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The base rate is the rate at which the ECB lends to private banks. The ECB lends in a variety of ways. Its all on the ECB website.
They also take overnight deposits.
This totally ignores the basic function that money plays in an open economy! Me thinks it's for some 101 economics....
You were right! Holy crap! Ireland has no control via their Central Bank except for borrowing and paying back loans to the ECB. Quite sad isn't it. Sold their soul for a penny roll. Thanks for the chat
Ok, so let's look at the CPI. It is up, not down.We are in a deflationary period. You say its nonsense that the inflation rare is reducing? The CPI would be a better indicator (though not perfect) than individual markets. Auto insurance could be going up for instance due to more claims, loss of revenue from investments, profit etc. Oil and petrol, due to a lessened supply, a rise in demand, a consequence of peak oil, or IMO market speculation. Tax rises would be due to a fall in tax revenue because of an increase to benefit claims and a corresponding fall in GDP (job losses and a drop in corporation tax etc.), an attempt to balance the budget, etc. I dont think you will find any support for deflation by any economist. Prices get cheaper as the cash strapped public don't spend enough to keep businesses profitable. So businesses reduce their profit margins to weather the storm and reduce stock. As prices get cheaper, people hold on to their money expecting them to get cheaper, and cheaper. And thus businesses go bust, people lose their jobs and join the dole que which is reflected in higher taxes. Its important to note that the markets are anything but free. They are completely manipulated by speculators or even computers now a days (70% high frequency trading).
But we already have a 2% target, but rather than a ceiling it has become a floor. Any amount of new money added to an economy results in the overall price level being higher than it otherwise would be. If without newly added money the price level were to shrink by 5% but with new money it were to shrink by on 2% then there is still inflation, as prices would be higher than without the intervention.I had a quick look (3 hrs.) at the Positive Money website also (UK). It doesn't say that the central bank should create the money. It says an independent, accountable body with full transparency should create it. Government should have no influence as well as the Central Bank (as vote seeking politicians and profit seeking bankers can not be trusted) using all of the tools available to monitor the inflation rate (including mortgages) with a target set at (0% to 2%). I don't see how you can see this as inflationary let alone hyper inflationary. As the inflation rate rises, they stop creating currency. End of. The money will be created and spent democratically for social benefit, or it could be used to make up for a lessened tax revenue when regressive taxes are abolished (VAT)or tax being completely removed from the poorer in society, thus creating more spending power for the public at large to pay down debt or to spend. You advocate backing a currency with something that cant be easily created, but if the currency itself cannot be easily created, would it not make a reserve system obsolete and out dated?
It is also total nonsense to say that people do not buy stuff as the prices go down. There is absolutely no way you can say that less mobile phones and computers are being sold each year because prices are going down and quality up. As prices go down more people are able to afford the goods meaning that there are more potential customers.
This totally ignores the basic function that money plays in an open economy! Me thinks it's for some 101 economics....
Japan has not suffered deflation, their CPI is practically unchanged for the last 20 years. That is not deflation by any stretch of the imagination.The problem with economics is that it assumes people act rationally, despite ample evidence to the contrary! So yes in countries such as Ireland who have technically experienced deflation it has not been long enough to mould behaviour and so people tend to buy more when the prices start to fall. However in Japan, where they truly experienced long term deflation, things are indeed different - purchasing decisions are often put off by both individuals and companies on the basis that thing could well be cheaper in a few months time!
I well remember in the 1990s working with some Japanese people here in Switzerland, who were unimpressed with sales and special offers by the Swiss shops, as they always expected things would be cheaper next month anyways.... by the same token I remember we had a Brazilian woman with us, who for about the first six months kept acting as if she was still in Brazil, every month on pay day, she withdrew her salary from the bank and bought up as much goods as possible on the assumption that the prices would have doubled by the next month! In both cases it took many many months before they accepted that in Switzerland things were very stable and that we had neither rampant inflation or deflation...
The assumption that people act rationally is one of the reason why so many economic theories have crashed and burned over the years.
Irish money supply has been dropping because first of all corporations had to move their money to safer banks which simply do not exist in Ireland; and secondly because many private citizens moved their money out of the country, so it is technically no longer counted as Irish money supply, even though it is still held by Irish residents.The Irish Money supply is dropping year on year. By money supply I mean money in circulation bank-account money 94% and cash 6% in Ireland. what is happening is that the money supply is dropping year on year becasue the bank-account money in criculation is dropping. This explains the fall in all asset prices particularly houses and the increase in unemploymnet and emigration.
As Milton Friedman famously said it's all about the money supply and I mean the real money supply - the money in circualtion.
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