How Many More Absurd Inflation Threads Are There Going To Be?

[Timm]

The money didn't get destroyed, it just moved from one person to another and everyone has to eat.

Also , Peter mandleson and chums have wants and needs and a peinting press and now the whole system is ******ed.

What do you think they do -

1) Try and sort the problem out for the greater good of society

2) Print up even more cash and go on one last spending spree, before sodding off overseas.

OK, I see your point.

But it does appear that the money seems to be with the producers of beans and in the hands of Mandy and chums who are overseas. I'm not sure to what extent either party is going to be bidding up the UK bean market.

[ParticleMan]

No, the money runs into fewer hands, raising prices and cutting people out of economic life.

This isn't in your model; in your model there's neither goods nor production nor consumption nor tax nor interest (you don't get to pick and choose).

There's no demand function because there's nothing to buy; and all players starve equally because there's no food.

If you wish to model the actual system you need to start by modelling it.

(in the real system the fantasies of the select and lucky few are un-actualised by the fantasy fairy - congruent with the deficit diminishing through production - but you knew that)

Edited February 18, 2009 by ParticleMan

[uncle rogi]

Bit of light relief!

Evening Standard poll:

Do you believe Britain is heading for deflation?

Currently running at 75% YES.

you really can fool all of the people some of the time...

75% on the wrong side of the trade, well done BBC etc, this is going to be horrific.

[Extradry Martini]

you really can fool all of the people some of the time...

75% on the wrong side of the trade, well done BBC etc, this is going to be horrific.

It's more indicative of second round deflation risks than anything else right now.

[Injin]

This isn't in your model; in your model there's neither goods nor production nor consumption nor tax nor interest (you don't get to pick and choose).

There's no demand function because there's nothing to buy; and all players starve equally because there's no food.

If you wish to model the actual system you need to start by modelling it.

(in the real system the fantasies of the select and lucky few are un-actualised by the fantasy fairy - congruent with the deficit diminishing through production - but you knew that)

Again, this simply isn't what we are checking.

All we are checking is what happens to the value of notes if we turn accounting into notes.

It;'s simple to see - a gold mountain I convince people of doesn't change the price of gold. Actually providing it by some magical methodology does.

It's nice to know that the NWO style all in an E-system is a fantasy and must always remain so because money must be something at least pretending to be real.

[Extradry Martini]

EDIT: I thought your post a mite harsh, but I've not read the history so would like to reserve judgment.

There is no history really. She just keeps repeating that I cannot differentiate between velocity of money and money supply, that I know nothing about economics, and/or a bunch of gratuitous insults. When I demonstrate something to her, she ignores my argument. I really don't know what her problem is.

[Injin]

OK, I see your point.

But it does appear that the money seems to be with the producers of beans and in the hands of Mandy and chums who are overseas. I'm not sure to what extent either party is going to be bidding up the UK bean market.

They'll pay just enough to price you out and then make you dance for access - that's what state capitalism is all about.

[Extradry Martini]

See, it's this sort of thing that would make me doubt all your other reasoning, if I didn't check your statements on their own merits.

Do we shoot people in this country for non-repayment of dents?

[ParticleMan]

All we are checking is what happens to the value of notes if we turn accounting into notes.

But the behavioural pattern you establish is not congruent to the behavioural pattern which will result in the real world; because in the real world the dynamic is completely different; we are not transducing the records of the first nine deciles of the population set (as ranked by net balance), we are only doing this for the final slice.

It's absolutely imperative that you perform the correct test here - otherwise the results are meaningless (doubly so because you're modelling a group dynamic and the actors are at least co-dependant and quite critically also have memory).

edit: and further, this is not spontaneous generation; the cost of the transduction is being billed to those same actors in the future tense

Edited February 18, 2009 by ParticleMan

[oktup]

This is much better – and I may even watch your video. I will come back on the point. So, assuming that it is correct (and I would be very surprised as it is not in the mainstream) how is this leap to inflating their way out of it, rather than borrowing it, going to take place?

