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Bruce wrote:
>Certain individual sectors of our economy are
>definitely experiencing deflationary cycles right now- oil and other
>commodities come to mind. However, in an 8 trillion dollar economy, this is
>really nothing to worry about.
I disagree here on a couple of points.
1) It is a 'global economy' these days, the US is nowhere near
the 'closed system' it was in the '30s - where it seems to me
the analogy is being drawn from here.
2) "Oil and other commodities" have financial dynamics that
are strongly influenced by developments outside any narrow
definition of the 'US economy'. Oil has actually become more
expensive in a number of countries lately in terms of the
local currency. The point here is that the effects on the US economy
from the external 'supply' side cannot be considered disembodied
from the 'demand' side from the same foreign sources.
>It's what's happening to prices in the
>economy as a whole that is important.
Yes and no. I'll agree with that literally, but now copy and
paste the idea to Indonesia, Thailand, Russia, China, etc.
and draw little arrows between them and the US.
I see prices having gone up for a lot of the inhabitants of the
planet, which doesn't translate into consumer spending,
among other effects.
<snip>
>The simplest definition of inflation is "too many dollars chasing too few
>goods." That's pretty self-explanatory. Therefore, deflation is simply
>"too many goods chasing too few dollars."
Well, it *is* clear that countries with collapsed/collapsing currencies
and large manufacturing capacities will have an incentive to chase
those dollars. In all fairness, it does depend on the inputs into the
production process.
<snip>
>Now if that's the case, all the government has to do to eliminate
>deflation is PRINT MORE DOLLARS AND SPEND
>THEM.
The effectiveness of such an approach is intertwined with the
degree of the 'closed' nature of the economic system involved.
Such a measure is highly likely to see countermeasures abroad
that would neutralize its effectiveness to some degree that would
not be without significance. The point here is that the US policy
makers are in less control of the global economy than they were
of the US economy in the ´30s. Although the IMF does have its
'links' with the US Treasury, that may to some extent be balanced
by the Chinese and Japanese holdings of US Govt. bonds.
If it's going to be done regardless, then I say print it and spend it
on free college educations for all Americans, on the primary and
seconday schools, and, what the heck, universal health care. Might
as well make it an investment in the country. Beats a bunch of
oil sloshing around in some caves or even a war for that matter.
It's a complicated can of worms no matter how you look at it. :-)
Hugh
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