I see that there are at least some out there who share my frustration with the mainstream and professional economists.

Definition of deflation and general idiocy in the population at large.
by j on November 28th, 2008 at 5:16 am

(3 votes, average: 4 out of 5)
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I’m almost at my wits ends reading people’s comments abusing economic terms they don’t understand. Deflation this deflation that. Almost every single comment I see discussing deflation is a suggestion that we’re entering a deflationary period.

Even the idiot professor Roubini is incorrectly using the term.

Why are they saying this?

Because credit markets have had a second hole drilled for an anus, stocks are lower and or the real estate market is down.

The next person who makes such a comment again after reading this will be sent to fucking Gitmo for intellectual terrorism.
What we are currently experiencing is an adjustment; a cleaning up process by the market of previous mal-invesmtents. The adjustment is NOT deflation. Get it. It is pure and simply that: an adjustment process.

The correct definition of deflation is a material contraction in the money supply ( M1 and or broad money) accompanied with a falls in the general price level.

CPI is not an inflation/deflation index and the recent fall in the CPI was NOT deflation.

The next time I catch anyone at this site mentioning deflation in the incorrect way, I will hunt you down and have you publicly hung in the town square. I will then leave the body to be eaten by hungry dogs and cats.
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2 Responses to “Definition of deflation and general idiocy in the population at large.”
Treepart Says:

Zaqwan went looking for his basketball to take to the local court to play hoops. However upon finding his ball, he was disappointed to find that someone had deflationed it and he had no pump to inflation it back up.

“Treepart” it seems you brain has deflated as well

Try taking a smart pill

November 28th, 2008 at 7:14 am
Woodshedder Says:

j, I understand your point. However, it is really one of semantics.

If something has gone down, lowered, etc., it can be said that it has deflated.

Gas prices dropping? They have deflated. Gold prices dropping? Deflation.

Really, unless the conversation is particular to the issue of money supply, deflation is an accurate term.

November 28th, 2008 at 10:13 am
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I do have a couple of problems with the article however. The CPI is a measure of inflation/deflation, not the only measure mind, but certainly one of the measures.

The second problem revolves around the statement regarding a “contraction in the money supply,” constituting the correct definition of “deflation.” While for practical purposes this will suffice, the problem actually runs a little deeper, and concerns the true function of “money.”

Money is a unit of exchange. [hopefully a store of value] It is not however wealth. Wealth, measured in the ability to produce, is the correct measure of inflationary/deflationary forces. The measurement however is usually simplified within the measurement of units of exchange, money + credit.

The comments section however displays the true level of confusion within the terms. First, and most obviously, the definition of “deflation” outside of an economic context has been grafted onto an economic context, this is guaranteed to confuse the issue.

Second, let’s take one of the examples, and reframe it in “purchasing power” terms. If I am a holder of Gold, purchased at $1000/oz at the top of the market, and the price is now $800/oz, the price has fallen.

Is that “deflation?” Let me state a definition of the terms.

Inflation is a fall in purchasing power.
Deflation is an increase in purchasing power.

Thus, Gold has displayed inflation. A decrease in my purchasing power. Had Gold risen in price to $2000/oz, then, Gold would have been deflationary.

However, if we take Gold from a producer of Gold’s perspective, the picture changes somewhat. If I produce gold from a mining operation, then, we must start the calculation from the cost of production standpoint.

Cost of production………………….$250/oz

Under the two scenarios, we have radically different conclusions. If I produce gold @ $250/oz, then at $800/oz, I have increased my purchasing power, thus, gold could accurately be described as deflationary.

However, if my cost of production is $1000/oz, and gold is selling for the same $800/oz, then gold could be described as inflationary.

However the terms inflation & deflation do not define the isolated case, they define the aggregate of the economy. They are macro-terms, not micro-terms. Thus, even should gold on an individual basis be described under either scenario, it is irrelevant unless all prices, on aggregate indicate a specific condition.

The correct perspective however is to view the inflation/deflation question from the perspective of the producer.

In summary, the application of terms must in my view take into account as many of the variables and facts possible, prior to hanging the label of inflation/deflation. The media, unsurprisingly do not take account, which is not unexpected. What is unexpected is that “Nobel prize” winning economists, professional economists and others who should know better, make the same mistakes.