What is inflation/deflation? (Jim Grant)

[KC]

A pretty good interview with James Grant (Interest Rate Observer). At about 15 and a half minutes he provides a nice real world definition of deflation...
(with a discussion of debt crisis, "the set up for a great collapse in prices" brewing in asia)

...also describes future central bank activities very near to the end of the talk.



Jim Grant explains how Central Banks are Waging War on Supply and Demand

http://rt.com/programs/capital-accou...ntral-weather/

[IanO]

This past Tuesday night the Bennett Jones speaker series had David Dodge speaking on the global economy and its local implications. Quite fascinating and a really neat guy to chat one on one with about this topic and others.

[bobinedmonton]

I'm glad to see increasing awareness on the role of the Central Banks in enabling or destroying an economy.

Our elected representatives are simply the figureheads representing these bankers who, by turning the flow of currency on or off, can stimulate the economy or take us into recession or full blown depression.

These bankers are accountable to no one except themselves.

[IanO]

Yes they have some autonomy, as they should not be bound or excessively influenced by a political machine, but they are accountable to citizens and the Gov't of Canada. Since 1991 we have had relatively clear policy and targets that we have more or less adhered to. These targets provide relative certainty to the economy/investors and in theory will provide the best chance at maximizing growth over the near term.

[moahunter]

Originally Posted by bobinedmonton

Our elected representatives are simply the figureheads representing these bankers who, by turning the flow of currency on or off, can stimulate the economy or take us into recession or full blown depression.

These bankers are accountable to no one except themselves.

Not really, governments set the policies that the central banks follow. In the past, governments used to more directly control the banks, this is what lead to the rampant inflation in the 1970's and crazy interest rates in early 1980's (well over 10%). For those of us around back then, it wasn't a fun time.

It was finally realized that the best economic policy is to keep the money supply stable, and to mandate central banks to control inflation. If inflation goes back up, its a disaster, people stop investing in productive sectors of the economy, and the spiral of the 1970's and 1980's would begin again - only speculators win in such economies.

[SP59]

For others back then it was a great time. Depending on what side of the money pile you were on. At least back then there was actually a real rate of return on money that was being held in secure instruments. The rate of interest being earned was greater than the inflation rate. People who had more money than they needed to survive accumulated wealth with little risk. Unfortunately most of use were on the short side of the money pile and just fell behind or lost our houses.

[moahunter]

^the worst impact of inflation is unemployment, people don't want to hire when they don't know if they can grow fast enough to beat the rate of infation. Unemployment was almost double what it is today for parts of the early 1980's - i.e. it got as high as 13% in Canada.

[psiebold1]

High inflation is not necessarily a barrier to employment, it was the price shocks in energy without any useful alternatives that caused the unemployment to go haywire.

[bobinedmonton]

Originally Posted by moahunter

Not really, governments set the policies that the central banks follow. In the past, governments used to more directly control the banks, this is what lead to the rampant inflation in the 1970's and crazy interest rates in early 1980's (well over 10%). For those of us around back then, it wasn't a fun time.

It was finally realized that the best economic policy is to keep the money supply stable, and to mandate central banks to control inflation. If inflation goes back up, its a disaster, people stop investing in productive sectors of the economy, and the spiral of the 1970's and 1980's would begin again - only speculators win in such economies.

I'm sorry, it's the other way around. The bankers set the policies, all governments fall in line.

[moahunter]

^have a read of the Bank of Canada Act:

GOVERNMENT DIRECTIVE
Marginal note:Consultations

14. (1) The Minister and the Governor shall consult regularly on monetary policy and on its relation to general economic policy.
Marginal note:Minister’s directive

(2) If, notwithstanding the consultations provided for in subsection (1), there should emerge a difference of opinion between the Minister and the Bank concerning the monetary policy to be followed, the Minister may, after consultation with the Governor and with the approval of the Governor in Council, give to the Governor a written directive concerning monetary policy, in specific terms and applicable for a specified period, and the Bank shall comply with that directive.
Marginal note:Publication and report

(3) A directive given under this section shall be published forthwith in the Canada Gazette and shall be laid before Parliament within fifteen days after the giving thereof, or, if Parliament is not then sitting, on any of the first fifteen days next thereafter that either House of Parliament is sitting.

http://laws-lois.justice.gc.ca/eng/a...age-6.html#h-6

That Governments have taken the advice of economists and the experience of time, to mandate a control of inflation through monetary policy, does not mean power has been handed over, just that this is now a constant virtually every nation in the Western hemisphere agrees with today. It could change though if a future government wanted to, per the power above (or could even change this Act).

[KC]

But is their definition of inflation/deflation too broad as Grant suggests? Ie are try fighting the wrong battles?

[KC]

Originally Posted by moahunter

^the worst impact of inflation is unemployment, people don't want to hire when they don't know if they can grow fast enough to beat the rate of infation. Unemployment was almost double what it is today for parts of the early 1980's - i.e. it got as high as 13% in Canada.

The measure has changed since the 70s and 80s hasn't it. Apples and oranges issues now when looking back.