February 2011 | Kuch Khaas Hai...

What Is Deflation and How Can it Be Prevented?

Posted in Economics |

Monday, February 28, 2011|

Admin

Q: There is currently talk in the media about the possibility of deflation. I think I understand what deflation is, and the problems that deflation would entail. However, I also seem to recall that when the government prints money it causes inflation. It seems to me, given these two "facts", the government would only have to print money to avoid deflation. (Pretty simple minded approach!)

Is the problem that there is more to printing money than printing money? Is in fact the way printed money gets into circulation, that the fed buys bonds, and thus gets money into the economy? What is the logical rabbit trail that leads to inflation from printing money? Would solving deflation this way work with today's low interest rates? Why or why not?

A: Deflation has been a hot topic since about 2001 and the fear of deflation does not look like it will subside anytime soon. Thanks for the topic suggestion!

What is deflation?

The Glossary of Economics Terms defines deflation as occurring "when prices are declining over time. This is the opposite of inflation; when the inflation rate (by some measure) is negative, the economy is in a deflationary period."

The article Why Does Money Have Value? explains that inflation occurs when money becomes relatively less valuable than goods. Then deflation is simply the opposite, that over time money is becoming relatively more valuable than the other goods in the economy. Following the logic of that article, deflation can occur because of a combination of four factors:

1. The supply of money goes down.
2. The supply of other goods goes up.
3. Demand for money goes up.
4. Demand for other goods goes down.

Deflation generally occurs when the supply of goods rises faster than the supply of money, which is consistent with these four factors. These factors explain why the price of some goods increase over time while others decline. Personal computers have sharply dropped in price over the last fifteen years. This is because technological improvements have allowed the supply of computers to increase at a much faster rate than demand or the supply of money. During the 1980's there was a sharp increase in the price of 1950's baseball cards, due to a huge increase in demand and a basically fixed amount of supply of both cards and money. So your suggestion to increase the money supply if we're worried about deflation is a good one, as it follows the four factors above.

Before we decide that the Fed should increase the money supply, we have to determine how much of a problem deflation really is and how the Fed can influence the money supply. First we'll look at the problems caused by deflation.

Most economists agree that deflation is both a disease and a symptom of other problems in the economy. In Deflation: The Good, The Bad and the Ugly Don Luskin at Capitalism Magazine examines James Paulsen's differentation of "good deflation" and "bad deflation". Paulsen's definitions are clearly looking at deflation as a symptom of other changes in the economy. He describes "good deflation" as occuring when businesses are "able to constantly produce goods at lower and lower prices due to cost-cutting initiatives and efficiency gains". This is simply factor 2 "The supply of other goods goes up" on our list of the four factors which cause deflation. Paulsen refers to this as "good deflation" since it allows "GDP growth to remain strong, profit growth to surge and unemployment to fall without inflationary consequence."

"Bad deflation" is a more difficult concept to define. Paulsen simply states that "bad deflation has emerged because even though selling price inflation is still trending lower, corporations can no longer keep up with cost reductions and/or efficiency gains." Both Luskin and I have difficulty with that answer, as it seems like half an explanation. Luskin concludes that bad deflation is actually caused by "the revaluation of a country's monetary unit of account by that country's central bank". In essence this is really factor 1 "The supply of money goes down" from our list. So "bad deflation" is caused by a relative decline in the money supply and "good deflation" is caused by a relative increase in the supply of goods.

These definitions are inherently flawed because deflation is caused by relative changes. If the supply of goods in a year increases by 10% and the supply of money in that year increases by 3% causing deflation, is this "good deflation" or "bad deflation"? Since the supply of goods has increased, we have "good deflation", but since the central bank hasn't increased the money supply fast enough we should also have "bad deflation". Asking whether "goods" or "money" caused deflation is like asking "When you clap your hands, is the left hand or the right hand responsible for the sound?". Saying that "goods grew too fast" or "money grew too slowly" is inherently saying the same thing since we're comparing goods to money, so "good deflation" and "bad deflation" are terms that probably should be retired.

