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Old 11-15-2010, 09:47 PM
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zambizzi zambizzi is offline
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Default Re: A funny state of the economy

Originally Posted by Fiery View Post
I know very little of how the US economy works, but those parts that I do know weren't represented correctly in this video. Namely, deflation doesn't mean just that "people can buy more things" and it is not generally a good thing. This makes me wary of the many other factual statements made in the video.
Deflation is how the market corrects after a period of artificial inflation (i.e. money creation). "Printing" money distorts natural market activity and misallocates resources, creating artificial demand. This is how "bubbles" form. When reality sets in, those bubbles pop, and resources must be reallocated to productive parts of the economy.

Deflation is not the enemy, deflation is a sign of a recovering economy where the prices of artificially-inflated resources are being adjusted to reality.

Inflation is the enemy, and the US is going to experience more rapidly rising prices than folks can even imagine, at this point. QE1 and QE2 guarantee it. When Helicopter Ben can fool the banks into believing that the economy has begun to recover (printing-up another bubble), the banks will lend. The banks have over $800bn in reserves at the FED. Banks only have reserve limits of 10%, meaning that they can lend out 10x what they hold in their vaults. This is called the "money multiplier effect". What's $8,000,000,000 x 10? Think this might have an effect on prices, once it's in circulation?

It's pretty simple, if you can detach yourself from the bogus econometrics that Keynesian professors have indoctrinated kids with, for several generations now. If your money purchases more, you're wealthier for it. If it purchases less, over time, you're becoming poorer.

This video is *excellent*. It has been circulating on Facebook for a few days now. I re-posted it myself, last week.
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