Waiting for the patient to turn blue before acting.
New Economic Perspectives
Deflation: The Failed Macroeconomic Paradigm Plumbs New Depths of Self-Parody
William K. Black | Associate Professor of Economics and Law, UMKC
Sunday, January 19, 2014
Bill Black — Deflation: The Failed Macroeconomic Paradigm Plumbs New Depths of Self-Parody
Waiting for the patient to turn blue before acting.
New Economic Perspectives
Deflation: The Failed Macroeconomic Paradigm Plumbs New Depths of Self-Parody
William K. Black | Associate Professor of Economics and Law, UMKC
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2 comments:
We have to be careful with our use of these monetarist terms "inflation" and "deflation"... we end up "talking their language"...
The law in the FRA uses the words "stable prices" .
Right now I am hoping for an oil price collapse which will lead to an eventual price reduction in general then what will the monetarists say?
rsp,
The problem is that price stability, inflation and deflation don't take asset value into consideration and asset value is a chief factor in a monetary production economy, in which "the profit motive" means increasing real and financial asset value. Monetary policy operates chiefly through the effect on asset valuation. The Fed is most concerned with supporting asset values. Falling assets values bring down the entire system as debt deflation sets in and spreads to the real economy.
Commodity markets are no longer tied chiefly to their use in the real economy but are now part of the asset markets. This is especially true of petroleum. Crude is now looked upon as an asset. and there is superabundant supply in storage as an asset that is actively traded in the futures market and kept off the market, instead of being used chiefly as a hedge for users. So a change in oil price is really a change in asset price and that is the primary factor regarding the effect that changes in price have.
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