What Deflation Really Does to Wages
- The increase in nominal wages was slower than the increase in prices caused by the monetary inflation. In other words real wages fell.
- As far as it concerned the workers' incomes this effect was partly offset by the decline in unemployment which accompanied the depreciation of the Mark.
"In that period real wages fell appreciably. The real wages of miners, which in the middle of 1921 were about 90% of the pre-war level, were scarcely 50% to 60% of the same at the end of 1922."
"A consequence of the fall in real wages was the continued fall in the ratio of wages to the total cost of production. For example, according to the results of an official inquiry in the textile industry, for most products the percentages of wages in the total cost of production was, towards the end of the inflation, much lower than the figures calculated for 1913."
"It has long been recognized, by the business world and by economists alike, that a period of rising prices acts as a stimulus to enterprise and is beneficial to business men."
"There is a massive misconception about where the Bernanke Fed's stimulus landed. Although the Bernanke Fed has disbursed $2.284 trillion in new money (the monetary base) since August 1, 2008, one month before the 2008 financial crisis, 81.5 percent now sits idle as excess reserves in private banks."The banks are not required to hold excess reserves. The excess reserves exploded from $831 billion in August 2008 to $1.863 trillion on June 14, 2013. The excess reserves of the nation's private banks had previously stayed at nearly zero since 1959 as seen on the St. Louis Fed's chart."
"This 81.5 percent explosion in idle excess reserves means that the Bernanke Fed's new money issues of $85 billion each month have never been a big stimulus. Approximately 81.5 percent (or $69.27 billion) is either bought by banks or deposited into banks where it sits idle as excess reserves."The rest of the $85 billion, approximately 18.5 percent (or $15.72 billion), continues to circulate or is held as required reserves on banks' deposit accounts (unlike unrequired excess reserves)."
"You don't need a PhD economist to know that if you pay banks 1⁄4 percent risk free interest to hold reserves that they can obtain at near zero interest, that would be an incentive to hold the reserves."
"Well go buy something, whether at the grocery store, the drug store, the broom and mop store, and there is inflation everywhere. I have so many types of businesses so I buy everything from labor, to mops, to food, to shrimp, to steak and everything is more expensive. We are raising prices: that's why right now you pay more for an airline ticket, you pay more for a hotel room, you pay more for a pot of coffee. There is huge inflation going on right now."