[tq4F7YKs]

Reaganomics... Control inflation by reducing the money supply.

IMO, supply-side economics relies on a stable economy, or at least one with a lot less problems. Without a stimulus somewhere it won't really matter what is done.

Though I'm no economic guru and could be completely wrong.

[foonlesse]

Books on Tape will now be called "Books"

and

What we currently refer to as books will now be called "Books on paper"

[Unlinozistimi]

Japher, that's always how the fed controls inflation. They manipulate interest rates, which changes the money supply

Spencer, the reason that the fed has increased the money supply so much is that the banks (and others) have deleveraged greatly over the past little while, while monetary velocity dropped like a rock. As those conditions begin to reverse themselves the fed will increase interest rates, decreasing the money supply and attempting to maintain the US on a relatively stable inflation path. This problem is what's become referred to as the fed's "exit strategy". Luckily, the fed has all the tools it needs to do this in a relatively responsive way. I wouldn't be surprised if they under- or over-shoot slightly, due to the scale of the disruption, but in general it will be handled quietly and effectively.

The real problem in the 70s was that there was such high inflation for so long that inflation EXPECTATIONS had gone way up. People expected prices to increase, so they increased their own prices. To reverse these expectations, the Fed had to take drastic steps. Inflation expectations are nowhere near where they were. In fact, the US is still teetering on the brink of deflation.

This brings up the idea of one reason why deflation is a more troubling effect than inflation; there is a lower bound to interest rates, namely 0% (if you attempt to reduce it below that people simply move into cash, which returns 0%). The fed is impotent, using standard open market operations, to counter deflation when interest rates are at 0%. There is no such problem on the upside.

EDIT: meant "interest", had written "inflation"

[Natashasuw]

Japher, that's always how the fed controls inflation. They manipulate interest rates, which changes the money supply

Spencer, the reason that the fed has increased the money supply so much is that the banks (and others) have deleveraged greatly over the past little while, while monetary velocity dropped like a rock. As those conditions begin to reverse themselves the fed will increase interest rates, decreasing the money supply and attempting to maintain the US on a relatively stable inflation path. This problem is what's become referred to as the fed's "exit strategy". Luckily, the fed has all the tools it needs to do this in a relatively responsive way. I wouldn't be surprised if they under- or over-shoot slightly, due to the scale of the disruption, but in general it will be handled quietly and effectively.

The real problem in the 70s was that there was such high inflation for so long that inflation EXPECTATIONS had gone way up. People expected prices to increase, so they increased their own prices. To reverse these expectations, the Fed had to take drastic steps. Inflation expectations are nowhere near where they were. In fact, the US is still teetering on the brink of deflation.

This brings up the idea of one reason why deflation is a more troubling effect than inflation; there is a lower bound to interest rates, namely 0% (if you attempt to reduce it below that people simply move into cash, which returns 0%). The fed is impotent, using standard open market operations, to counter deflation when inflation rates are at 0%. There is no such problem on the upside.

Right on the money, no pun intended. You can increase money supply all you want but if it isn't going anywhere, so what?

[Nfvzjvcl]

Right on the money, no pun intended. You can increase money supply all you want but if it isn't going anywhere, so what?

Actually, changes in monetary velocity (defined for money supply M2, as it usually is) are much less important than is the ratio M2/M0 (leverage of banks)

The former changes appreciably during dislocations, but not as dramatically as leverage.

[oronozopiy]

I would add to KH's post that the Fed has zero practice in removing this magnitude of stimulation. In theory, there's nothing to it. But in reality, the Fed could fvck it up so that we have deflation or inflation. To guard against a possible fvckup into continued deflation, the Fed might accept a few years of elevated inflation.

[Ifroham4]

I would add to KH's post that the Fed has zero practice in removing this magnitude of stimulation. In theory, there's nothing to it. But in reality, the Fed could fvck it up so that we have deflation or inflation. To guard against a possible fvckup into continued deflation, the Fed might accept a few years of elevated inflation.

