Deflation still at 5.9%

[Cassandra Syndrome]

The real problem is not so much deflation. The real problem is a key consequence of deflation, namely high real interest rates. These are now at an astonishingly high level given how moribund economic activity is.

The implication of high real interest rates is that demand for credit will shrivel. While the government focusses on fixing the supply of credit (by the establishment of NAMA etc) it seems unaware that it may expend huge political energy to restore the supply of credit onl.y to find that demand for credit has fallen off a cliff.

Public understanding of this phenomenon is not helped by the dunces in the RTE Newsroom who celebrate every time the ECB "leaves rates on hold at historically low levels".

Interest rates are at historically low nominal levels but at historically high real levels. They constitute a huge headwind to economic growth.

Well said Donald. People's savings are sweeter. But we are a nation of debtors so the real deflation rate needs to be added to the real interest rate.

[20000miles]

Nominal GDP increased from $9.88 Billion USD in 1865 to $15.6 Billion USD in 1895. Thats about 58% increase.

Annualised deflation was 2.18% during that time. That gives a Real GDP increase of 239%.

During that time there was the long depression that lasted from 1873 to 1879.

Furthermore that biggest Criminal Organisation AKA Federal Reserve were not in existence and money was backed by Gold. So deflation would not have been such a cancer as people and companies were not in debt up to their eyeballs.

I say again: what depression?

Here's Rothbard on Friedman and Schwartz:

As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent-perannum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita.

[Cassandra Syndrome]

I say again: what depression?

Here's Rothbard on Friedman and Schwartz:

On analysis those 10 years, I have to admit there was no depression in a 10% drop in real GDP terms. In fact there was a 11.39% increase over the 10 years. Not great, but certainly no recession / depression. So well observed 20000. Was always under the impression after the Panic of 1873 that there was a long depression.

Just goes to show when there was no Federal Reserve, a dollar backed by gold the market sorted it out itself.

As for Rothbard criticisms of Friedman, he proved to be prophetic in view of the mess we are in now. Bernanke being a disciple of Friedman, believes that Money supply will get us out of trouble. Nope.
However didn't Friedman change his tune on the issue of exchange rates after Rothbard's writing in 1971? I think Friedman opted more for floating rate mechanisms to clear hefty trade balances.

Then again there is that Macroeconomic policy impossible trilogy.

On a microeconomic level Rothbard was pretty scathing on the externality issue. Being a social scientist more that a statistician provides us with the stereotypical debate within the economic community.

I do respect Rothbard and the Austrian School quite a bit for dealing with the subject primarily as a social science. Predictions are easier when you know human behaviour.

[HanleyS]

Deflation is considered a cancer by renowned economic schools of thought. The RTE news at 1 conveyed it in terms of prices rising in August by 0.4%. Thats how flippant they are about it.

I see a lot of rhetoric from you about how deflation is bad, but not much by way of an alternative. Ireland needs a recession to be competitive. The credit binge is over and without exports we can't pay off our debts. How do you see us getting out of this mess? Another property bubble? What happens next time when the bubble is 4 times as big?

As for interest rate derived deflation, current low interest rates are a temporary phenomenon. The Euro area will return to growth a lot sooner than Ireland.

[cactusflower]

Capitalism is ********************ed.

[atlantic]

We don't have capitalism in this country.We have the government and EU regulating ,bailing out failed banks,central planning business into the ground.We all know government couldn't regulate an ass going up a boreen.We have nothing that resembles capitalism.

Capitalism is ********************ed.

[nuj]

Capitalism is ********************ed.

Again.

[Cassandra Syndrome]

I see a lot of rhetoric from you about how deflation is bad, but not much by way of an alternative. Ireland needs a recession to be competitive. The credit binge is over and without exports we can't pay off our debts. How do you see us getting out of this mess? Another property bubble? What happens next time when the bubble is 4 times as big?

As for interest rate derived deflation, current low interest rates are a temporary phenomenon. The Euro area will return to growth a lot sooner than Ireland.

As I said before I see deflation as a symptom. We are in the midst of a deflationary depression. A deflationary debt spiral. Ireland needs a recession to be competitive?
As deflation worsens, people postpone purchases. Companies postpone investing out of belief. It has a self energising principal.

We could export our way out of trouble. It does represent 10% GDP and we still have capacity for that. Put we need to bring the Punt back and devalue it. Having it backed by gold would be ideal too. But it is a large transition to do.

However it may be the last show in town. Fractional Reserve Banking is collapsing and Fiat Currency has had its day. The Euro to be fair does have some backing of Gold, but it aint great.

We collectively owe 1.7 Trillion Euro. Too much for a small nation of over 4 million. We would need a massive surplus on our capital account to start offsetting this soon. But that would mean carrying a trade deficient.

Leave it with me.......