Deflation is not benign

By -
In an economy where the money supply depends on the production of debt, deflation can never be a good thing. In fact as any cyclist can tell you, deflation means you aren't going anywhere.

More on this here.

Comments

  1. crf28 February 2014 at 22:28

    Not on topic to your post: but I have a question. Why is it that government interest payments as a percent of GDP are not quoted as a figure for understanding the effects of debt levels (flow vs flow scenerio). And why do we not see popularly discussed any theories about why this value may change over time (its velocity)?

    Maybe you'll say such a figure is unimportant (I have no idea myself). But I think it would be a lot easier for the public to understand, and to frame policy choices about, than the popular debt/gdp framework that has provoked much unenlightened discussion.

    ReplyDelete
    Replies
    1. Frances Coppola28 February 2014 at 22:55

      I prefer to compare interest cost to gdp, rather than debt/gdp. As you say, it is better to compare like with like. Debt/gdp compares stocks and flows and therefore needs to used with caution, I would say.

      Delete
  2. Dinero2 March 2014 at 18:08

    Regarding the problem of deflation increasing the value of outstanding debts. Hypothetically that could be overcome if the credit system was changed and so the value of the debt was constantly recalculated by factoring in the inflation rate, if in reality the money supply effect on prices could really be measured accurately enough to do that though.

    ReplyDelete
  3. Dinero3 March 2014 at 11:15


    > Frances

    considering your post would you agree that paying off debt increases the value of money, and so not paying off debt decreases the value of money the value of money, and so defaults on debt are inflationary.

    ReplyDelete
    Replies
    1. Frances Coppola3 March 2014 at 11:36

      No, I would not. Defaulted debts are written off and therefore destroy money in exactly the same way as if they were paid off. In effect, the lender pays the debt from profits. The effect is therefore contractionary. Additionally, widespread debt default destroys the value of assets, and that also has a contractionary effect - see Irving Fisher on this.

      Delete
    2. Dinero9 March 2014 at 19:38

      So those debts are paid from commercial lender profits. If however the Central bank is the Lender, how is that scenario handled.

      Delete
  4. Dinero9 March 2014 at 19:36

    This comment has been removed by the author.

    ReplyDelete

Post a Comment

Popular posts from this blog

The foolish Samaritan

By -
Someone has just put this comment on my post " The Golden Calf ": Luke 10:30-37 Jesus replied, “A man was going down from Jerusalem to Jericho, and he fell among robbers, who stripped him and beat him and departed, leaving him half dead. Now by chance a priest was going down that road, and when he saw him he passed by on the other side. So likewise a Levite, when he came to the place and saw him, passed by on the other side. But a Samaritan, as he journeyed, came to where he was, and when he saw him, he had compassion. He went to him and bound up his wounds, pouring on oil and wine. Then he set him on his own animal and brought him to an inn and took care of him.  And the next day he took out two denarii and gave them to the innkeeper, saying, ‘Take care of him, and whatever more you spend, I will repay you when I come back.’ Which of these three, do you think, proved to be a neighbor to the man who fell among the robbers?” He said, “The one who showed him mercy.” And Jesu...
Read more

WASPI Campaign's legal action is morally wrong

By -
Image
I haven't written a post about WASPI for a very long time. I felt I had said everything I wanted to say, and it had become evident that the WASPI campaign and its offshoots had neither the widespread support nor the legal arguments that they claimed. Labour's proposed £58bn payment to WASPI women contributed to its disastrous defeat at the 2019 General Election. And in 2020, the hardline Back to 60 group's bid to overturn their state pension age rises failed in the Court of Appeal. The Government had no intention of compensating WASPI women for their lost pensions, and there was neither legal nor political means to force it to do so. The campaign seemed, in short, dead in the water.  But it seems it isn't, quite. Some years ago, WASPI campaign received legal advice that a challenge to the legislation would almost certainly fail but that there might be a case for maladministration on the part of the DWP. Women would have to make individual maladministration claims and ...
Read more

Why the Tories' "put people to work" growth strategy has failed

By -
Image
What do you do when your economy is in the doldrums and you need to kickstart growth? Why, you put more people to work, that's what you do. This has been the Tories’ strategy since 2010. The sustained attack on welfare benefits has all been focused on “making work pay” - encouraging, and at the margin forcing, people with illnesses, disabilities and caring responsibilities into paid work.  But there is another way of putting more people to work, and that is to import them. In a new report , the centre-right CPS thinktank says that importing people to kickstart growth has been the unspoken strategy of successive governments since 1997. And it argues that the strategy has manifestly failed.  In my latest Substack piece , I examine the reasons the report advances for this failure, and conclude that the "put more people to work" strategy has not failed. It has in fact compensated to some degree for the catastrophic failure of innovation, capital investment and productivity si...
Read more