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  • Originally posted by JAD_333 View Post
    Dor:

    No question computers are less expensive today that in 1977, and what a wonderful computer the Mac Pro is. But you have to be joking calling the price drop deflationary.
    You seem to be using a definition with which I am unfamiliar. Please define your terms
    Trust me?
    I'm an economist!

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    • It's deflationary, but there's a qualitative difference between delfation caused by a shift in the production frontier and deflation caused by any sort of demand-side factor.
      "The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood"-Otto Von Bismarck

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      • Originally posted by GVChamp View Post
        It's deflationary, but there's a qualitative difference between delfation caused by a shift in the production frontier and deflation caused by any sort of demand-side factor.
        Noted, but if I had the data I'd show you the total number of Apple ][ -type computers sold in 1977, and similar data today. That, in turn, would illustrate how both supply and demand have changed. As more people demand the product (service), more competitors come into the market. As more competitors come into the market, prices adjust.
        Trust me?
        I'm an economist!

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        • Originally posted by JAD_333 View Post
          No question about it. And there's less buying power than the day Eisenhower took office.

          It's all due to inflation, but I'd agree with you if you held that the fact that wages haven't kept apace of inflation is the key problem facing our economy right now.
          That is what I am arguing. A family today if lucky enough not to have taken an income hit, as not seen wages keep pace with inflation and so can buy less. This is a drag on our economy.

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          • Originally posted by zraver View Post
            That is what I am arguing. A family today if lucky enough not to have taken an income hit, as not seen wages keep pace with inflation and so can buy less. This is a drag on our economy.
            . . . and yet, the evidence shows rising REAL wages!

            :bang:
            Trust me?
            I'm an economist!

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            • Originally posted by DOR View Post
              . . . and yet, the evidence shows rising REAL wages!

              :bang:
              That is not keeping pace with inflation leading to less buying power.

              Comment


              • Originally posted by zraver View Post
                That is not keeping pace with inflation leading to less buying power.
                Did you read the books I recommended?
                "REAL" means inflation-adjusted.

                To state that REAL wages are not keeping pace with inflation must be shown by a negative data point. As I posted, the numbers are still in the black, i.e., above zero, i.e., moving ahead at a pace that is faster than that of inflation.
                Trust me?
                I'm an economist!

                Comment


                • Originally posted by DOR View Post
                  You seem to be using a definition with which I am unfamiliar. Please define your terms
                  In economics, the term 'deflation' has only one meaning. You can find a lot of differently worded definitions, but they're all basically the same.

                  This one from Wiki is pretty clear:

                  ...deflation is a decrease in the general [bold added] price level of goods and services. Deflation occurs when the inflation rate falls below 0%. This should not be confused with disinflation, a slow-down in the inflation rate.

                  Bankrate
                  adds a little color.

                  Deflation is, in simplest terms, a decline in prices. Isolated deflation occurs all the time. Sometimes it's beneficial -- such as when oil gluts produce lower gasoline prices. And sometimes it hurts, like when housing bubbles pop.

                  But the kind of deflation that concerns economists involves a prolonged and steep decline in prices across the board.

                  Krugman wrote about it. http://krugman.blogs.nytimes.com/201...deflation-bad/
                  To be Truly ignorant, Man requires an Education - Plato

                  Comment


                  • Originally posted by GVChamp View Post
                    It's deflationary, but there's a qualitative difference between delfation caused by a shift in the production frontier and deflation caused by any sort of demand-side factor.
                    I think you have it right. If the price of a product drops because of technological advances and increased demand, the drop is not deflationary since the product itself has changed. On the other hand, if oil drops because of oversupply, one could say that's sector deflation, since nothing has changed about the product itself. Deflation, however, occurs when prices of a basket of basic products (the CPI) are no longer inflating and have crossed over into negative inflation territory. It can also apply to assets. Here it's also a general decline, but in the value of assets (not necessarily the price of them).
                    To be Truly ignorant, Man requires an Education - Plato

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                    • I see what you're saying. Yeah, we concern ourselves with the overall price level more than individual prices oscillating back and forth, or even one small sector of the economy with persistently declining prices. What do you mean by a deflation in the VALUE of assets, but not the PRICE of assets?
                      "The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood"-Otto Von Bismarck

                      Comment


                      • Originally posted by DOR View Post
                        Did you read the books I recommended?
                        "REAL" means inflation-adjusted.

                        To state that REAL wages are not keeping pace with inflation must be shown by a negative data point. As I posted, the numbers are still in the black, i.e., above zero, i.e., moving ahead at a pace that is faster than that of inflation.
                        Just to add more to it, at least till 2007 the real income had increased even for the bottom 20% of the household.

                        "Real income in the U.S. grew by 62% for all households between 1979 and 2007. However, after-tax income of households in the top 1% of earners grew by 275%, while income growth for the bottom fifth of earners was 18%."

