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bik0 Donating Member (429 posts) Send PM | Profile | Ignore Mon Aug-02-10 05:58 PM
Original message
Why deflation could be a good thing for Americans
A period of tremendous growth in the U.S. was between 1865 and 1900 despite ongoing deflation.

A point made by Jim Rickards on CNBC this morning...

http://www.cnbc.com/id/15840232?video=1557519277&play=1

Rickard's bio...

Senior Managing Director for Market Intelligence at Omnis, Inc. and has been a direct participant in many of the most significant financial events over the past 30 years including the 1981 release of hostages from Iran and was also the principal negotiator for the government sponsored bailout of LTCM. His clients include private investment funds, investment banks and government directorates in national security and defense. He is an advisor to the Committee on Foreign Investment in the United States and Support Group of the Director of National Intelligence and recently testified before Congress on the causes of the financial crisis.

also...

Jim Rickards Compares The Collapse Of The Roman Empire To The US, Concludes That We Are Far Worse Off

http://www.zerohedge.com/article/jim-rickards-compares-collapse-roman-empire-us-concludes-we-are-far-worse
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Oregone Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:03 PM
Response to Original message
1. Good point. As a peon, I can't wait for the investor class to withdrawal even more capital
If all else fails, shoe leather has nutritional value
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MadHound Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:05 PM
Response to Original message
2. Uh, yeah, the period between the Civil War and the turn of the century was the era
Of Westward Expansion. An immense amount of resources and wealth were opened up. This was a once in an epoch type event, there will not be another. We have no place to expand to, nor large amounts of resources to exploit.
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bik0 Donating Member (429 posts) Send PM | Profile | Ignore Mon Aug-02-10 06:16 PM
Response to Reply #2
4. Disagree - the next expansion is here and now...
Making the World A Billion Times Better

By Ray Kurzweil
Sunday, April 13, 2008; B04

MIT was so advanced in 1965 (the year I entered as a freshman) that it actually had a computer. Housed in its own building, it cost $11 million (in today's dollars) and was shared by all students and faculty. Four decades later, the computer in your cellphone is a million times smaller, a million times less expensive and a thousand times more powerful. That's a billion-fold increase in the amount of computation you can buy per dollar.

Yet as powerful as information technology is today, we will make another billion-fold increase in capability (for the same cost) over the next 25 years. That's because information technology builds on itself -- we are continually using the latest tools to create the next so they grow in capability at an exponential rate. This doesn't just mean snazzier cellphones. It means that change will rock every aspect of our world. The exponential growth in computing speed will unlock a solution to global warming, unmask the secret to longer life and solve myriad other worldly conundrums.

This exponential progress in the power of information technology goes back more than a century to the data-processing equipment used in the 1890 census, the first U.S. census to be automated. It has been a smooth -- and highly predictable -- phenomenon despite all the vagaries of history through that period, including two world wars, the Cold War and the Great Depression. I say highly predictable because, thanks to its exponential power, only technology possesses the scale to address the major challenges -- such as energy and the environment, disease and poverty -- confronting society. That, at least, is the major conclusion of a panel, organized by the National Science Foundation and the National Academy of Engineering, on which I recently participated.

Take energy. Today, 70 percent of it comes from fossil fuels, a 19th-century technology. But if we could capture just one ten-thousandth of the sunlight that falls on Earth, we could meet 100 percent of the world's energy needs using this renewable and environmentally friendly source. We can't do that now because solar panels rely on old technology, making them expensive, inefficient, heavy and hard to install. But a new generation of panels based on nanotechnology (which manipulates matter at the level of molecules) is starting to overcome these obstacles. The tipping point at which energy from solar panels will actually be less expensive than fossil fuels is only a few years away. The power we are generating from solar is doubling every two years; at that rate, it will be able to meet all our energy needs within 20 years.

Nanotechnology itself is an information technology and therefore subject to what I call the "law of accelerating returns," a continual doubling of capability about every year. Venture capital groups and high-tech companies are investing billions of dollars in these new renewable energy technologies. I'm confident that the day is close at hand when we will be able to obtain energy from sunlight using nano-engineered solar panels and store it for use on cloudy days in nano-engineered fuel cells for less than it costs to use environmentally damaging fossil fuels.

It's important to understand that exponentials seem slow at first. In the mid-1990s, halfway through the Human Genome Project to identify all the genes in human DNA, researchers had succeeded in collecting only 1 percent of the human genome. But the amount of genetic data was doubling every year, and that is actually right on schedule for an exponential progression. The project was slated to take 15 years, and if you double 1 percent seven more times you surpass 100 percent. In fact, the project was finished two years early. This helps explain why people underestimate what is technologically feasible over long periods of time -- they think linearly while the actual course of progress is exponential.

