Krugman: We are in the early stages of a depression

[Usui Takumi 1,562]

that went over my head. can you explain why? i understand the difference between the debt being domestcally held vs. other countries holding the debt. but, i don't understand how they are better off because of it.

Its actually held by the central bank, which isn't going to purposely cause the country to default. Its a double edged sword however because unlike Greece, Japan doesn't have the market forces to curb spending...ie. the balloon can get a LOT larger before things collapse.

[mawilson 2,133]

that went over my head. can you explain why? i understand the difference between the debt being domestcally held vs. other countries holding the debt. but, i don't understand how they are better off because of it.

Because the money goes back into the economy instead of overseas.

[mawilson 2,133]

But to argue, as Mawlinson did, that deflation is good is simply delusional.

Deflation is good if you are a saver. It's not if you're laden with debt (like most Americans.)

[Dr. A ♥ O 203]

On thing that's true for us since this whole crash hit and my husband arrived is we're savers now instead of consumers. We look for the deals and have become spend thrifts so we have consistently saved a certain amount of money each month and kept our savings the same or growing.

[mendeleev 67]

Deflation is good if you are a saver. It's not if you're laden with debt (like most Americans.)

Maybe I'm starting to catch on, mawilson.

If you're a saver, and not in debt (like me) and you're independently wealthy so you don't have to worry about losing a job and no one you care about is ever at risk of losing a job, then deflation can be good for you if you are immensely self-centered (like most Americans).

If you are in that rare category of not needing to work and not needing to care about anybody else, more power to you!

I guess my problem is I look beyond my own personal checkbook and see deflation as a catastrophe for those who are at risk of job loss or loss of income because someone close to them loses a job. Since that describes everyone I know personally in the world, (although I think I'm at less risk of job loss than most, I am not arrogant enough to think it "cannot happen to me") I see deflation as a really very large risk, since I am not aware of an instance where deflation was not associated with very high long-term unemployment.

I don't know many people who can save money while being unemployed. But I imagine there are independently wealthy folk here who don't have to think about such things.

[evli1966 88]

Maybe I'm starting to catch on, mawilson.

If you're a saver, and not in debt (like me) and you're independently wealthy so you don't have to worry about losing a job and no one you care about is ever at risk of losing a job, then deflation can be good for you if you are immensely self-centered (like most Americans).

If you are in that rare category of not needing to work and not needing to care about anybody else, more power to you!

I guess my problem is I look beyond my own personal checkbook and see deflation as a catastrophe for those who are at risk of job loss or loss of income because someone close to them loses a job. Since that describes everyone I know personally in the world, (although I think I'm at less risk of job loss than most, I am not arrogant enough to think it "cannot happen to me") I see deflation as a really very large risk, since I am not aware of an instance where deflation was not associated with very high long-term unemployment.

I don't know many people who can save money while being unemployed. But I imagine there are independently wealthy folk here who don't have to think about such things.

You do not have to be independantly wealthy to survive deflation or depression.

"I am not an economist or a money man" just someone who is setting myself up to survive the economic crisis we still have not seen.

The smart people are at this time saving cash and ridding themselves of debt.

Some pay it off, some downsize and some file bankruptcy.

Some who have cash or the ability to borrow could purchase property at a discounted rate at this time. During deflation the property value will increase but if you owe more than the equity you have in it will hurt you instead of help. Of course the property should not be an idle piece it should provide some sort of income hopefully enough to pay the mortgage.

Once deflation hits the value of cash increases and most governments will increase print to fight the deflation. So one must act quickly to utilize the value of their cash.

Savers who hoard the money in banks or shoe boxes will be the people that lose the most.

Iit is good to worry about your neighbor and share but not to inable them to drag your family down. Everyone feels good helping others but you can not sacrfice your families survivability by prolonging the inevitable and making it worse.

You must know the difference between feel good acts and acts of goodness.

Another stimulis would be a feel good act not a act of goodness and make things worse for everyone when it does hit.

While sheltering a family during the depression times or helping feed the communities of starving during these horrible times are acts of goodness; while helping to shorten the worst of the economic issues.

Again I am not an educated man and could be wrong; but based on what I have saved and the properties I own/owe on I can pay off if I lose my job and live a meager lifestyle during the bad times.

[mawilson 2,133]

I see deflation as a really very large risk, since I am not aware of an instance where deflation was not associated with very high long-term unemployment.

I hope we can agree that the best thing any government can do is keep the per-capita

money supply stable.

The main cause of unemployment in a deflationary environment is the overvaluation

of human labor. Wages do not drop as fast as prices and tend to rise above their

fair market value. When governments try to "fix" the problem by inflating the money

supply, they cause real wages to fall (because nominal wages do not rise as fast

as prices).

This may seem like a good idea to you, but in reality it's a huge fraud. Inflation

destroys the purchasing power of consumers and is the most cruel tax of all

(incidentally, it also hits the poor the hardest).

Edited June 28, 2010 by mawilson

[mendeleev 67]

I hope we can agree that the best thing any government can do is keep the per-capita

money supply stable.

