The British government has a plan to stop borrowing money

[beero1000]

Less money means the money that exists is worth more - the process whereby money gets more valuable over time is called deflation, and it is bad because it discourages investment - why take a risk to increase your wealth, when you can get the same result by just holding on to your cash?

How would it be the same result, though? If a company is actually producing real wealth, then surely the return on your money is going to be better than the return from sitting on the cash, even if there is general deflation?

Well, that would depend on the company's rate of return relative to the deflation. In an extreme example, hyperdeflation might mean that no one would want to spend any of their cash - if a TV costs $1000 today, but will cost $500 tomorrow, you'd have to have a really good reason to buy one today. A company that needs to buy equipment to make stuff might have to spend cash that they will not be able to make back.

This is the exact opposite of hyperinflation, like what happened in Weimar Germany, where everybody wanted to spend their cash as fast as possible, before it devalued.

 

[tupac chopra]

What is the limit to the price for which that bar of gold will sell? At what point will one of the bidders hear a bid from the other that he cannot exceed?

When he has no more funds or credit.

 

[tupac chopra]

Less money means the money that exists is worth more - the process whereby money gets more valuable over time is called deflation, and it is bad because it discourages investment - why take a risk to increase your wealth, when you can get the same result by just holding on to your cash?

That is an interesting theory, but in practice the world doesn't work like that. Try telling your wife that you are going to wait to buy her a home because you think prices will be lower in ten years time.
In other words all you have is a theory which does not apply to the real world.

 

[beero1000]

What is the limit to the price for which that bar of gold will sell? At what point will one of the bidders hear a bid from the other that he cannot exceed?

When he has no more funds or credit.

That isn't a fixed limit.

 

[tupac chopra]

How would it be the same result, though? If a company is actually producing real wealth, then surely the return on your money is going to be better than the return from sitting on the cash, even if there is general deflation?

Well, that would depend on the company's rate of return relative to the deflation. In an extreme example, hyperdeflation might mean that no one would want to spend any of their cash - if a TV costs $1000 today, but will cost $500 tomorrow, you'd have to have a really good reason to buy one today. .

Um...to watch the bloody TV maybe?

Do you have smartphone....or you going without a phone because they will be cheaper in 5 years time

 

[beero1000]

Less money means the money that exists is worth more - the process whereby money gets more valuable over time is called deflation, and it is bad because it discourages investment - why take a risk to increase your wealth, when you can get the same result by just holding on to your cash?

That is an interesting theory, but in practice the world doesn't work like that. Try telling your wife that you are going to wait to buy her a home because you think prices will be lower in ten years time.
In other words all you have is a theory which does not apply to the real world.

You say that like it's an unreasonable thing. People wait for lower prices to spend money all the time.

 

[bilby]

Less money means the money that exists is worth more - the process whereby money gets more valuable over time is called deflation, and it is bad because it discourages investment - why take a risk to increase your wealth, when you can get the same result by just holding on to your cash?

How would it be the same result, though? If a company is actually producing real wealth, then surely the return on your money is going to be better than the return from sitting on the cash, even if there is general deflation?

Sure. IF a company is producing real wealth. But not all companies do, and if you can tell in advance which will produce a good return, and which will go bust, then you should be the richest man alive.

So there is a risk to be built in to the expected return; you won't lose your stake if you invest it in your mattress. Each person will price risk differently, and each investment carries a different level of risk; but for any potential investor, there is a point at which deflation makes any investment more risky than hoarding cash.

- - - Updated - - -

What is the limit to the price for which that bar of gold will sell? At what point will one of the bidders hear a bid from the other that he cannot exceed?

When he has no more funds or credit.

And what limits credit? (Hint - nothing, because credit is just numbers, there is no theoretical limit to the amount that exists)

 

[tupac chopra]

That is an interesting theory, but in practice the world doesn't work like that. Try telling your wife that you are going to wait to buy her a home because you think prices will be lower in ten years time.
In other words all you have is a theory which does not apply to the real world.

You say that like it's an unreasonable thing. People wait for lower prices to spend money all the time.

They do and they don't. But even when they do,no one knows if the prices will be lower tomorrow or not anyway. Some people can gamble on that, and some gamble that they will be higher too, and some just buy.

Bilby doesn't understand that. He lives in some fantasy world where people know the future.

 

[bilby]

Less money means the money that exists is worth more - the process whereby money gets more valuable over time is called deflation, and it is bad because it discourages investment - why take a risk to increase your wealth, when you can get the same result by just holding on to your cash?

That is an interesting theory, but in practice the world doesn't work like that. Try telling your wife that you are going to wait to buy her a home because you think prices will be lower in ten years time.
In other words all you have is a theory which does not apply to the real world.

The reason that won't fly with my wife is that we don't currently have widespread deflation. Not because she wouldn't agree with me if we did.