The film strongly suggests that the sheer size of the upcoming shortfall means that any rational outsider would not lend to them. In the same way you would not lend £1000 to a newly-unemployed person on an I/O mortgage who's still got to pay off £2500 per month for 25 years - you're obviously never going to get it back. You'll have to watch the film to see if you agree with the scale of the problem, but if it is correct, I think the conclusion about probable lender-behaviour is right as well.

I don’t see how the subject itself is inflammatory. I think I made myself pretty clear (despite some people’s attempts to hold up straw men at me) that what I consider absurd is the formula printing money = high inflation. I stand by what I said. Besides, the whole point of the title was that people had already aired the hyperinflationary view ad nauseam.

Surely a big part of the problem though is the feedback effects. QE could arguably work perfectly (although of course still arguably immorally) if they knew exactly how much to print and did it as a one-shot deal. But that seems hugely unlikely, given the way it's been tackled so far (ie a gradually escalating series of ineffective actions). Once they begin to enact QE, they've announced that they have no conceptual problem with the principle of printing money to "do what's necessary to save the economy". It's possible that many people will have complete faith in Brown/Darling's ability to perfectly judge this operation in such a way that it will solve the problem and somehow not devalue Sterling. But it's also highly likely that many other people will not share this view. These people will realise that once the principle is accepted, there is no technical limit to how much QE can be applied (stimulus cheques for all if necessary). So, these people will be tempted to cash in some of their Sterling for something else, presumably weakening Sterling in the process and therefore meaning the perfectly-judged QE now falls a bit short, requiring a bit more QE to be applied next week, and so on. Therefore, much earlier in the QE process, a simple consideration of "the Prisoner's Dilemma" will encourage everyone to 'panic first', which will result in a large destabilisation that will probably just accelerate the QE process into something even panicked, etc.

Or, to put it more succintly, fiat money is either a convention of gentlemanly honour or a confidence trick, depending on your POV. But once TPTB show too blatantly that they're happy to change the rules of the game halfway through, people will lose confidence in the game and will want to cash in their chips. Confidence and trust isn't turned on and off and on again like a switch, it's earned slowly and lost very quickly. I think, elsewhere in this thread, you say you believe that economics is meant to predict people's behaviour. But you don't seem to be taking human nature into account very much. Unless I'm missing something.

[Injin]

Do we shoot people in this country for non-repayment of dents?

Generally the polioce overpower you before they have to kill you, but if it came to it, they wouldn't hesitate.

[Extradry Martini]

Generally the polioce overpower you before they have to kill you, but if it came to it, they wouldn't hesitate.

Came to what?

[Injin]

But the behavioural pattern you establish is not congruent to the behavioural pattern which will result in the real world; because in the real world the dynamic is completely different; we are not transducing the records of the first nine deciles of the population set (as ranked by net balance), we are only doing this for the final slice.

It's absolutely imperative that you perform the correct test here - otherwise the results are meaningless (doubly so because you're modelling a group dynamic and the actors are at least co-dependant and quite critically also have memory).

edit: and further, this is not spontaneous generation; the cost of the transduction is being billed to those same actors in the future tense

It's really simple.

The value of something is determined by actual supply and actual demand.

Lots of fantasies don't touch a reality.

Increasing or decreasing the actual supply does change the value.

Simple. Deceptively so.

[Extradry Martini]

The film strongly suggests that the sheer size of the upcoming shortfall means that any rational outsider would not lend to them. In the same way you would not lend £1000 to a newly-unemployed person on an I/O mortgage who's still got to pay off £2500 per month for 25 years - you're obviously never going to get it back. You'll have to watch the film to see if you agree with the scale of the problem, but if it is correct, I think the conclusion about probable lender-behaviour is right as well.