Looking at deflation as a disease tends to get more agreement among economists. Luskin says that the true problem with deflation is that it causes problems in business relationships: "If you are a borrower, you are contractually committed to making loan payments that represent more and more purchasing power -- while at the same time the asset you bought with the loan to begin with is declining in nominal price. If you are a lender, chances are that your borrower will default on your loan to him under such conditions."

Colin Asher, an economist at Nomura Securities, told Radio Free Europe that the problem with deflation is that "in deflation [there's] a declining spiral. Businesses make less profits so they cut back [on] employment. People feel less like spending money. Businesses then don't make any profits and everything works itself into a declining spiral." Deflation also has a psychological element as it "becomes rooted in peoples' psychologies and becomes self-perpetuating. Consumers are discouraged from buying expensive items like automobiles or homes because they know those things will be cheaper in the future."

Mark Gongloff at CNN Money agrees with these opinions. Gongloff explains that "when prices fall simply because people have no desire to buy -- leading to a vicious cycle of consumers postponing spending because they believe prices will fall further -- then businesses can't make a profit or pay off their debts, leading them to cut production and workers, leading to lower demand for goods, which leads to even lower prices."

Funniest Lost and Found Pet Signs

Posted in Humour |

Admin

Sparkling Pomegranate Splash and Mixed Citrus Margaritas

Posted in Drinks / Starters |

Admin

Best Camera for the Money

Posted in Gadgets/Gizmo |

Admin

Since there are so many camera manufacturers in the market with their unique lineup of products, it really becomes difficult for prospective camera buyers to choose the best camera for the money. Some of the best companies which offer effective and budget cameras are Sony, Nikon, Canon, Casio, and Panasonic. Point and shoot cameras are going from cheap to cheaper, whereas entry level DSLRs with lens are available at an affordable price. Read on, to get to know about few best cameras for the money.

Best Cameras for the Money - Point and Shoot

Sony Cyber-shot DSC-W310
Two of the main good things about this camera from Sony are that it produces the best quality pictures and also comes pretty cheap. In just about a $100, you get a 12 megapixel camera with 4x optical zoom, a 2.7 inch LCD, and the Smile Shutter and Face Detection functions. It is believed that when it comes to the best point and shoot cameras, Sony models top the list.

Nikon COOLPIX L24
Nikon is another reputed brand to produce affordable point and shoots. A good example is its new COOLPIX L24, which boasts of a 14 megapixel CCD with 3.6x optical zoom. It has got a 3-inch TFT-LCD for image viewing. Other good features include the Vibration Reduction (VR) Image Stabilization system and red-eye reduction. Nikon is offering this digital camera for around $120.

Canon PowerShot A800
The A800 is a new launch from Canon, which has a very affordable price tag of just about $90. Even at such an inexpensive price, it produces crystal clear images using its 10 megapixel sensor. It has got all that is required out of a point and shoot pocket camera. The 3.3x optical zoom contributes to clear snaps, whereas the a 2.5-inch TFT screen makes viewing pleasurable. Owing to features and price, it is surely the best camera for the money.

These are only three of the best point and shoot cameras present in respective showrooms. Now let us have a look at the best DSLRs for the money.

Best Cameras for the Money - DSLR

Nikon D3000
Nikon claims this model to be its 'friendliest DSLR ever'. It has a sturdy body with a 10.2 megapixel sensor and a 3-inch LCD screen. The product package includes the body and a AF-S DX NIKKOR 18-55mm f/3.5-5.6 VR lens. You may have to pay around $550 for the D3000, which is a good price for a DSLR for beginners.

Canon EOS Rebel T3
This is a newly launched DSLR camera from Canon. It is mounted with a 12.2 megapixel CMOS sensor and a 2.7 screen. It also has the feature to record HD videos and edit them with the inbuilt in-camera movie editing function. The sells pack comes with the device and EF-S 18-55mm f/3.5-5.6 IS Type II lens. The estimated retail price is suggested to be $600 approximately.