Why buy a house today if it will lose value at a rate greater than the cost of renting the house?

 

[tupac chopra]

And what limits credit? (Hint - nothing, because credit is just numbers, there is no theoretical limit to the amount that exists)

Yet, again you live in some fantasy world. Haven't you ever tried to borrow money from a bank. They will want a whole lot of information that relates to the real world, not your fantasy world where credit is magically unlimited.

 

[bilby]

You say that like it's an unreasonable thing. People wait for lower prices to spend money all the time.

They do and they don't.

Nice to see you have a coherent basis for your position.

But even when they do,no one knows if the prices will be lower tomorrow or not anyway. Some people can gamble on that, and some gamble that they will be higher too, and some just buy.

Bilby doesn't understand that. He lives in some fantasy world where people know the future.

On the contrary; I live in the real world, where prices people are prepared to pay vary according (in part) to their estimates of the future value of things - including money.

 

[tupac chopra]

That is an interesting theory, but in practice the world doesn't work like that. Try telling your wife that you are going to wait to buy her a home because you think prices will be lower in ten years time.
In other words all you have is a theory which does not apply to the real world.

The reason that won't fly with my wife is that we don't currently have widespread deflation. Not because she wouldn't agree with me if we did.

Why buy a house today if it will lose value at a rate greater than the cost of renting the house?

You don't know that the future price of that house will be.
Some people think it will be higher and some lower. It's always that way.

You look in the rear vision mirror and imagine it's the road in front of you

 

[bilby]

And what limits credit? (Hint - nothing, because credit is just numbers, there is no theoretical limit to the amount that exists)

Yet, again you live in some fantasy world. Haven't you ever tried to borrow money from a bank. They will want a whole lot of information that relates to the real world, not your fantasy world where credit is magically unlimited.

OK; if there is a limit to credit, how much is it? Just a guess to the nearest million dollars will do - what is the maximum total amount of borrowing that can be done, worldwide? And why can't it be a million dollars more than that number?

Really, this is pathetic; It's like arguing with a creationist who thinks the second law of thermodynamics rules out evolution.

 

[bilby]

The reason that won't fly with my wife is that we don't currently have widespread deflation. Not because she wouldn't agree with me if we did.

Why buy a house today if it will lose value at a rate greater than the cost of renting the house?

You don't know that the future price of that house will be.

No; but nor do I have no idea at all.

I don't know what my house will be worth in 2020; but I can be fairly confident that the answer is not a thousand trillion dollars. There is a range of likely prices, in a probability distribution which peaks at the most likely value. Smart people would prefer to invest based on the location of that peak, rather than punting on the value being somewhere out on the tail of the distribution.

 

[tupac chopra]

Yet, again you live in some fantasy world. Haven't you ever tried to borrow money from a bank. They will want a whole lot of information that relates to the real world, not your fantasy world where credit is magically unlimited.

OK; if there is a limit to credit, how much is it? Just a guess to the nearest million dollars will do - what is the maximum total amount of borrowing that can be done, worldwide? And why can't it be a million dollars more than that number?

Don't you even know how banks work? You seem to be making out you are some kind of expert. I guess we can add this to the other things you are an "expert" at

 

[bilby]

OK; if there is a limit to credit, how much is it? Just a guess to the nearest million dollars will do - what is the maximum total amount of borrowing that can be done, worldwide? And why can't it be a million dollars more than that number?

Don't you even know how banks work? You seem to be making out you are some kind of expert. I guess we can add this to the other things you are an "expert" at

I know how banks work; but it seems you do not.

I am not an expert; but I am sufficiently well educated to be able to follow a technical discussion on economics by experts; and even to venture an opinion once in a while.

You, on the other hand, appear to be suffering from the Dunning-Kruger effect. Again.

First, learn the language. Then learn the basics. Then read and listen to lots of experts for a long time. Then do some hard thinking, and ask questions of the experts. Only then are you able to express an opinion without being thought a fool; and even then there will always be more to learn. That applies to all fields of knowledge, by the way; not just economics.

And yes, I have a very broad knowledge in a number of fields. I have worked bloody hard to gain that knowledge too - I didn't just wake up one morning and decide that my opinion was as good as everyone else's.

 

[tupac chopra]

- I didn't just wake up one morning and decide that my opinion was as good as everyone else's.

No I imagine you didn't. It seems deeper set than that

 

[bilby]

- I didn't just wake up one morning and decide that my opinion was as good as everyone else's.

No I imagine you didn't. It seems deeper set than that

Is there a point to these ad-hominem remarks, other than to distract people from your clearly incorrect, but on-topic, comments earlier?

 

[tupac chopra]

When he has no more funds or credit.

That isn't a fixed limit.

You don't have limit on your credit card?

 

[beero1000]

That isn't a fixed limit.

You don't have limit on your credit card?

You can't possibly be that dense. I'm out.