wage cuts.

Time Magazine

BroomBurner wrote: »

So reduce minimum wage to stem the tide.

Though whether companies that do not base their wage scale on MW will follow suit would remain to be seen.

Minimum wagers aren't a big problem. They are, after all, on the minimum wage. The social costs to lower their wages could be substantial, though.

leninbenjamin

Afuera wrote: »

This is terrible news for Ireland as the biggest problem with deflation is its effect on debt (we currently hold the most debt per capita in Europe). The velocity of money tends to take a huge drop in deflationary environments which unfortunately can lead to a negative feedback loop. This is the kind of thing that strikes fear into the hearts of Central Bankers because there is no silver bullet that can be used to pull yourself out. Setting 0% interest rates does not reinflate when the velocity of money goes below a certain level (just ask the Japanese about that one). Many other Central Banks around the world are currently facing deflation also (hence the amount of "quantitative easing" proposals floating around at the moment), however as I said at the beginning, Ireland's high level of debt coupled with the lack of control of it's currency is starting to look like the perfect storm.

I disagree. Ireland is such an open economy that normal economic theory does not hold. things like the velocity of money have no real meaning to us as our income tends to go back out as soon as it comes in in the form of imports... it's meaningless to us. our economy has been overvalued for a long time now, this is a correction that had to happen, prices were unsustainable in this country. Yes it will put extra pressure on debtors, but that was going to happen regardless considering our openness and dependency on external factors.

Afuera

leninbenjamin wrote: »

I disagree. Ireland is such an open economy that normal economic theory does not hold. things like the velocity of money have no real meaning to us as our income tends to go back out as soon as it comes in in the form of imports... it's meaningless to us. our economy has been overvalued for a long time now, this is a correction that had to happen, prices were unsustainable in this country.

Ah, the "new paradigm" defense. Now where have I heard that before?

leninbenjamin wrote: »

Yes it will put extra pressure on debtors, but that was going to happen regardless considering our openness and dependency on external factors.

So you agree that there is no easy way out for Ireland in the current environment?

silverharp

if you think deflation is bad, its opposite is even worse

leninbenjamin

Afuera wrote: »

Ah, the "new paradigm" defense. Now where have I heard that before?

sorry, but what's that supposed to mean? are you aware that economic theory is based on a myriad of differing assumptions that frequently do not hold?

you are also aware Ireland is more reliant on FDI than other European country based on our small domestic market and lack of any entreprenuerial culture? to most of those companies the deflation in our economy means sweet f*ck all...

Afuera wrote: »

So you agree that there is no easy way out for Ireland in the current environment?

no. we've f*cked ourselves over twice over in this. we've lowered standards in our education system to increase the numbers going through. now those high value companies are threatening to leave in droves, when the governents we elect keep talking about this bull**** knowledge economy crap...

we've also relied heavily on FDI that came here on the basis of having a relatively cheap workforce compared to the rest of Europe. and then we allowed inflation to make us one of the most expensive countries in Europe to operate a company in negating the attractivness of our low tax base. and our poor infrastructure in comparison to the rest of Europe only aggravates this.

we could have gotten out of this quicker if we took the opportunity to make some tough decisions and restructure our economy. unfortunately it's short termism across the board so now i can't see any immediate solution to any of this.

BJC

Yeah, but when will the mars bars go down to 50 cent!

Afuera

leninbenjamin wrote: »

sorry, but what's that supposed to mean? are you aware that economic theory is based on a myriad of differing assumptions that frequently do not hold?

I don't think you realize what the velocity of money is. It's a basic definition (hence unrefutable) that captures the rate of turnover of money in an economy. Money going abroad effectively has a low turnover since it does not get recirculated again, so your suggestion that "things like the velocity of money have no real meaning to us" is simply nonsense. I suggest you actually read up on economic theory before making the claim that it is all bunkum.

The monetary exchange equation is explained quite well here:
http://www.hussmanfunds.com/wmc/wmc040524.htm

leninbenjamin wrote: »

you are also aware Ireland is more reliant on FDI than other European country based on our small domestic market and lack of any entreprenuerial culture? to most of those companies the deflation in our economy means sweet f*ck all...

What's this got to do with monetary deflation? I think you're going a bit off topic.

whizzbang

wow, Fox news is right, what is the world coming to?

Amberman

Afuera wrote: »

This is terrible news for Ireland as the biggest problem with deflation is its effect on debt (we currently hold the most debt per capita in Europe). The velocity of money tends to take a huge drop in deflationary environments which unfortunately can lead to a negative feedback loop. This is the kind of thing that strikes fear into the hearts of Central Bankers because there is no silver bullet that can be used to pull yourself out.