                        Trends in the distribution of house income between 1979 and 2007 Journalist's Resource: Research for Reporting, from Harvard Shorenstein Center

                        Though after 2007, increase in real income for bottom 99% has been very sluggish (though can't remember the source). Maybe that's the reason for the feeling of anguish. Sudden change in fortune can make people feel worse then the actual situation.
                        Last edited by ajhax; 22 Aug 14,, 17:58.

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                        • Originally posted by GVChamp View Post
                          What do you mean by a deflation in the VALUE of assets, but not the PRICE of assets?
                          Good question. The way I put it just refers to what could happen when inflation is running rampant (prices don't change but value does). But what I think the economists mean by the term is a general drop in value of assets (like in the 1930s depression era). Recently, when the housing bubble burst the result was asset deflation in the housing sector. That led to across the board drop in the value of all kinds of equities, witness the steep drop in the Dow-Jones average in 2007-2010.

                          The bust in the housing bubble wasn't for lack of buyers, but lack of credit. When credit gets tight people are less likely to buy assets of any kind, be they stocks, real estate, etc. Not everyone has cash or, if they do, wants to part with it. At that point, sellers start cutting their asking prices until people start to bite again. If this happens across the board, the economy could be said to be in a state of asset deflation. The last one, which followed the housing bubble, bottomed in 2010. Look at the prices of blue chip stocks then and now. What broke the deflation was the return of easy credit made possible by the Fed's QE.
                          To be Truly ignorant, Man requires an Education - Plato

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                          • When the Fed Shifts Gears

                            My latest on US monetary policy, and the impact on Hong Kong.
                            Enjoy.
                            DOR

                            What happens when the music stops?

                            This is the year most observers think the US Federal Reserve Board will move to normalise its monetary policy. After six years of the lowest policy rates in history, the combination of moderate growth and falling unemployment seem to be reaching the point where Chair Janet Yellen and her colleagues will finally declare victory.

                            For the past seven years, real Fed Fund rates – the policy rate minus consumer inflation – have been in the red, by an average of 1.9 percentage points. There was a brief hiatus during that time, when the US economy fell into deflation for the first time since the 1950s, and according to the math, the real rate rose above zero. That, however, was the bottom of the blackest part of the North Atlantic Financial Crisis, and does not change the pattern.

                            The first graph reminds us of the gravity of the situation, and the reason for the unprecedented monetary policy decisions. Monthly data on Federal Reserve lending to financial institutions dates back to 1919, and up until the end of 2007, it had averaged just US$578 million per month. The inset shows how the Fed coped with the Savings & Loan crisis back in the 1980s. Here’s the source: Total Borrowings of Depository Institutions from the Federal Reserve - FRED - St. Louis Fed .

                            This time was different. In December 2007, lending reached $15.4 billion, and less than a year later topped out at $698.8 billion. The first figure was equal to all lending in the previous six years. The November 2008 peak was more than in the previous 88 years combined. Clearly, something broke.

                            Thankfully, lending is back down to manageable levels, but other factors still plague the economy. In December 2009, the US fell into 11 months of deflation, the longest – and first – contraction in prices since 1954-55. From then to now, prices have risen an average of just 1.6% p.a., far too low to warrant monetary tightening.

                            Unemployment, however, is recovering nicely. From a peak of 10% in late 2009, the jobless rate has fallen to less than 6% in the last three months. Economic growth has continued for 19 straight quarters (Q-4 was probably number 20), averaging a modest but steady 2.2% p.a. Those two factors, and the asset price bubble generated by too-cheap money are the reasons many think it is time to end the loose money policy.

                            What does it mean for Hong Kong? The second graph shows what has happened to our inflation rate as the US Fed adjusts its monetary policy. The Christmassy looking triangles represent the peaks (red) and troughs (green) of policy adjustment. The black line is our inflation rate. Since we initiated the peg back in 1983, this graph only covers the period from 1984 to the latest available data.

                            When the Fed raises interest rates, our inflation rate tends to fall, although there are rare occasions when it does not, as in the late 1980s. As our prices have been rising an average of more than 4% since late 2012, that isn’t our main concern at this time. What we, and the rest of the world fear is the knock-on effect of monetary normalisation on financial markets, and particularly on consumer confidence and demand. Stay tuned.
                            Attached Files
                            Trust me?
                            I'm an economist!

                            Comment


                            • Added jobs are going to be choked down until the other shoe drops as to obamacare and the impact it will have on businesses. I am more concerned about the skyrocketing prices of food and other goods. However, I am absolutely loving these gas prices as I drive many miles on a daily basis.

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                              • julie,

                                welcome back! it's been a while.

                                Added jobs are going to be choked down until the other shoe drops as to obamacare and the impact it will have on businesses
                                actually US employment is doing pretty darn well; the last monthly jobs report had employment beating all expectations.



                                I am more concerned about the skyrocketing prices of food and other goods.
                                don't really think you need to fear that either. from the Billion Prices Project:



                                US Daily Index » The Billion Prices Project @ MIT
                                Attached Files
                                There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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