We see the same progression with other biological technologies as well. Until just recently, medicine -- like energy -- was not an information technology. This is now changing as scientists begin to understand how biology works as a set of information processes. The approximately 23,000 genes in our cells are basically software programs, and we are making exponential gains in modeling and simulating the information processes that cracking the genome code has unlocked. We also have new tools, likewise just a few years old, that allow us to actually reprogram our biology in the same way that we reprogram our computers. For example, when the fat insulin receptor gene was turned off in mice, they were able to eat ravenously yet remain slim and obtain the health benefits of being slim. They didn't get heart disease or diabetes and lived 20 percent longer. There are now more than a thousand drugs in the pipeline to turn off the genes that promote obesity, heart disease, cancer and other diseases.

We can also turn enzymes off and on, and add genes to the body. I'm an adviser to a company that removes lung cells, adds a new gene, reproduces the gene-enhanced cell a million-fold and then injects it back into the body where it returns to the lungs. This has cured a fatal disease, pulmonary hypertension, in animals and is now undergoing human trials.

The important point is this: Now that we can model, simulate and reprogram biology just like we can a computer, it will be subject to the law of accelerating returns, a doubling of capability in less than a year. These technologies will be more than a thousand times more capable in a decade, more than a million times more capable in two decades. We are now adding three months every year to human life expectancy, but given the exponential growth of our ability to reprogram biology, this will soon go into high gear. According to my models, 15 years from now we'll be adding more than a year each year to our remaining life expectancy. This is not a guarantee of living forever, but it does mean that the sands of time will start pouring in rather than only pouring out.

What's more, this exponential progression of information technology will affect our prosperity as well. The World Bank has reported, for example, that poverty in Asia has been cut in half over the past decade due to information technologies and that at current rates it will be cut by another 90 percent over the next decade. That phenomenon will spread around the globe.

Clearly, the transformation of our 21st-century world is under way, and information technology, in all its forms, is helping the future look brighter . . . exponentially.

raymond@kurzweiltech.com

Ray Kurzweil, a computer scientist and inventor, is the author of "The Singularity Is Near" and co-author of "Fantastic Voyage."
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MadHound Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:46 PM
Response to Reply #4
14. And all that tech requires resources,
Lithium, gold, oil, lots of oil, along with all sorts of other rare minerals and such. We simply don't have the basic resources to fulfill that promise of technology. Without those resources, no tech boom is possible.

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naaman fletcher Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 07:37 PM
Response to Reply #4
15. of course deflation is a good thing..
Why wouldn't prices coming down be a good thing? It's only the bankers who have already ripped up off who thing it's a bad thing.
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Kurt_and_Hunter Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 07:55 PM
Response to Reply #15
18. Joking?
You realize wages also go down, right? And unemployment goes up.
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Uncle_Gunnysack Donating Member (24 posts) Send PM | Profile | Ignore Mon Aug-02-10 08:04 PM
Response to Reply #18
20. I would hope so that it is a joke.
Edited on Mon Aug-02-10 08:08 PM by Uncle_Gunnysack
Support for an paradigm like that ain't worth two bits.
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naaman fletcher Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Aug-03-10 06:05 PM
Response to Reply #18
27. not joking...
its simply supply and demand economics. Demand is down, prices need to come down to reach equilibrium. The only people who get hurt are the people who lent money at high prices i.e. the banks. It is all a ruse by the banks to get the government to prop up their bad loans.
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BootinUp Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:07 PM
Response to Original message
3. Ridiculous!
These people are dangerous. I can't believe what I just heard. Of course I only could stand listening to half of it.
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Kurt_and_Hunter Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:21 PM
Response to Reply #3
7. Buy gold! It's delicious.
I'm with you. Ever since 9/11 I've had to face the fact that this country cannot handle any sort of crisis and we were coasting on some luck there for a while.

(Not bashing America... a lot of countries seem unable to handle crisis-es, but we are more obliged to do so given our size and influence.)

When the chips are really down crazy people take over...

Invade Iraq! Do something about the deficit! Deflation is fun! Buy Gold!

Whatever.

I see more contemplation/creation and less politics/book-learnin' in my future. The later is paying slimmer and slimmer dividends.
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ixion Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:16 PM
Response to Original message
5. I do believe a correction is in order, and I do believe that, ultimately, it will be good. However,
on the near term, it's going to be very, very ugly, I'm afraid.
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nashville_brook Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:19 PM
Response to Original message
6. if it's being pushed on CNBC, it's not good for people -- it's good for corporations.
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bik0 Donating Member (429 posts) Send PM | Profile | Ignore Mon Aug-02-10 06:23 PM
Response to Reply #6
8. It's not being "pushed" - It's one man's opinion.
It does make sense though, if your costs (food, energy, materials) go down 10%, your standard of living increases 10%.
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DJ13 Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:28 PM
Response to Reply #8
9. Thats precisely why the elites are fearful of any deflation
They've been actively reducing wages for 30 years, and yet never once has those lower wages ever elicited public comments that they were deflationary.

Its only deflation if the corporations have to make less profits to move product.
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The Magistrate Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:41 PM
Response to Reply #8
12. You Ignore, Sir, Its Effects On Debt
In the present situation, deflation would simply accellerate even further the siponing up of value from the mass of people into the pockets of a handful of creditors. In deflationary conditions, debts are repaid with dollars that are worth more than the dollars lent, and must still be paid at interest, which is supposedly in large part an insurance against lessening of the value of a dollar lent.

