Originally posted by Metal BrainInflation plainly does not tax everyone. As you acknowledge, it *benefits* those in debt, especially those on fixed interest loans - although in the scenario I set out above the Fed would surely not be raising rates - rather keeping them low to stoke a limited period of inflation. So it would benefit debtors generally.
Inflation taxes everybody. Inflation is bad. It discourages saving and it erodes the value of your currency. Banks will raise interest rates to make up for inflation losses. Even if a few people benefit, the next guy that takes out a loan will not.
Most people would agree, high long term inflation is bad. A reasonable level of inflation over a limited period - such as I set out above - is not necessarily bad.
Inflation hurts more those with fixed (or very rigid) nominal incomes, like wage-earners, pensioners, people on benefits, etc. The least wealthy also tend to keep their (meagre) savings in cash or checking accounts, while equity tends to be held by the wealthy.
Overall, I look at inflation as being more regressive than progressive but the evidence is indeed mixed.
Originally posted by telerionThen where did they get the money from? Are you suggesting they were not using other people's money?
I know that they the restrictions between commercial lenders and investment banks were reduced. I still think it is naive to suggest that banks were taking advantage of a low reserve requirement in order to gamble. In actuality the consumer banking side was part of the problem, not because of investments, but because they made unsound loans and then sold them to other companies for fee income.
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Originally posted by Palynka1. Benefits, pensions, wages - usually keep up with inflation either formally (index linked) or informally (average wage inflation tracks roughly CPI+2pc).
Inflation hurts more those with fixed (or very rigid) nominal incomes, like wage-earners, pensioners, people on benefits, etc. The least wealthy also tend to keep their (meagre) savings in cash or checking accounts, while equity tends to be held by the wealthy.
Overall, I look at inflation as being more regressive than progressive but the evidence is indeed mixed.
2. "The least wealthy [...] keep their (meagre) savings in cash or checking accounts"
No, the least wealthy are in debt!
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Originally posted by murrowThey update usually once a year. Indexation is slower in reacting to changes in inflation than other forms of income.
1. Benefits, pensions, wages - usually keep up with inflation either formally (index linked) or informally (average wage inflation tracks roughly CPI+2pc).
2. "The least wealthy [...] keep their (meagre) savings in cash or checking accounts"
No, the least wealthy are in debt!
The least wealthy usually can't even get credit. Technically, only those with negative equity can be said to be less wealthy, but for those the impact on wealth is small (because wealth is in absolute terms small) but the impact on wages is high. Besides, if interest rates are variable, then usually they adjust faster than wage income does hurting the household even more.
Moreover, historically, during periods of high or hyper inflation, wealth inequality tends to increase, despite increased indexation episodes.
Originally posted by no1marauderIf less money is created by the multiplying effect of fractional reserve banking there is less of that part of the money supply to contract when credit availability is reduced. When money is created from debt it is also reduced when overall debt is paid off in relation to new loans.
Bank failures were actually pretty rare before the current mess; there wasn't a single one in 2005-06 and only three in 2007. http://www.fdic.gov/bank/individual/failed/banklist.html
You correctly identify the repeal of Glass-Stegall as a source of the financial collapse, but don't seem to understand why it was. Under GS, banks' ability to ...[text shortened]... eaded for a free fall. But this had absolutely nothing to do with "reserve requirements".
If the money was permanently in circulation this would not happen. I am in favor of higher minimum reserve requirements than they are now because it would limit the expansion and contraction of the money supply to reasonable levels in my opinion.
The Fed creates more problems than it solves by controlling the money supply like this. I want to limit that centralized power over the whole economy. Depressions are caused by contraction of the money supply. Limiting the creation of money from debt would also reduce these contractions of the money supply. Higher minimum rr would do that.
There were many contributing factors to the financial collapse. Even outsourcing is a contributing factor. When a factory worker gets laid off and has to find a different job that pays less he finds it harder to make that mortgage payment. We could all name many other factors involved. I am not blaming any one as the cause, but I do think the repeal of Glass Steagall and the Commodity Futures Modernization Act of 2000 deserve much of the blame. Since Bill Clinton signed both bills I am no fan of his.
http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000
Originally posted by murrowInflation does tax everyone, but not always equally. Inflation taxes more people than not and that is a fact.
Inflation plainly does not tax everyone. As you acknowledge, it *benefits* those in debt, especially those on fixed interest loans - although in the scenario I set out above the Fed would surely not be raising rates - rather keeping them low to stoke a limited period of inflation. So it would benefit debtors generally.
Most people would agree, high long te ...[text shortened]... ble level of inflation over a limited period - such as I set out above - is not necessarily bad.
I would argue that the poor are taxed more by inflation because their wages do not keep up with inflation. I would think skilled workers would have more leverage to increase their pay than unskilled workers.
Inflation is always bad. I have never heard anything good about it except the theory that low inflation is better than 0% because low inflation is healthy for the economy. I am skeptical of that claim though. Sounds like propaganda to fool people into thinking the tax is healthy.
