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Is Actually Recording
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Discussion Starter #1
http://www.nytimes.com/2013/10/27/b...nflation-helps.html?partner=rss&emc=rss&_r=1&

Interesting line of thought. TL;DR version - higher inflation would reduce expenses in real terms and help deleverage both companies and individuals, and it's entirely possibly that if inflation not only returned to the Fed's long-run target of 2%, but actually temporarily exceeded it up to 4-6%, we might have a stronger economy for it.
 

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Krugman has been saying this for a while. It's a little bit over my head but it seems to make sense. Inflation makes it easier to pay off debt (assuming wages grow with inflation which, to be fair, is a huge if these days). I can see how that would be helpful for huge swaths of the economy (come on down, student loan bubble!)

The funny part about this is there still seems to be no shortage of people chicken littleing about how inflation is going to spike and kill us all.
 

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Guiterrorizer
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Wirelessly posted

Wages increase with inflation? Has this actually happened historically?
 

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Wirelessly posted

Wages increase with inflation? Has this actually happened historically?
Sure, to some degree. Why shouldn't inflation raise the price of labor like it does anything else, assuming that the labor force has the same bargaining power as any other economic participant (again, big assumption these days)?

If you build furniture and the cost of the materials you need goes up due to inflation, you're going to charge more for your finished product, right? Well, if I work for you and it costs me x to feed and clothe myself so I can be a productive employee and do my job, and suddenly x goes up because of inflation, then I need to ask you for a raise or find a new job so I don't starve. Same concept.

The reason this hasn't happened in the past few decades, as I see it, is because we've been doing our level best in this country to make it harder for workers to have the same bargaining power that the guy who sells materials to the furniture maker enjoys. If we worried half as much about ensuring that labor turns a profit as we do the sellers of any other good or commodity, we'd all be a lot better off.

Joey, thanks for the link. That doesn't seem like a bad idea, honestly. The banks and big business have tons of money right now and nothing to do with it because there's no demand. Help the people get out from under their debt/give them some extra cash to spend and it will increase consumer spending, which means companies have to start hiring to meet demand. Kind of hard to have a functioning consumer economy when nobody has the money to do any consuming. :rofl:
 

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HOLY DIVE-AH!
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Surprise, I disagree. lol

How does lowering the effective net value of a dollar do anything?
and if pay/etc follows suit, the net outcome is the exact same

make 4, spend 4 or
make 5 spend 5
is still the same.

All it really does is punish those who have savings in cash, because now it's worth less.
And it helps those who made poor choices, like having high bills, mortgage, etc.
 

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Dream Crusher
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^ Well, it strengthens our exports, for one thing.
 

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Surprise, I disagree. lol

How does lowering the effective net value of a dollar do anything?
and if pay/etc follows suit, the net outcome is the exact same

make 4, spend 4 or
make 5 spend 5
is still the same.

All it really does is punish those who have savings in cash, because now it's worth less.
And it helps those who made poor choices, like having high bills, mortgage, etc.
Because mortgages and loans are not indexed to inflation. If I borrow $10 from you today, to be paid back next week, but by next week $10 is only worth $8, then I have an easier time paying you back. Brian's Savings and Loans doesn't get to say "well wait, you actually owe me $12 now because of inflation." Since right now we're in a situation where the lenders are sitting on shit tons of money while the economy flounders due to lack of demand, easing the burden of debt will effectively transfer money from them to people who will actually go out and spend it in the economy.

And I know you don't agree, but "punishing" and "helping" people based on what you morally think of their financial habits in a vacuum is a terrible basis for economic policy. You incentivize the behavior you need to see. Right now, we need demand, and one way to do that is to relieve debt.

Also saving money in cash is generally not advisable anyway precisely because of inflation.
 

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Is Actually Recording
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Discussion Starter #10
Surprise, I disagree. lol

How does lowering the effective net value of a dollar do anything?
and if pay/etc follows suit, the net outcome is the exact same

make 4, spend 4 or
make 5 spend 5
is still the same.

All it really does is punish those who have savings in cash, because now it's worth less.
And it helps those who made poor choices, like having high bills, mortgage, etc.
Well, because pay DOESN'T necessarily follow suit. That's the gist of how it would lower expenses for corporations (and increase corporate profitability - what follows is an argument I don't expect the rest of the board liberals to like). Because wages are fixed in nominal terms and, to a point, renegotiated each year, and because wage growth rarely keeps up with the rate of inflation for existing employees (to beat it you usually have to jump around from company to company) for wage growth to match/exceed the rate of inflation then employees as a group have to be better at negotiating than their company. Which they're not.

