Post: #1

I wanted to open up a separate thread to discuss a couple of other issues that WestCoast discussed in the following thread:

/thread-32424.html

Alot of interesting issues were raised there - and I don't to derail that thread any more than necessary.

So - if WestCoast reads this. First of all - what is your general take on the bail out of the banks? I wanted to ask this before - but thought I would save the question for a separate thread.

Second - I want to follow up from an ealier comment of yours:

Quote:I don't want to derail all the effort I have put into this thread so I am not going to get in it with you here. If you want to debate the merits of capitalism and a middle class on another thread I will happily chime in.

The chances of me pissing off people is probably 100% though lol.

I am unsure how to unpick that quote to see what you are driving at.

But let me try.

Are you suggesting that the middle classes have no natural right to exist? And as such they should focus on getting rich and not waste time complaining about the government?

And to run with that some more. As such - in a free market system. It is sink or swim - and you (if you are being honest) don't have much sympathy for those who sink?

I think this is a valid opinion to have. But I can see why some people might get upset by it. So - is this what you were driving at?

From a moral standpoint it is pretty consistent. Since most people in the US or UK don't really give a fuck about poor people on the other side of the world. And as such - it is just extending that principle to our own country.

And to tie it back to inflation. If inflation benefits the rich and hurts the poor - we should just quit bitching about inflation and instead figure out how to make inflation work for us. Is that what you were driving at before?

Post: #2

Man this is a serious thread.

So many issues in here. If his thing gets traction without a political nonsense breakout I'll chime in when I get in front of a computer.

The answers deserve very long winded posts that are not gonna be good enough with me rambling from a phone. But I'll check back in when I get the chance from a laptop.

TL;DR bailout was good, bailing out automotive failure companies was bad. Inflation is not the cause of economic misery ofthe middle class, capitalism is set up to give wealth to few men. This is the best incentive to make people solve problems. Again I'll return when I have a laptop to type off of and several minutes to tie it all up.

Basically the middle class is going to get destroyed in any situation with capitalism because capitalism rewards providers of solutions. Then we're gonna talk about taxes and how 1/2 the USA already doesn't pay any taxes and WWT is gonna chime in and me and him will be banned lol!

Post: #3

Without derailing this thread could you also mention Westcoast some of the books you would recommend for investing/finance. Thanks.

Post: #4

Cheers, WestCoast.

As for the bailout - I would be curious what you think of it from a moral point of view? I am sure you can see why people got angry over it.

Then again - maybe morality has nothing to do with it. If capitalism is a anmoral system where the best get the biggest rewards - perhaps the richest need to be given a reset from time to time in order to protect the capitalist system.

And it is a system which benefits us all (rich or poor). You just have to compare living standards for the poor today with those from 100 years ago.

I am not saying this is right or wrong. But it seems a valid way of analyzing things.

Look forward to your input!

Cardguy

PS Feel free to derail this thread. Since it is a thread to pull together alot of the off-topic subjects from the other thread. I just couldn't think of a good title for this thread. I am just really interested in WestCoast's way of thinking about the capitalist system. Since it is both interesting, and also provides a useful framework for thinking about the investment game in general.

Post: #5

Ha such a bag of worms. My question is what is your goal from me answering this?

Just look at the other thread and it derailed into bullshit. I only care about things that are going to help you make money or improve your life so I am not sure it is even smart for me to post here.

Post: #6

Fair dues. I don't want to cause any problems on the forum.

Having thought about what you wrote - I think I have pieced together where you are coming from. And it is an interesting point of view. So there is no need for you to post much since I understand where you are coming from.

Instead of trying to change the system - you are better off just gaming it, making money and letting others worry about it.

I think that is a pretty cool attitude to have. You only live once.

If we all just agree that the system is an amoral crap shoot. Then we can all just get on with doing the best we can. I think alot of people would benefit from adopting that pragmatic approach to capitalism.

It reminds me of my all-time favourite movie scene.

Post: #7

Nah I don't even see the immoral part of the bank bailouts. The government made a 8% annual return! That means the government made money off tax payer money which means tax payers made money. These are facts.

I HATE the bailout of the automotive industry becuase taxpayers have LOST 30% so far on that deal. That means you paid to bailout two shitty auto companies that are losing value and you're on the hook for it.

But anyway I am not going to open up a bag. This post will get attacked in the next 1-3 hours anyway and I won't sign in to rebuttal because people strongly believe the bailout was "negative" when in fact tax payers made money on the bailout and lost money on the auto bailout.