Sure there is....print money...or make a credible threat to print huge amounts of it. This is what Bernanke was talking about when he mentioned helicopters.

The threat of dropping trillions of Euros out of helicopters will make people spend their cash faster, rather than risk that it will be worth less in a year...this speeds up money velocity, but has other negative consequences.

silverharp

Amberman wrote: »

Sure there is....print money...or make a credible threat to print huge amounts of it. This is what Bernanke was talking about when he mentioned helicopters.

The threat of dropping trillions of Euros out of helicopters will make people spend their cash faster, rather than risk that it will be worth less in a year...this speeds up money velocity, but has other negative consequences.

I guess the point is people dont have cash to spend, today this point of view would be saying that people up to their eyes in debt should borrow even more, which is plain stupid and wouldnt work.
It's either a case of suck it up and take the deflation now to wash out the deadwood or risk the stabilty of the monetary system by central banks going all Zimbabwe on your a**, no doubt the central banks will try a middle of the road approach and thankfully the bond market should act as some kind of break as they can threaten to dump bonds.

Amberman

silverharp wrote: »

I guess the point is people dont have cash to spend, today this point of view would be saying that people up to their eyes in debt should borrow even more, which is plain stupid and wouldnt work.

No everyone is broke. Not everyone is in debt to their eyeballs.

silverharp

Amberman wrote: »

No everyone is broke. Not everyone is in debt to their eyeballs.

indeed, and I'll put myself in that camp:D , but if I pick up that they are going inflate the currency the only thing I'll be buying is gold. Its not my view now that it will come to that , but people with savings should know that we are not near a bottom and it should not be the central banks job to put a gun to their heads. the "mal investment" has to be digested by the system and this is going to take several years.

Afuera

Amberman wrote: »

Sure there is....print money...or make a credible threat to print huge amounts of it. This is what Bernanke was talking about when he mentioned helicopters.

The rules of the game change quite a bit though should deflation take hold. Printing more money in that kind of environment can be a bit like trying to push a piece of string. Just look at the Japanese experience.

leninbenjamin

Afuera wrote: »

I don't think you realize what the velocity of money is. It's a basic definition (hence unrefutable) that captures the rate of turnover of money in an economy. Money going abroad effectively has a low turnover since it does not get recirculated again, so your suggestion that "things like the velocity of money have no real meaning to us" is simply nonsense. I suggest you actually read up on economic theory before making the claim that it is all bunkum.

i know what it is, thank you very much. my point is our openness keeps the velocity of money in this country low compared with other countries. deflation will not have the same impact on it as it would in countries with a larger domestic market as the primary determining factors of the velocity of money in this country are external factors.

btw that 'std' equation does not factor this into account.

Afuera wrote: »

What's this got to do with monetary deflation? I think you're going a bit off topic.

see above.

Afuera

leninbenjamin wrote: »

my point is our openness keeps the velocity of money in this country low compared with other countries.

Openess is a two way street though. Outflows of money reduce the money turnover while inflows increase it. You seem to be suggesting that money in Ireland always flows out.

leninbenjamin wrote: »

btw that 'std' equation does not factor this into account.

Sorry I'm not getting you. You'll have to elaborate to show me why the standard equation does not apply to Ireland.

leninbenjamin

Afuera wrote: »

Openess is a two way street though. Outflows of money reduce the money turnover while inflows increase it. You seem to be suggesting that money in Ireland always flows out.


Sorry I'm not getting you. You'll have to elaborate to show me why the standard equation does not apply to Ireland.

there's a discontinuation, which the quantification of the velocity of money doesn't really account for. inflows lead to a somewhat measureable degree of outflows, but outlflows don't necessarily lead to inflows, or at least it's a pain in the hole to try and quantify it and even then the factors that drive it can't be internalized. thus knowing the velocity of money in such a situation is meaningless because it doesn't really determine anything about the total expenditure in the economy... this means the relationship with inflation becomes blurred.

i've really said all i've can on this. but there are plenty of differing schools of thought on the issue if one googles... it's far from a set in stone relationship.

Amberman

Afuera wrote: »

The rules of the game change quite a bit though should deflation take hold. Printing more money in that kind of environment can be a bit like trying to push a piece of string. Just look at the Japanese experience.

I totally agree with you...but since when has the mere fact that an idea is stupid stopped politicians in the past? They're all gearing up for quantative easing as we speak.