Sony DSLR-A290 (α290)
When it is a matter of best DSLR cameras, Sony is not opted for that much as compared to its primary rivals Nikon and Canon. However, it is known to come up with an impressive range of DSLRs. The Sony α290 is the most inexpensive DSLR from the brand which carries a 14.2 megapixel sensor, a 2.7 inch LCD, and a long lasting battery for a total of 500 shots in the optical viewfinder mode. At just about $420, you also get a 18-55 mm zoom camera lens with the package.

These are some of the best cameras for the money. I hope after reading this article, you would certainly be able to choose the best camera for the money and your digital photography needs. Note that the prices are estimated and may change over time and as per offers.

Chicken Salad Recipe

Posted in Receipes |

Admin

Chicken salads are arguably the best salads in the world and that’s mostly because they come loaded with a whole lot of yummy chicken. Apart from the chicken, there are quite a lot of equally delicious items you can incorporate into a chicken salad recipe. Here, you get to introduce your taste buds to the best of both the worlds, the best that hails from the non-vegetarian spectrum and the best that hails from the vegetarian spectrum. You can also feel free to experiment with the countless culinary options at your disposal. Nonetheless, experimenting always doesn’t pay off, because the chances of going wrong with your combinations always do exist! That is exactly why, at times, it can pay to stick to the beaten path and never move an inch away from the same. Go right ahead and read on to gain access to three delectable chicken salad recipes. These recipes apart from being extremely easy to put together can also help you get that much closer to a rather large plateau of good health!

Easy Chicken Salad Recipes

Curried Chicken Salad

Ingredients

2 Chicken breasts
¼ cup Celery (chopped)
4 Green Onions
2 tbsp Walnuts (chopped)
5 tbsp Mayonnaise
1 tsp Curry powder
1 tbsp fresh Parsley
Salt and Pepper (as per taste)

Method

Begin by halving, cooking and shredding the chicken breasts.
Put chicken in a large bowl and add celery, green onions and walnuts to it. Toast the ingredients for a few minutes.
Stir in the mayonnaise, the curry powder and the parsley. You can also add salt and pepper to finish off this step!
Your curried chicken salad is ready, stir ingredients for one last time before serving!

Favorite Chicken Salad

Ingredients

3 cups Chicken (cooked and diced)
½ cup Celery (diced)
4 tbsp Onions (chopped)
¼ cup Mayonnaise
A dash of Pepper
2 tsp Lemon juice
Salt (to taste)

Method

If the previous recipe was simple, this one is simpler! You can begin putting this recipe together by adding the chicken to a large bowl.
Go ahead and add the celery, onions, mayonnaise, pepper and lemon juice and salt to the bowl. Stir all ingredients well. Your ‘Favorite Chicken Salad’ is ready to be devoured.

Chicken Salad With Bacon

Ingredients

3 cups Chicken (cooked and diced)
4 strips Bacon (cooked and crumpled)
2 ribs Celery (thinly sliced)
1 cup Grapes (seedless and halved)
¾ cup Mayonnaise
2 tbsp Green Onions (chopped)
1 tbsp Parsley (dried)
1 tsp Lemon juice
¼ tsp Ginger (ground)
Salt and Pepper (as per taste)

Method

Start off by adding the chicken to a large bowl. You can then go on to add the strips of bacon and celery. Stir in these three ingredients for a few seconds.
Proceed to add the seedless grapes, mayonnaise, green onions, parsley, lemon juice and ground pepper to a separate bowl. Stir for half a minute or so! Once done with the stirring, go right ahead and add the mixture to the large bowl with the chicken in it!
Place the salad in the fridge and allow it to chill for an hour or so. Your salad is now ready for consumption.

You can choose any of the above mentioned chicken salad recipes and give it a shot. These delectable recipes are sure to make your folks and friends asking for more.