Long story short if you read my posts on your original thread I don't give a fuck about theories. I only care about this

What the fuck can I personally do to help me and my friends

If we want to argue about economics/politics go back to school then IDGAF about theory only how we can make money and make the best of the changes that surround us. This is also why you don't see me posting any cultural political nonsense ever.

Post: #8

(01-27-2014 04:51 PM)WestCoast Wrote:  Inflation is not the cause of economic misery of the middle class, capitalism is set up to give wealth to few men. This is the best incentive to make people solve problems. Again I'll return when I have a laptop to type off of and several minutes to tie it all up.

So what kind of inflation rate is good? how many percent?

Post: #9

2-4 percent is a good target for Inflation, though some people believe it should be up around 6%. Obliviously hyperinflation is bad. The reason that inflation is good because it encourages people and businesses to borrow and spend money. Thus companies become more profitable and will be more likely to hire new workers. If people borrow they will spend it thus creating economic growth.

Post: #10

when i read "inflation", my mind somehow registers "felation" ...... just can't help it.

Post: #11

(01-27-2014 11:35 PM)Lou pai Wrote:  2-4 percent is a good target for Inflation, though some people believe it should be up around 6%. Obliviously hyperinflation is bad. The reason that inflation is good because it encourages people and businesses to borrow and spend money. Thus companies become more profitable and will be more likely to hire new workers. If people borrow they will spend it thus creating economic growth.

Has this ever been proven?

Deflation seems to encourage spending as well. Look at how ubiquitous electronic goods have become - the cheaper they are, the more people buy them.

On the other hand, despite inflation in the aftermath of their property bubble bursting, Japanese consumers stubbornly saved their money instead of spending it.

I'm no expert in this topic, but my anecdotal understanding is that inflation makes people fearful and they cling to their money, while deflation makes people happy and they want to go out and spend their money. I don't understand how economists can argue the opposite.

Post: #12

(01-28-2014 06:40 AM)Thomas the Rhymer Wrote:  

(01-27-2014 11:35 PM)Lou pai Wrote:  2-4 percent is a good target for Inflation, though some people believe it should be up around 6%. Obliviously hyperinflation is bad. The reason that inflation is good because it encourages people and businesses to borrow and spend money. Thus companies become more profitable and will be more likely to hire new workers. If people borrow they will spend it thus creating economic growth.

Has this ever been proven?

Deflation seems to encourage spending as well. Look at how ubiquitous electronic goods have become - the cheaper they are, the more people buy them.

Yes and no. It does encourage spending, but it encourages it in the future. If at all.

Why would you buy the newest LED TV now when you can buy it in a month at a 20% discount? Why would you buy something at all when it will be surely worthless sometime in the future, much faster than it already will?

That's why a deflationary economy is extremely dangerous in our consumer/spending based economies, the economy could slide downhill extremely fast.

Post: #13

(01-28-2014 07:32 AM)lowside Wrote:  

(01-28-2014 06:40 AM)Thomas the Rhymer Wrote:  [quote='Lou pai' pid='639674' dateline='1390883744']
2-4 percent is a good target for Inflation, though some people believe it should be up around 6%. Obliviously hyperinflation is bad. The reason that inflation is good because it encourages people and businesses to borrow and spend money. Thus companies become more profitable and will be more likely to hire new workers. If people borrow they will spend it thus creating economic growth.

Has this ever been proven?

Deflation seems to encourage spending as well. Look at how ubiquitous electronic goods have become - the cheaper they are, the more people buy them.

Yes and no. It does encourage spending, but it encourages it in the future. If at all.

Why would you buy the newest LED TV now when you can buy it in a month at a 20% discount? Why would you buy something at all when it will be surely worthless sometime in the future, much faster than it already will?

That's why a deflationary economy is extremely dangerous in our consumer/spending based economies, the economy could slide downhill extremely fast.

We want spending, and we want it now. Our entire system is based on a healthy inflation of 2-3%. Governments, companies. Growth is what it's all about, even when people are happy and already have everything that they want.

Post: #14

You can have growth and zero inflation.

Governments like inflation because it is easier to justify capital gains tax. IF there is no inflation, then only goodwill on a companies balance sheet can increase, and there'd be too much resistance for government taxing it.

Corporations love inflation because the embedded price gains of inflation mask incompetent management.

Growth in the sense of an increased quality of live in inherently deflationary. Ever increasing nominal prices doe snot automatically mean real growth.