Surely a big part of the problem though is the feedback effects. QE could arguably work perfectly (although of course still arguably immorally) if they knew exactly how much to print and did it as a one-shot deal. But that seems hugely unlikely, given the way it's been tackled so far (ie a gradually escalating series of ineffective actions). Once they begin to enact QE, they've announced that they have no conceptual problem with the principle of printing money to "do what's necessary to save the economy". It's possible that many people will have complete faith in Brown/Darling's ability to perfectly judge this operation in such a way that it will solve the problem and somehow not devalue Sterling. But it's also highly likely that many other people will not share this view. These people will realise that once the principle is accepted, there is no technical limit to how much QE can be applied (stimulus cheques for all if necessary). So, these people will be tempted to cash in some of their Sterling for something else, presumably weakening Sterling in the process and therefore meaning the perfectly-judged QE now falls a bit short, requiring a bit more QE to be applied next week, and so on. Therefore, much earlier in the QE process, a simple consideration of "the Prisoner's Dilemma" will encourage everyone to 'panic first', which will result in a large destabilisation that will probably just accelerate the QE process into something even panicked, etc.

Or, to put it more succintly, fiat money is either a convention of gentlemanly honour or a confidence trick, depending on your POV. But once TPTB show too blatantly that they're happy to change the rules of the game halfway through, people will lose confidence in the game and will want to cash in their chips. Confidence and trust isn't turned on and off and on again like a switch, it's earned slowly and lost very quickly. I think, elsewhere in this thread, you say you believe that economics is meant to predict people's behaviour. But you don't seem to be taking human nature into account very much. Unless I'm missing something.

Good post - I'd like to respond tomorrow if I may, I have to leave now.

[Injin]

Came to what?

If they needed to kill you because they couldn't force submission, they would.

Can't really understand why I am having to spell out the fundamental truth about how the government works but you don't seem to get lots of other stuff either.

[ParticleMan]

Unless I'm missing something.

The rationale.

QE is being proposed to break a deflationary spiral where consumption in the present is sacrificed irrationally (due to fears over continuing demand destruction in the future).

If either the threat of QE or QE itself break the behavioural pattern (returning savings activity to those levels necessary to accommodate actual future consumption) then there is no need to either increase it or indeed threaten to increase it any further.

We've spent three decades establishing the metrics necessary to tell us when and where to decrease stimulus, and the last two years placing so much of the real economy under the direct and indirect control of Reserves that doing so will be trivial.

If the threat of QE causes demand to return to rational levels then QE itself is irrelevant.

If the threat of QE is insufficient then the actuality of it will result in behavioural changes along the lines you suggest - this is entirely the point.

It's quite a leap to suggest that either :-

1/ QE alone will return demand to peak levels (this requires a degree of hysteria within the private sector - a desire to repeat their worst and most recent failures)

... or ...

2/ Having failed to alter behaviour with threats of QE and having then engaged in QE that reserves will then consciously undo the policy statements of the last three decades to persue a policy of high inflation

It's not beyond the realms of possibility that manipulation of sentiment will in fact work to the specified goal.

What is reasonably certain is that there are now a far greater number of ways to pull credit right back out of the economy again - as demand measures improve, so too will the value of the instruments that many reserves have spent the last year buying...

Edited February 18, 2009 by ParticleMan

[Crashman Begins]

awww i just cant be bothered reading 88 pages

can people please keep

quotes

down to a few lines

[ParticleMan]

The value of something is determined by actual supply and actual demand.

Lots of fantasies don't touch a reality.

I believe "demand" includes a term for "willingness".

Increasing or decreasing the actual supply does change the value.

For something which is not essential to reproduction or life, and which has no cost of production - what matters most is sentiment (on both sides of the trade).

Simple. Deceptively so.

Every complex problem has a solution which is simple, obvious, and wrong.

[Methinkshe]

But debt is being repaid - every time somone makes a monthly mortgage payment. At the same time, very few people have the ability to save right now - they are too bust just keeping up the payments they are obliged (by law, not a gun) to make.

Who says? From where do you get this information that very few people have the ability to save right now and are so bust that just keeping up repayments is exercising them?

