Hello All, this is my first post/thread here and I'm very happy to have found such a great site and forum.
Onto my question:
Can we expect deflation to be the next economic phenomena to hit our economy here due to the fact that retail banks are:
a) significantly raising the hurdle for home purchase loans (minimum 15% deposits, 750+ credit scores, 2+ years of proven cash reserves that would cover the mortgage amount etc)
b) significant aggressive credit limitation actions in the personal loans/Credit Card etc.
It has been covered, here at least, the inherent, even genetic disposition of the Fed to partake in inflationary practices to ensure liquidity in the markets between inself and the commercial banks, but my observation is that there is no such - current - behviour between banks and consumers. I feel that the velocity of money is slowing down.
Given that real wages have not risen and that there is very little disposable income and savings available to consumers does the current paucity of credit and hence, consumer ability to spend - mean that as demands falls, production will fall, inventories will fall and hence, jobs will decrease and thus we enter a deflationary spiral?
I've only recently caught onto the world of Austrian economics and so to any kind enough to reply, please explain it to me 'like a 5 year old'...
Many thanks
B
baoinvestor:I would be grateful for a more detailed explanation of what 'money stock' is and how it is different from money supply
Money stock is the same thing as money supply.
http://en.wikipedia.org/wiki/Money_supply
My expectations, too, is that it will be deflation. The fall in asset prices across the board and blow-ups of major financial companies convinces me we will have deflation soon if it isn't already here. Experts think that all the Fed has to do is pump more liquidity into the markets to create inflation, but that's not what's happening right now. Banks are scared to make loans.
In connection with the above question I have read this article http://mises.org/story/309 which happily supports the bulk of my analysis (and Bullfrog's) but I would be grateful for a more detailed explanation of what 'money stock' is and how it is different from money supply - specifically how it relates therefore to the idea that deflation can be good for the business-owners because it address their central concenr over the price of what they sell compared to the price of their costs...
Cheers
learning, little by little, day by day
Thanks Jonathan - at first I thought 'what the hell...' and then I re-read the article and noticed I had misinterpreted the sentence! I was still reading it with the misconception regarding price inflation....
i think, we can expect deflation, because money is going out of the system. a lot of money existed only in our heads.
tomintomis: i think, we can expect deflation, because money is going out of the system. a lot of money existed only in our heads.
How is money going out of the system.
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