Post: #15

(01-28-2014 07:32 AM)lowside Wrote:  Why would you buy the newest LED TV now when you can buy it in a month at a 20% discount? Why would you buy something at all when it will be surely worthless sometime in the future, much faster than it already will?

Then why do I know people that line up to buy the latest gadgets despite knowing that the price will go down in a few months? In South Africa, we know that the Playstation 4 will reduce in price in a few months time, just like the previous models, and yet people are buying them now. Some people refuse to wait for price reductions and the inflation-is-good model doesn't explain. Same for TV's, some people wait for the price to drop but a lot of people are happy to buy them immediately.

Post: #16

(01-28-2014 10:43 AM)Thomas the Rhymer Wrote:  

(01-28-2014 07:32 AM)lowside Wrote:  Why would you buy the newest LED TV now when you can buy it in a month at a 20% discount? Why would you buy something at all when it will be surely worthless sometime in the future, much faster than it already will?

Then why do I know people that line up to buy the latest gadgets despite knowing that the price will go down in a few months? In South Africa, we know that the Playstation 4 will reduce in price in a few months time, just like the previous models, and yet people are buying them now. Some people refuse to wait for price reductions and the inflation-is-good model doesn't explain. Same for TV's, some people wait for the price to drop but a lot of people are happy to buy them immediately.

People will purchase at all price points.

That doesn't mean the majority will purchase Playstations now instead of waiting a few months to pick it up for less (this doesn't make sense for a price reduction to happen on a product like this in a matter of months).

Most of our purchases are emotional based.

Post: #17

^ yep that is why sales is psychological.

Post: #18

(01-28-2014 10:54 AM)worldwidetraveler Wrote:  

(01-28-2014 10:43 AM)Thomas the Rhymer Wrote:  

(01-28-2014 07:32 AM)lowside Wrote:  Why would you buy the newest LED TV now when you can buy it in a month at a 20% discount? Why would you buy something at all when it will be surely worthless sometime in the future, much faster than it already will?

Then why do I know people that line up to buy the latest gadgets despite knowing that the price will go down in a few months? In South Africa, we know that the Playstation 4 will reduce in price in a few months time, just like the previous models, and yet people are buying them now. Some people refuse to wait for price reductions and the inflation-is-good model doesn't explain. Same for TV's, some people wait for the price to drop but a lot of people are happy to buy them immediately.

People will purchase at all price points.

That doesn't mean the majority will purchase Playstations now instead of waiting a few months to pick it up for less (this doesn't make sense for a price reduction to happen on a product like this in a matter of months).

Most of our purchases are emotional based.

If our purchases are emotions based then why do economists keep trying to fit rational instead of emotional models into the inflation/deflation models? If hoarding of money is such a problem during deflation, and people are emotional beings, surely a good advertising campaign can get people out there and spending?

I'd really like to see the idea that inflation=spending and deflation=hoarding to be tested in the real world. Like maybe take two similar towns and put one in a mildly deflationary environment and the other in a mildly inflationary environment and see what happens. The arguments about inflation always seem to be too much rooted in logic and not in enough in empiricism, and there have been enough mistakes in medicine due to 'logic' to give me a healthy disrespect for arguments that are not based on experimental data.

Post: #19

(01-28-2014 06:40 AM)Thomas the Rhymer Wrote:  

(01-27-2014 11:35 PM)Lou pai Wrote:  2-4 percent is a good target for Inflation, though some people believe it should be up around 6%. Obliviously hyperinflation is bad. The reason that inflation is good because it encourages people and businesses to borrow and spend money. Thus companies become more profitable and will be more likely to hire new workers. If people borrow they will spend it thus creating economic growth.

Has this ever been proven?

Deflation seems to encourage spending as well. Look at how ubiquitous electronic goods have become - the cheaper they are, the more people buy them.

In a specific market like this, deflation may be a slightly misleading term. Prices in the electronics sector have been decreasing due to steady increases in productivity and efficiency. Supply increases and you get the benefits of price elasticity. Today we can make superior products for less cost than we could 20 years ago. Electronics have improved dramatically relative to the average price of goods in the economy. Both the producers and consumers benefit from these efficiencies, that's why it feels good.

That is different from deflation that happens due to a policy such as restricting money supply. In such a scenario, new participants in the economy will be at a distinct disadvantage.

Imagine you have an economy where there are 3 producer-consumers, one makes breakfast, the other makes lunch, the last makes dinner. They each have 3 coins. Every meal, they pay the producer 1 coin. Such an economy can go on indefinitely, the price of a meal will remain 1 coin, and the total number of coins in the economy will be 9.