It is best if govt maintains a money supply such that the supply, multiplied by the velocity of money, is constant per capita. In this recession or beginning of a depression or whatever is it, velocity is still way down because the banks aren't lending. Hence the fed's expansionary policy is reasonable at this moment. They will need a contractionary policy later as velocity returns to normal levels. It will be tricky. Other options are worse, though.

Edited June 28, 2010 by novotul

[evli1966 88]

sorry about that propert value decreases or freezes so if you owe more money than you have equity in the piece then it will hurt you. Of course as long as you pay the mortgage then you should be ok.

But you are not doing what is best such as investing in cash for saving unitl the deflation begins to end or turn.

Also what I meant by hoarders and savers are people saving instead of paying off debt.

Once there is a turn around you must act quickly to utilize the cash you have saved to make it effective for you.

[Brother Hesekiel 2,235]

By my own admission, I'm not an economist. But my parents instilled in me from early on to save a few bucks out of every paycheck for a rainy day. Aside from real estate I do not have any debt. I pay cash most of the time (no paper trail) and whatever is on the credit cards, I pay off at the end of the month, save for very rare occasions where I had a heavy hitting month (birthday + vacation, etc.). So I'd like to think of myself as a common sense guy.

Here's my thought to the USA's economic crisis.

1) Stop all military spending. Get the troops home from anywhere in the World and deploy some of them at the southern border. Military spending only helps Haliburton and Co. and their cronies. This alone should free enough capital to keep the essential spending, such as schools, hospitals, unemployment benefits and parks going while still reducing spending a LOT!

2) The US of A is a big enough peninsula to be self sufficient. We export more jobs than goods. Ignoring for a second that our Chinese lenders would have us bend over in a big way, why can't we massively enforce "Made in USA?"

Want a new car? That Chevy or Ford is $23,000; that Honda or Toyota is $21,000 plus 25% 'foreign made' tax. Which one do you want to buy?

Want to sell that Sony TV to US customers? Of course you can! Just make sure it's Made in the USA or pay 25% 'foreign made' tax on top of it. Now you can say: but then the 'other' countries will retaliate. Then our Cadillacs would be too expensive in China for people to buy! True, but if Americans buy American-made products, those Cadillacs can be sold to American customers who rather buy that $40,000 Caddy than the $75,000 Mercedes or Bimmer.

As I said, the USA is big enough for Made in the USA and has enough potential customers for 'Sold in the USA."

Am I wrong?

[Usui Takumi 1,562]

By my own admission, I'm not an economist. But my parents instilled in me from early on to save a few bucks out of every paycheck for a rainy day. Aside from real estate I do not have any debt. I pay cash most of the time (no paper trail) and whatever is on the credit cards, I pay off at the end of the month, save for very rare occasions where I had a heavy hitting month (birthday + vacation, etc.). So I'd like to think of myself as a common sense guy.

Here's my thought to the USA's economic crisis.

1) Stop all military spending. Get the troops home from anywhere in the World and deploy some of them at the southern border. Military spending only helps Haliburton and Co. and their cronies. This alone should free enough capital to keep the essential spending, such as schools, hospitals, unemployment benefits and parks going while still reducing spending a LOT!

2) The US of A is a big enough peninsula to be self sufficient. We export more jobs than goods. Ignoring for a second that our Chinese lenders would have us bend over in a big way, why can't we massively enforce "Made in USA?"

Want a new car? That Chevy or Ford is $23,000; that Honda or Toyota is $21,000 plus 25% 'foreign made' tax. Which one do you want to buy?

Want to sell that Sony TV to US customers? Of course you can! Just make sure it's Made in the USA or pay 25% 'foreign made' tax on top of it. Now you can say: but then the 'other' countries will retaliate. Then our Cadillacs would be too expensive in China for people to buy! True, but if Americans buy American-made products, those Cadillacs can be sold to American customers who rather buy that $40,000 Caddy than the $75,000 Mercedes or Bimmer.

As I said, the USA is big enough for Made in the USA and has enough potential customers for 'Sold in the USA."

Am I wrong?

1. More rides on the Military than you think, from Boeing down to Mr. Startup in his basement.

2. A 25% tax would start a trade war and might cause China to sell its treasury holdings.

Personally I think number 2 can be done through stealth however.

[Peikko 1,575]

On thing that's true for us since this whole crash hit and my husband arrived is we're savers now instead of consumers. We look for the deals and have become spend thrifts so we have consistently saved a certain amount of money each month and kept our savings the same or growing.

A 'spendthrift' is the opposite of a saver.

[Usui Takumi 1,562]

A 'spendthrift' is the opposite of a saver.

A famous quote from a spendthrift: Qu'ils mangent de la brioche

Edited June 28, 2010 by Sousuke

[Peikko 1,575]

She was a much misunderstood woman

[Ban Hammer 12,829]

1) Stop all military spending. Get the troops home from anywhere in the World and deploy some of them at the southern border. Military spending only helps Haliburton and Co. and their cronies. This alone should free enough capital to keep the essential spending, such as schools, hospitals, unemployment benefits and parks going while still reducing spending a LOT!

do you suppose the military works for free? how you gonna keep them on the border if you stop paying them?