My latest discussion with Steve Van Metre delves further into the deflation question.
He is a Certified Financial Planner™ Professional, (CA Insurance License #0D45202 & Investment Advisory Representative with Atlas Financial Advisors, Inc
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– So, when Steve van Metre talks about “Deflation” and falling interest rates then he’s actually ALSO “missing the point”. Because these 2 things are the sign of 2 opposite forces. The right 2 combinations are 1) “Inflation” & “Falling rates”, 2) “Deflation” & “Rising interest rates”.
– Although I must confess that it’s even MORE complicated than this. It would require more explanation(s)/details. But the story above is even for some “experts” already a bit “too Original”.
– How did Mr. John Adams get his degree in economics ? Did he clip the coupons that were on the box of washing powder or soap ? And having clipped a 1000 coupons he received his degree in economics ? Because he completely misses a number of things the keynesians do understand. Like Inflation & Deflation. Keynesians Always look to Supply & Demand.
– The definition of INFLATION is an increase of money & credit. NOT an increase of prices !!! And INFLATION REQUIRES rising prices. Remember the FOMO in the australian property markets in the last decade ??
– The definition of DEFLATION is an decrease of money and credit. NOT falling prices. But DEFLATION REQUIRES falling prices.
– E.g. when the price of copper falls from say $ 3 per pound to $ 1 per pound then A LOT OF copper mines will go “belly up” because then these copper miners will start losing money. These miners also have a thing called “Debts” (e.g. in bonds). Then these bonds will become worthless (= decrease of debt = (debt) deflation).
– And the story above is simply “too Original” for A LOT OF brains. Including the brains of one idiot (I hate to use the word here but at this point it’s appropriate) called “John Adams”. Like any other “follower” of the austrian school Adams has the wrong starting points and then draws the wrong conclusions.
– My current favourite example is Argentina and Turkey. The currency of those countries has fallen against e.g. the USD. As a result the price of all imported things have gone “through the roof” in those 2 countries. And all the austrian school idiots are shouting on the top of their lungs: INFLATION !!! And blame it on the irresposible governments in those countries.
– But I have a different view. The currencies of those countries have fallen/are falling as a result of money that has fled/is fleeing from those 2 countries. The amount of money has decreased over there. And that’s why both Argentina & Turkey are suffering under DEFLATION !!! But that’s way too Original for A LOT OF braincells.
The falling currencies also means that people are “less able” to service their (mortgage) debts and it will increase the likelyhood of households defaulting on their debts (=Deflation). But that’s not what the “Inflationistas” (like one John Adams) want to hear.
-And that applies to Australia as well. A AUD going lower will increase the price for all imported stuff and (in combination with wages/income remaining flat/falling) will make it more difficult for households & companies to service their debts. More SMEs & households will (financially) go “belly up”. (= Deflation).
Suggestion:
Ask Mr. John Adams what’s happening rigth now in both Argentina & Turkey. ((credit) Inflation or (credit) Deflation). The answer will tell you whether Mr. Adams “gets it”or not. I fear he still doesn’t/ will continue to NOT “get it”.
– Finally someone who is talking a bit more sense. But when interest rates rise (and they will ultimately) that is actually VERY DEFLATIONARY. And that runs contrary to what all the “Inflation” idots are spruiking. Because everyman and his dog think that rising rates are a sign of “Inflation”. If I had received EUR / USD / AUD 100 for everytime the word “Inflation” or “Hyper-Inflation” was used in the past say 10 years, I would be a very wealthy man.
– To the contrary: Falling interest rates are INFLATIONARY. Because when interest rates go down by 50% then someone with debts can (in theory) double its debtload (= Inflationary).
– QE did only increase the the socalled “Excess Reserves”. And Steve Keen points out that the (excess) reserves of banks are never lend out. Keen also explains the reason WHY the banks have those “Excess Reserves” (at the FED). And why would banks use those Reserves to make loans at all ? The banks can create money “out of thin air” when they lend.