Maybe those who cannot keep up mortgage repayments are bust, but there could be others who have chosen, say, to max credit cards and repay minimum and place surplus into savings. How can you with any certaintly advance the stricture that "very few people are able to save right now.?" For your information I probably fall within that category who are most likely "to be unable to save" yet I have managed it. Do not underestimate the power of the herd nor the power of unintended conseqences - like when economists best predictions prove totally wrong - because they rested their case on mathematical models and not on human behaviour.

[uncle rogi]

The rationale.

QE is being proposed to break a deflationary spiral where consumption in the present is sacrificed irrationally (due to fears over continuing demand destruction in the future).

right but what if the spiral is unavoidable and in trying to prevent it the only course then becomes collapse via hyperinflationary default....

you see some of us belive this system (petrodollar) has reached an austrian bust phase endgame.

not only that but that significant recovery is impossible in "growth" terms as we have reached peak everything and would hit those constraints should we try for/be capable of growth again.

[InternationalRockSuperstar]

the yellow stuff that we're not allowed to talk about just went above $970.

$978 now.

sweet.

[Injin]

I believe "demand" includes a term for "willingness".

Not with fiat money. Men with guns cause the demand using the mechanism of threats.

For something which is not essential to reproduction or life, and which has no cost of production - what matters most is sentiment (on both sides of the trade).

Like continuing living unmolested, you mean? Can;'t do much reproduction in jail, though your **** might go through an interest series of attempts to do somethiong akin to it.

Every complex problem has a solution which is simple, obvious, and wrong.

I propose no solutions. Just explain the problem.

[ParticleMan]

right but what if the spiral is unavoidable and in trying to prevent it the only course then becomes collapse via hyperinflationary default....

you see some of us belive this system (petrodollar) has reached an austrian bust phase endgame.

not only that but that significant recovery is impossible in "growth" terms as we have reached peak everything and would hit those constraints should we try for/be capable of growth again.

On the point of growth and production constraints - I've stated that it's a stretch to imagine a return to demand measures anywhere near those at peak and I've stated why - it requires a volte-face on behalf of private capital, and worse still it requires a willingness to repeat the most immediate error; it's possible, but not at all probable.

On the issue of whether or not QE will break a feedback loop (hoarding capital on the expectation of further rises in the real value of capital) - I think it's entirely probable that this stick, with the market being the carrot will be sufficient (for example - a QE measure that dare not speak its name is rebalancing the tax treatment of dividends/ coupons against savings and gilts; in a depressed economy the first-year boost in revenue will look quite attractive to the relevant government); what I consider certain is that governments the world over will ratchet up this pressure the more demand measures fall.

I also happen to think that "hyperinflationary default" is, in this context, entirely meaningless; if a default occurs, the creditors will be unable to collect in any meaningful way.

[ParticleMan]

Not with fiat money. Men with guns cause the demand using the mechanism of threats.

The demand function of fiat has something to do with something other than the supply and demand for fiat itself?

Tricky wicket there...

(men with guns weren't in your monopoly-money model either just as a sidebar)

Back to your modelling, the men with guns are not demanding money at all from some elements in this system (the elements that manufacture credit); so even this model is incomplete and will produce non-viable results.

Edited February 18, 2009 by ParticleMan

[Bloo Loo]

Just a small point, but Bernanke in a speech to some journos club just confirmed that the banks have had a LOT of Primary money but they have failed to lend and multiply it out, and that much of it is back on deposit at the FED!

I suspect much QE money will end up in the same place, firmly locked in the vaults of the BoE, while bank balance sheets use its potential to work through the insolvency problems they have.

He went on to confirm that the money COULD cause inflation, indeed, he expected inflation to return soon, and he also accepted that winding down this operation was as important as carrying it out in the first place.

My problem is that politicians by their nature will see the winding down as a hurdle to their next election, and perhaps, use the inflation induced by NOT winding it in to fuel inflation, abundant cash and feelgood factor.

I would guess thats why they are making noises in the UK now, for a 2010 election.