Suppose you double the number of producer-consumers. In order to participate, the new people need coins to join in. So the total number of coins will be 18. If you don't actually increase the number of coins, you'll have to use fractional values. In other words: deflation. The price of a meal after the grown will be 0.5 coins, even though there have been no gains in efficiency and no individual has any more food than they did before.

This kind of price decrease is not caused by an increase in productivity or efficiency. It's an artifact of the rules of exchange and the limitations of the system.

So while the actual which is better from a behavioral perspective "slight inflation" vs "slight deflation" argument may not have ever been proven at a large scale, the deflation dynamic as it relates to economic growth can be modeled easily.

Post: #20

(01-28-2014 12:22 PM)Thomas the Rhymer Wrote:  If our purchases are emotions based then why do economists keep trying to fit rational instead of emotional models into the inflation/deflation models? If hoarding of money is such a problem during deflation, and people are emotional beings, surely a good advertising campaign can get people out there and spending?

I'd really like to see the idea that inflation=spending and deflation=hoarding to be tested in the real world. Like maybe take two similar towns and put one in a mildly deflationary environment and the other in a mildly inflationary environment and see what happens. The arguments about inflation always seem to be too much rooted in logic and not in enough in empiricism, and there have been enough mistakes in medicine due to 'logic' to give me a healthy disrespect for arguments that are not based on experimental data.

One thing we all have in common is fear. Fear of loss, fear of making a mistake, fear of failure, etc...

That fear can lead to inaction a lot of times if not most times.

In essence, people are predictable to a certain point. We are talking majority of people.

There are impulse buys but a great deal of purchases have been in their heads for a long time, especially when it comes to higher priced products.

Watching prices on products, checking out reviews, visualizing why you need it, how it will make you feel until you get to the point of actually purchasing it.

One of the hardest things when trying to make a sale is to get them to do it right then and there.

If you're talking about prices for products falling month after month, that fear of making a mistake will kick in and people will sit and wait for the most part.

Buyer's remorse is real and watching the price fall on something you already purchased will trigger that in a big way.

One of my new product lines are programs that I will only put up for sale once or twice a year. I am creating a scarcity so the fear of missing out will make them purchase quickly and for a higher price.

I have had customers who were upset because I sold a software program on a sale even though they purchased 6 months to a year before that sale.

Crazy to me but that is reality.

Post: #21

I read a book about inflation last week.

An interesting point it made is that the government and business owners like a small amount of inflation. Since it enables businesses to cut wages without pissing people off.

If your employer were to pay you 500 dollars less next year you would be pissed off.

But if your employer gave you a 1% pay increase when inflation was 3% you wouldn't be that bothered. At least compared to the first scenario.

Even if the monetary loss is the same in inflation adjusted dollars.

Another book I read last week also discussed inflation. The point it made is that the government aims for small amount of inflation - so that if it undershoots - the inflation rate will still be low or perhaps zero.

Whereas if the government aimed for 0% inflation - any undershooting would lead to deflation. Like alot of people - I would love to experience deflation for awhile to see what it felt like. But apparently - it is a very bad thing. And quite difficult to escape from. Still - I do wonder what it would be like in reality? I can't imagine many people sitting out purchases just to save money. If I need a new laptop I buy one. I don't wait two years to get one which would be both cheaper and faster. I buy one straightaway.

Anyway - the government likes to have a margin of error - since inflation forecasting is not an exact science. And it is very easy to miss it either way. Hence why the government likes to build in a margin of safety.

Still - there is a part of me which wonders if we are being hoodwinked. It seems the government is happy to fuck up the economy anyway it wants. But - never in a way which leads to deflation. Which is probably the only economic fuck-up which the average man on the street might enjoy experiencing.

Cardguy

PS @Westcoast - just curious how you research investment ideas? Does it mainly involve reading up on the trade journals and books in a developing area which you see potential in (for example clean energy or medicine)?

