Deflation is not benign
In an economy where the money supply depends on the production of debt, deflation can never be a good thing. In fact as any cyclist can tell you, deflation means you aren't going anywhere.
More on this here.
From Carbon To Metals: the Renewable Energy Transition
The world is transitioning from a carbon-intensive to a metals-intensive economy. Low-carbon technologies use much larger amounts of metal than traditional fossil fuel-based systems. Demand for metals is thus rising exponentially, fuelling a boom in mining and production. But this creates an environmental challenge. Metals extraction and processing is a significant contributor to global warming and a major pollutant. Unless more environmentally-friendly ways of generating energy from renewable sources can be found, saving the planet from carbon emissions may prove extremely costly for our fellow creatures and even for ourselves. Climate change is driving a metals and mining boom The Paris Climate Agreement , which was ratified by 174 countries and the European Union in 2016, aims to keep global warming “well below” 2 degrees Celsius this century and ideally not more than 1.5 degrees Celsius. Achieving this challenging target is dependent to an unknown degree on factors outside gove
Not on topic to your post: but I have a question. Why is it that government interest payments as a percent of GDP are not quoted as a figure for understanding the effects of debt levels (flow vs flow scenerio). And why do we not see popularly discussed any theories about why this value may change over time (its velocity)?
ReplyDeleteMaybe you'll say such a figure is unimportant (I have no idea myself). But I think it would be a lot easier for the public to understand, and to frame policy choices about, than the popular debt/gdp framework that has provoked much unenlightened discussion.
I prefer to compare interest cost to gdp, rather than debt/gdp. As you say, it is better to compare like with like. Debt/gdp compares stocks and flows and therefore needs to used with caution, I would say.
DeleteRegarding the problem of deflation increasing the value of outstanding debts. Hypothetically that could be overcome if the credit system was changed and so the value of the debt was constantly recalculated by factoring in the inflation rate, if in reality the money supply effect on prices could really be measured accurately enough to do that though.
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ReplyDelete> Frances
considering your post would you agree that paying off debt increases the value of money, and so not paying off debt decreases the value of money the value of money, and so defaults on debt are inflationary.
No, I would not. Defaulted debts are written off and therefore destroy money in exactly the same way as if they were paid off. In effect, the lender pays the debt from profits. The effect is therefore contractionary. Additionally, widespread debt default destroys the value of assets, and that also has a contractionary effect - see Irving Fisher on this.
DeleteSo those debts are paid from commercial lender profits. If however the Central bank is the Lender, how is that scenario handled.
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