You also seem to assume salaries stay static as prices decrease: they do not.

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MilesColtrane Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 07:58 PM
Response to Reply #8
19. That's assuming you have a job to back your standard of living.
Deflation encourages people to stop spending because they put it off until prices are lower, and to stop investing because interest rates are dropping. (we have already experienced a little of both of these phenomenon)

When that happens, businesses cut back on production leading to layoffs, leading to less spending, etc...

A small period of deflation is OK (like the one we've already experienced), but it can quickly spiral out of control.

A modest amount of inflation with matching wage increases is the best thing to keep the economy growing.

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Hannah Bell Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Aug-03-10 12:23 AM
Response to Reply #8
25. not if your wages also go down. which they will. & not if you have to pay back inflated debt in
deflated dollars.
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ThomWV Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:32 PM
Response to Original message
10. Deflation kills jobs like stepping on bugs - it just crushes them
and the reason is so simply that just about anyone can get it. When prices drop so do profits, and it is drops in profits - sometimes to negative levels - that causes businesses to lay off the workers who make those products who's value is declining.
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provis99 Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 06:36 PM
Response to Original message
11. the era of 1865 to 1900 was the era of the robber baron.
When a handful of rich people had all the wealth in the country. I don't see why that horrible period should be a role model for today.
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bik0 Donating Member (429 posts) Send PM | Profile | Ignore Mon Aug-02-10 06:46 PM
Response to Reply #11
13. Role model? It IS that way today.
That's not what Rickard is proposing - no more than if he was proposing that we go back to horse drawn carriages and telegraph machines.
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Gaedel Donating Member (802 posts) Send PM | Profile | Ignore Mon Aug-02-10 07:47 PM
Response to Original message
16. Inflation
Inflation scares the hell out of me (I lived thought the 1970s). It would wipe out my savings and i am retired and can't make any more money.

That being said, a ten-for-one inflation caused by flooring the accelerator on the government printing press would have the following "good" outcomes:

1. Trivialize the debt we owe the Chicoms and other nasties of the world which is all denominated in dollars.

2. Trivialize consumer credit card debt.

3. Revive housing prices and underwater mortgages would be above water.

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Kurt_and_Hunter Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 07:54 PM
Response to Reply #16
17. Your savings wouldn't be eroded entirely
We are talking about the 4-5% the economy needs to grow at all, which isn't anything like 1978-1980.

(And your saving accounts would start paying interest again! Not enough to match inflation, but slowing erosion.)

And if any part of your income has COLAs (like social security) you'd pick up something there.

What makes this downturn so crazy is that it started with such a low rate of inflation.

4-5% is rather normal. 1-2% is abnormal
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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 08:04 PM
Response to Original message
21. Deflation is horrid for working people
it makes it that much harder to get out from under debt, deflates wages so that people cannot afford to live in the real estate that the rich would be able to buy up as people continued to fall from the middle class into poverty...

it impedes spending by those who have money by creating a mindset that they should wait to purchase things like housing in the hopes that the prices will be further reduced...

deflation is as bad as hyperinflation, if not more so.
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kentuck Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 08:09 PM
Response to Reply #21
22. Wages have been deflating for 30 years...
for most folks. Somebody had a chart the other day showing that wages had stagnated since the late 70's until the present, while productivity had shot thru the roof. The employers kept all the wealth to themselves and none for the workers.

It's interesting if deflation took the prices of everything down. That means the meager wages of many workers would buy more than before. It seems to me that deflation would mostly hurt the investing class? It seems that inflation would be much worse for the average person?
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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Aug-02-10 08:40 PM
Response to Reply #22
23. why do you think wage deflation wouldn't continue?
as you note, wages have not kept pace with inflation - and wages would fall even further.

how do you think things would be more affordable if people were paid the same wage as a factory worker in China?
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Igel Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Aug-03-10 12:18 AM
Response to Original message
24. Probably not.
I do find the entire discussion humorous. Deflation has a variety of causes.

Some are truly bad.

Some are artefacts of how we measure inflation. We had claims in the last couple of years of runaway inflation followed by deflation, the point being that most of the inflation was triggered by a volatile component of the CPI and most of the deflation was triggered by the same volatile component of the CPI. (Yet we're told that it's wrong to remove volatile components to be able to pull out what the long-term, stable inflation rate is.)

Of course, I've tacitly presupposed at least two different definitions for "deflation" in this post without making it clear.
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nadinbrzezinski Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Aug-03-10 12:26 AM
Response to Original message
26. Lordly what else is the right now pushing?
that was also the era of the pinkertons, worker abuse... (Haymarket should ring a bell, or maybe not) and the age of ... the robber barons.

Yep, a time I certainly want to go back to.

By the way, in the modern period we got the LOST DECADE in Japan, and that era saw not one crash but two crashes. Yep, the time I want to emulate.

What is the Right Wing smoking these days?
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