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Does Stimulus Cause Stagflation?


charles brough

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I don't know much about Japan's experience and why/how that happened to them, though I've heard about it. Can you offer some insights into their unique circumstances?

 

We had stagflation in the 1960s because the supply of oil was cut and the cost of energy meant a rise in the whole price level of the country. So, what reason is there for thinking that a big stimulus package to put people back to work would cause stag-flation?

...you mean the 1970's, right? But whichever, as your picture demonstrates....

 

 

It depends on the circumstances. Currently, I think stimulus would cause stagflation if it is designed to stimulate consumption.

 

Stimulus designed to encourage production should help as you suggest, but only if it is production which adds tangible value to our world (like bridges and stoves) rather than production of crap designed for consumption, which only helps the economy "on paper" as well as the few producers.

 

We need to stimulate that which will make us better--to stimulate consolidation that helps us become more resilient, robust, diverse, and sustainable--rather than stimulate the old expansive system of dissipative consumption.

 

~bbl

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I don't know much about Japan's experience and why/how that happened to them, though I've heard about it. Can you offer some insights into their unique circumstances?

 

...you mean the 1970's, right? But whichever, as your picture demonstrates....

 

 

It depends on the circumstances. Currently, I think stimulus would cause stagflation if it is designed to stimulate consumption.

 

Stimulus designed to encourage production should help as you suggest, but only if it is production which adds tangible value to our world (like bridges and stoves) rather than production of crap designed for consumption, which only helps the economy "on paper" as well as the few producers.

 

We need to stimulate that which will make us better--to stimulate consolidation that helps us become more resilient, robust, diverse, and sustainable--rather than stimulate the old expansive system of dissipative consumption. ~bbl

It would certainly be more effective to stimulate the economy by government providing money for the rehibilitating of our decaying infrastructure. However, any more expansive increase of credit money in the economy by government would move us gradually out of this slump. I am unaware of any evidence that anything but a spike in the price of oil has or could cause stagflation during a stimulus.

 

Japan once had a gigantic stock market bubble that collapsed like a house of cards and left the country in a deep depression. That was I think in the 1980s. Our government tried to get them to expand credit and stimulate the economy but it apparently insisted on trying to balance the budget. It stagnated in its depression for ten years before gradually pulling out of it, probably by stimulating the economy because I understand they now owe more for the country size than we do.

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is there a smiley of a guy banging his head against a wall?

ah... yes.

:banghead:

 

its difficult to answer this question directly.

let's say we used gold currency rather than paper.

how would the government "stimulate" the economy then?

 

Apparently it couldn't, but then banks could not lend out credit, either. They would only be able to loan out what had been deposited with them. If the borrower defaulted, the depositors and the bank would both lose. Correct me if I am wrong, but there would be no selling of bonds and stocks either. We used to have some sort of a gold exchange system in which we had both gold and paper currency.

 

Who can fill us in on this?

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well the government could stimulate the economy, in precicely the same way it is doing now.

it could either convice foreign nations to give them a large loan that they could spread to the populous in the hopes of one day recollecting in taxes, digging a hole deeper in order to get out of it; or the government could debase the currency. start producing counterfiet gold coins in the hopes that people would accept it as currency and use it to increase transactions.

i assure you, both are bad options.

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well the government could stimulate the economy, in precicely the same way it is doing now.

it could either convice foreign nations to give them a large loan that they could spread to the populous in the hopes of one day recollecting in taxes, digging a hole deeper in order to get out of it; or the government could debase the currency. start producing counterfiet gold coins in the hopes that people would accept it as currency and use it to increase transactions.

i assure you, both are bad options.

Isn't that what we have already begun to do? We no longer have any silver in our coinage and even the pennies and nickles are a base metal alloy!

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exactly! its a currency doomed to fail. our money is not tied to anything of value really.

10 dollars yesterday does not neccarily represent 10 times more goods than a 1 dollar bill today.

Eventually, we will have hyper-inflation that will end the dollar and wreck the civilization as it has in others in the past. Rome ended up without silver or gold in the coins and China resorted to the printing presses. This is a good time to buy gold.

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  • 3 weeks later...
Who can fill us in on this?

Well, there have been currencies with names having to do with weight, though not necessarily of gold, and the euro didn't kill them all; pound, peseta, lira, peso f'rinstance. Indeed in Britain, before the twentieth century, an actual pound of sterling grade silver was minted to make 20 coins, each called a shilling. What happend to this?

 

At that time, it was already quite a while that paper was circulating too, though not replacing coins as much as in later times. Still, notes of credit were common and so were bills issued by national banks. In the coffeehouses of London, where financial instruments were traded before some bloke thought to set up a stock exchange, men would negotiate all kinds of notes including those of the Bank of England. A man could also pay a large debt without lugging metal around, by writing a note that instructed his banker to pay Mr. A. the amount X and debit it to his account and today, of course, we use those pre-printed strips that the bank gives us in little booklets, ready for the job.

 

Anyway all these things were so handy that, by the 20th century, banknotes were used more than coins; they were just notes by which a central bank promised to pay a specified amount to the bearer and they remained so until fairly recent times, according to country, now replaced by notes which themselves constitute legal tender. I don't know if some countries still have notes which (at least formally) are promissory as opposed to legal tender. Anyway the promissory nature implies the currency being still defined in terms of a metal -- rather than by supply vs. demand for the currency itself (which is usually guided by an authorized bank's issuance of credit at an interest rate, the so-called money supply).

 

This is a good time to buy gold.
You should have started about a decade ago! The question of whether it is already too late is an open bet.
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