Post: #22

Inflation is a form of taxation by the gov't-----especially since most gov'ts are in debt. They silently rob those who save. Right now we are having the longest period of time where interest rates are lower than inflation so the gov't can rob the wealth of savers.
The gov't since it is in debt tries to brain wash us against deflation. But if we actually had responsible gov't and citizens who didn't run up debt..deflation would be good. In fact some deflation is VERY healthy... when modern technology finds ways to increase production or save costs , prices can drop and standard of living goes up. When we finally find a new energy source that is unlimited(like star trek) then that might cause a bit of deflation due to more productivity. Also when new methods to harvest more food is implementable and the gov't gets rid of those programs that burn half our food(you knew right?) so farmers don't lose profit..maybe we will have a deflation utopia!
But all of this will be short lived if we don't force our gov't to get off their addiction of easy money..LOANS!
We had deflation a few years ago when most products were discounted and homes cost half the price and even loans to borrow was lower. A lot of folks refinanced. Ofcourse the deflatio nbasket was limited because gov't being in debt had to increase college tuition, public transportation and other gov't services.
Our 1st world gov'ts are going to have to realize the we have grown our economies as much as we can. All they are doing in the last ten years is creating bubbles.
Many conservatives truly believe we are entering a period where growth will be 0% but of course they are hoping to get it close to 2%(or at least be able to say so on paper).Its Not a bad thing...it's due partly to globalization!But we will always have higher unemployment rates than we were use to.
They say inflation averaged a little over 3 % over the last few decades...but the top economists think that 2% will be the new 3%. That being said they will be happier when it is 2.30% as oppose to 1.70% because as a gov't in debt..1.70% is closer to going negative!
Consequences of this will be CD rates that use to pay 6% will more likely hover around 5% when rates go up and the stock market index avg of 8-9% will probably go closer to 6-7%. More folks will want to put money in safe investments like cds..part of reason why gov't is artificially keeping down rates. bonds will be more risky due to default.
The developing countries on the other hand will be where the risk and rewards are!

As for sitting home waiting for things to get cheaper...actually people do it all the time with high priced items. People weren't rushing out to buy cars(used cars) and homes when prices were dropping but inventory dropped when they feared interest rates rising.
Small cost items of course and necessities don't make a difference. This is of course a big problem with our economy in the 1st place..too consumer orientated.
The gov't needs to stop encouraging folks to go into debt to FIX the economy.. that is how we get into these messes in the first place. But Democrats only know how to spend.

Post: #23

^A lot of wisdom here. The truth of the matter is a developing economy doesn't have much room for growth, hence why it's called developed. It shouldn't be a concern. Germany, Japan,etc..have had anemic growth for years. Doesn't change the fact that they are very prosperous nations on a per capita basis. The bureaucrats in DC are panicking because their debt game relies upon the GDP growing. There hasn't been any real tangible growth in our economy for 15-20 years, just a series of bubbles. There was the dot com bubble, the housing bubble, and now we're experiencing an equity bubble. The game won't last much longer but I'll let our forum's gordon gecko wannabe find that out for himself...

Post: #24

As I said on that other thread, people like to talk about inflation as if t is one thing as opposed to a category of different phenomena. For instance, when you get a raise, that's inflation. your boss is paying more for your labor than he was last year. Maybe you're doing more work, maybe not. I take it that you inflation hawks will all turn down your next raise.

A couple of random thoughts to add:

- Central banks don't target 2 to 4 percent inflation rates because there is something magical about 4 percent inflation. What monetary policy makers tend to want is a slow steady growth in the money supply and a relatively stable price level. The reason for a growth in the money supply is that all things being equal, there will be more economic activity this year than last year. More economic activity needs more money; otherwise money becomes deflationary. Likewise, the reason that inflation targets tend to be around 2 percent is that inflation targeting is not a precise science. You target a number and chances are you'll end up under it or over it, so 1 percent inflation would be fine, but if you aim for 1 there's a chance you'll end up low and be under zero.

- It's funny to hear people talk about inflation as a tool of the rich to rob the working man. for most of our history, it's been the exact opposite. Remember William Jennings Bryant and his "cross of gold" speech? That was a populist argument against tight money. He wanted a more inflationary currency to help farmers who were perpetually in debt because they conducted all their business on credit. It was the rich who wanted strong money, because they controlled all the credit. Even as late as the 1970s people argued in favor of an inflationary environment on the ground that it benefitted the working class.

Edit: I see that Cardguy already made the first point.

Post: #25

Cardguy Wrote:I would love to experience deflation for awhile to see what it felt like. But apparently - it is a very bad thing. I can't imagine many people sitting out purchases just to save money. If I need a new laptop I buy one. I don't wait two years to get one which would be both cheaper and faster. I buy one straightaway.

As j r mentions, the impact of deflation is on new entrants into the economy-- people who don't already have money. Behavioral economics aside, price deflation favors people who have accumulated currency, while making it harder for new producers and consumers to get started.