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Originally posted by Metal BrainAsk a Japanese if he thinks deflation is better than 2% inflation. I'm sure he'll be completely brainwashed by such "propaganda".
Inflation is always bad. I have never heard anything good about it except the theory that low inflation is better than 0% because low inflation is healthy for the economy. I am skeptical of that claim though. Sounds like propaganda to fool people into thinking the tax is healthy.
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Originally posted by Metal BrainYour thinking is bizarre. Essentially what you are advocating is limiting growth ALL THE TIME by limiting the money supply in order to combat depressions which may or may not ever occur. Why would a society voluntarily impoverish itself on a permanent basis? I don't think keeping a society immensely poorer in order to keep the money supply more stable (because there isn't much of it) is a very rational decision.
If less money is created by the multiplying effect of fractional reserve banking there is less of that part of the money supply to contract when credit availability is reduced. When money is created from debt it is also reduced when overall debt is paid off in relation to new loans.
If the money was permanently in circulation this would not happen. I ...[text shortened]... I am no fan of his.
http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000
If there was no Fed, how would you regulate the money supply at all? Of course, there has to be SOME central authority to regulate the money supply or it won't get regulated. Complete non-regulation would lead to even greater variability of the money supply, not less.
The US was headed for a normal, cyclical recession with a normal rise in unemployment. These are unfortunate, but in the nature of a capitalist economy. This type of economic contraction does not threaten the world financial system. Plus, foreclosure rates were not remarkably high for this type of recession. But when the banks had created over $63 trillion of new types of securities backed by mortgages worth a tiny fraction of these security's' book value, the default of even a small percentage of mortgages showed that the mortgage-backed securities were vastly overvalued. Which meant that banks which held large amounts of these securities as assets were overvalued, which meant that the market would correct this overvaluation and on and on and on. The root cause of the global financial crisis was the creation of vast amounts of these mortgage backed securities and this was not the responsibility of individual consumers, but of the financial moguls.
Originally posted by PalynkaWithin a developed country like US or UK I don't accept your first point.
The least wealthy usually can't even get credit.
Moreover, historically, during periods of high or hyper inflation, wealth inequality tends to increase, despite increased indexation episodes.
It is precisely the poorer segment of society with the worst credit ratings who have the most debt. These are the people whose houses are now being repossessed by banks, and whose assets are being seized because of credit card debts etc. A limited burst of inflation would help these people out, in my view.
Obviously the second point is true of hyper-inflation. Not convinced it's true of the type of limited inflation I was pitching above.
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Originally posted by murrowWell, it's true that in the recent years there is some convergence, but they're still very different, especially if you consider them in absolute values.
Within a developed country like US or UK I don't accept your first point.
It is precisely the poorer segment of society with the worst credit ratings who have the most debt. These are the people whose houses are now being repossessed by banks, and whose assets are being seized because of credit card debts etc. A limited burst of inflation would help these pe ...[text shortened]... yper-inflation. Not convinced it's true of the type of limited inflation I was pitching above.
A quick google search and I found this:
http://www.norges-bank.no/upload/import/front/pakke/en/foredrag/2005/2005-05-27/charts/charts-2005-05-27.pdf
The relevant chart is 12.
As you can see (although there is some convergence that will probably reverse somewhat now), the lower deciles still have less debt as a percentage of disposable income than the top deciles.
Edit - I'm arguing about inflation spikes and inflation volatility, if you mean regarding steady levels of inflation then I have to admit it's hard to gouge who is hit the most.
Technically if there is no volatility in inflation (unrealistic, of course) nobody should lose as this can be incorporated in contracts. This is why I think it makes more sense to talk about the volatility of inflation, more than the level.
Originally posted by no1marauderYou talk as if I am asking for a rr of 75%, that is not the case. I am suggesting 25% and even that should not happen until banks lend again at previous levels. At 25% banks would be able to loan 3 times as much as it holds in reserves. How can you say that would limit growth all the time and even impoverish us? Do you have some historical evidence of that?
Your thinking is bizarre. Essentially what you are advocating is limiting growth ALL THE TIME by limiting the money supply in order to combat depressions which may or may not ever occur. Why would a society voluntarily impoverish itself on a permanent basis? I don't think keeping a society immensely poorer in order to keep the money supply more stable ( ...[text shortened]... s and this was not the responsibility of individual consumers, but of the financial moguls.
25% minimum rr would not take away the ability to regulate the money supply at all. You are thinking of full reserve banking. Even with full reserve banking you can increase the money supply the old fashioned way, with the printing press. Taxing money out of existence is an option as well, but I am not suggesting full reserve banking. I am suggesting 20-25% minimum Reserve Requirements.
Easy credit caused this cycle. Greenspan also deserves much of the blame. The asset bubble was no accident. People can profit from bubbles and it serves to kick the can down the road to prolong the inevitable. If you think this is over you have another thing coming. The worse is yet to come.