Dan, the upslope generally tends to be gentler than the downslope. I agree that they will err toward inflation, and that's fine with me. In fact, it should be their stated policy (targeting price path rather than instantaneous inflation rate)

[Zdmlscid]

Yes, and most importantly, only one very restrictive measure of money supply.

In fact, one reason that Milton Friedman's "money supply rule" is no longer favoured by serious macro policy people is that it's become apparent that broader measures of money supply have actually become less anchored to the money supply that the Fed controls.

Glenn Beck, in this case, does have a point; there has been monetary stimulus, and that will need to be withdrawn. However, there is no reason to believe that withdrawing it will be near as painful as the early 80s were under Volcker. Simply looking at the monetary base as a predictor of inflation is retarded.

[Zoxeeoy]

tuberski time?

[Zpxbawtz]

This brings up the idea of one reason why deflation is a more troubling effect than inflation; there is a lower bound to interest rates, namely 0% (if you attempt to reduce it below that people simply move into cash, which returns 0%). The fed is impotent, using standard open market operations, to counter deflation when inflation rates are at 0%. There is no such problem on the upside.

Temporary legalisation of robbery of cash would help.

[Mambattedge]

Pennies and nickels were being produced at a loss (not sure if this is still true, since commodity prices took a dive). Dollar bills are still profitable to print.

[Veveseinlep]

Pennies and nickels were being produced at a loss (not sure if this is still true, since commodity prices took a dive). Dollar bills are still profitable to print.

For pennies, this has been true since the earky seventies. The BEP changed the composition of nickles and quarters in that same era, to prevent their following. Recently, pennies and nickles both at deficit, as much from OH/handling costs as materials. The paper dollar gets lots of handling and is worn enough to be pulled from circulation in 18 months on average. The other bills last 3 to 5 years in circulation. So there have been suggestions to use only dollar coins. To do that, most cash registers would need to open a slot, thus the rumors that pennies and paper dollars are headed into history. So far, Congress remains unconvinced and won't authorize or fund a switchover.

Side note, the back of the penny changed again this year, guarenteeing high demand. Not a good way to convince Congress to allow the penny to go obsolete creating a space in registers for $1 coins.

[Zfdeisde]

Ordinary folk, when asked by their Congressman or pollsters, say they think they will be "cheated" on the rounding if the penny and nickle go away. The fact that this view seems silly to some of us is not what the Congress is responding in keeping the penny.

[Imampaictjg]

Agreed that the penny should have been eliminated ages ago.
The nickel probably should also but doing them both at the same time would probably not be a good idea, due to some possible perceptions problems that have been eluded to already.

[paypaltoegold1]

snoopy, that assumes that people are actually good at arithmetic (which they are not)

Decimal coinage is far preferable to any other type.

[Thorwaywhobia]

snoopy, that assumes that people are actually good at arithmetic (which they are not)

Decimal coinage is far preferable to any other type.

Nobody seriously suggested using the 1-3-11-37 coinage, it's pretty silly obviously. To me the more interesting bit was the uselessness of the dime...

[brilkyPlayday]

Also, I'm not sure that the study you cite would have considered dropping the penny; I bet they were attempting to allow people to recreate all current prices, and dropping the penny doesn't allow you to do that.

[68AttendGem]

It makes sense to me. Logaritmically, the dime is closer to both of its neighbours than any other piece of coinage.

Math Nerdgasm!

[artkolkovk]

at the thought that anything about the current situation is as bad as the late 70s/early 80s

[DownloadADOBEsoftware]

Reaganomics" was simply cutting taxes for the rich and running a massive deficit to stimulate the economy Uh, Congress was democrat. Reagan had no control over the budgetary spending approved by congress. That being said, he did cut taxes, which was the best thing he could have done. Cut taxes, raise interest rates, get business moving again.

Funny how when Reagan does it the wing nuts love it and when Obama does it, for almost the same reason, the wing nuts act like it is a terrible thing. Bush jr tried the same thing but instead of real stimulus he just wasted the money on wars and give aways to the top 1%. Which is why you are still at war, except now you are spending 5x as much? I have to say that's a brilliant way of campaigning. Maybe Obama should try cutting taxes rather than jacking them up. There's a spot for him on the clue train.