This is true of most contract-type business expenses, however. If I have a 15-year lease on a factory where I pay $10k a month to use the space, then because that value is fixed in nominal terms, if inflation increases then the real cost shrinks. And, because of the term of the contract, there will be a lag between how the rate of inflation moves and when my costs increase to catch up - labor contracts are usually annual periodicity, leases and mortgages are longer, but the principle still applies - fixed costs become less burdensome in inflationary periods.

For private individuals like you and I, this is also true of debts (same is true for companies as well, but it's easier to think of it in day-to-day terms I think). If I have a $250,000 mortgage and the rate of inflation jumps to 10%, and my wages only increase 6-7%, then while I'm losing real purchasing power at a rate of (approximately) 3-4% a year, my fixed expenses are decreasing at an effective rate of 10% a year so I'm actually seeing an increase in my disposable income, all else equal. It also would create equity - if I have a $250k mortgage on a $300k house (I don't), and inflation increases to 10% a year, then after 5 years I've got a house worth almost $485k that, even before looking at the equity I've paid in over those five years, I now have $235k of equity in, up from $50k five years before. Are those dollars worth less than they were? Yes... but with the dollar falling 61% during those five years, that would still come to a "real" increase in value of $150k or so.

It's a very interesting argument - I'm not sure it's one I necessarily agree with entirely (I'd need to think more about the unintended consequences - this would weaken the dollar, which would increase the cost of imports, but then again Brian this would make American manufacturing more competitive at home, which you should approve of), but the basic principles are at least accurate.
 

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(and increase corporate profitability - what follows is an argument I don't expect the rest of the board liberals to like)
Nah, your post makes perfect sense and is (I think) pretty accurate.

I'd just take it one step further (as I did in my previous post) that wages don't keep pace precisely because we've neutered the negotiating power of labor and let the private sector socialize part of the cost of hiring employees through the safety net. It's not a result of any legitimate market force, it's because we've chosen to enact policies that take the people who produce one part of every company's supply chain (labor), and tied their hands at the bargaining table.
 

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HOLY DIVE-AH!
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Exports?
what besides corn/wheat do we export in any quantity?

And corn is not even grown profitably without subsidies.

The way our mortgages become 'easier' to pay is the exact same thing the gov't is trying to do with it's national debt.
 

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Good question!

Here are the top 10:
teh Googlez said:
RANK EXPORT CATEGORY YEAR TO DATE (BILLIONS)
1 Automotive vehicles, parts, and engines $75.1
2 Chemicals $33.0
3 Petroleum products $28.3
4 Fuel oil $28.2
5 Civilian aircraft $25.7
6 Pharmaceutical preparations $24.4
7 Industrial machines $23.9
8 Semiconductors $21.0
9 Nonmonetary gold $20.4
10 Electric apparatus $20.1
Corn and wheat don't even make the list, which surprised me too. Apparently software (licensing rights and what not) and tourism (which apparently counts as an export) bring in quite a lot of money as well.

Here's a decent (and short) article, with some neat infographics! I'm a sucker for infographics.

Last year our exports were worth $2.1 trillion.

briansol said:
The way our mortgages become 'easier' to pay is the exact same thing the gov't is trying to do with it's national debt.
Cool, now explain why this is a problem. Show your work.
 

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Is Actually Recording
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Discussion Starter #15
Exports?
what besides corn/wheat do we export in any quantity?

And corn is not even grown profitably without subsidies.

The way our mortgages become 'easier' to pay is the exact same thing the gov't is trying to do with it's national debt.
Exports? Right now, more than you'd expect (according to this link we're the world's 3rd largest exporter). Now, have the cost of labor fall 25%, and what'd happen? We'd export a whole lot more.

I agree, we need to stop subsidizing the corn market and diversify our farming production to higher cash value crops.

And, does that matter? One post ago, you asked rhetorically if lowering the value of a dollar does anything. "make 4, spend 4, or make 5 spend 5." It does, by reducing the real value of debt. To preserve purchase power parity the dollar would have to weaken as well which some of our trading partners wouldn't love (the Chinese in particular, as the largest holders of Treasury bonds, would protest if they thought we were intentionally allowing inflation to increase), but that's not the end of the world in and of itself, just another factor to consider.

At the end of the day, if it makes our debt burden more manageable in both real and nominal terms, is that a bad thing?
 

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Is Actually Recording
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Discussion Starter #17
Thanks. :lol:
 
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