REVERSAL POINT
  • Home
    • Your Support
    • Privacy Policy
    • Terms of Use
    • Contact
  • Monetary Paradox
    • Monetary Wonderland
    • Shirakawa's Monetary Policy Paradox 1
    • Shirakawa's Monetary Policy Paradox 2
    • Minsky's Non-Neutral Money
    • Monetary Policy Paradox
  • Secular Cycle
    • Blog >
      • Bond Wave >
        • Monetary Regime Cycle and BitCoin
        • Paradigm Shifts in Monetary Regime along Bond Wave
    • Supra-secular rhythm
    • Secular Rhythm of Bond Wave >
      • Bond Wave Mapping 1: Paradigm Transformation in Interntional Monetary Regime
      • Bond Wave Mapping 2: Price & Inflation Cycles
      • Bond Wave Mapping 3: Private Debt Cycle
      • Bond Wave Mapping 4: Fiscal Cycle & Negative Real Yield Cycle
      • Bond Wave Mapping X: Political Cycle
      • Limited Gold Supply was a perennial problem for the Gold Standard: in search for Elastic Money and Scalability
  • Political Philosophy
    • Zeitgeist Zero Hour: Intro
    • Socrates Constitutional Cycle >
      • Socrates' Constitutional Cycle
      • Intrinsic value of Socrates Cycle
      • Contrast between Socrates vs Aristotle
    • Can we preserve democracy? >
      • Terminal Symptom of Democracy in Ancient World, Theoretical Views
      • Paradox of Equality & Aristotelean Paradox Management
      • Aristotelean Preservation of Constitutions
      • Contemporary Liberal Representative Democracy?
    • Old Contents >
      • Socrates' 5 Political Regimes
      • Socrates-Homer Hypothesis
      • Crassus & Trump: Socrates-Homer Hypothesis in Modern Context
  • Others
    • Price Evolution >
      • Oligopoly Price Cycle
      • Deflation >
        • Zero Boundary
        • Anecdote 1874-97
        • Deflationary Innovation
    • Innovation >
      • Introduction AI & ML & DL >
        • Chap1 ML Paradigm
        • Chap2 Generalization of ML
        • Chap3 DL Connectionism
        • Chap4 DL Learning Mechanism: Optimization Paradigm
        • Chap5 DL Revolution
        • Chap6 DL Carbon Footprint
        • Chap7 DL Underspecification
        • Chap8 CNN & Sequence Models
      • Map Risk Clusters of Neighbourhoods in the time of Pandemic
      • Confusing Blockchain >
        • Chapter 1: Linguistic Ambiguity
        • Chapter 2: Limitations in Consensus Protocols
        • Chapter 3-1: Disintermedition Myth-conceptions
        • Chapter 3-2: Autonomous Self-regulating Governance Myth-Conceptions
    • Environmental Distress >
      • Model Risk and Tail Risk of Climate-related Risks
  • Socrates' Constitutional Cycle

Price Evolution Readings

Occasionally, a drastic change in price level can exert an enormous power to transform our economic reality. This series contemplates what drives such a change in price dynamics.

Price Cycle​

Article 2-1
Oligopoly Price Cycle:
From Oligopoly to Deterrence Game ​
Transformation in Suppliers' Profit Strategies
The commodity price cycle is not an exception in manifesting paradoxical behaviours of human economic endeavours. This article illustrates an example of oligopoly’s collusion price and how supplier behaviour shapes the paradoxical commodity price cycle.

An oligopoly’s self-interest in creating a high collusion price fosters  a new problem—the expansion of new competitors, which leads to a contradictory consequence: its own strategic price destruction. This series of events reveals another paradoxical human economic endeavour. In brief, oligopoly pricing is ephemeral and might even be self-destructive, if not managed well and with vigilance.

​This article introduces a case of crude oil. (Click to Article 2-1 Oligopoly Price Cycle)


Deflation

Deflation increases the purchasing power of money, while inflation reduces it. In other words, deflation invokes the risk-free power from money; hyperinflation degenerates money into a highly risky asset. Deflation or inflation can change our psychology about  money.

Under the modern fiat money regime, deflation is deemed an absolute villain, while inflation is deemed moderately acceptable. This series explores deflation under the modern fiat money system.


Article 3-1
​Deflation: Introduction​
A sustained change in price level in either direction—inflation or  deflation—can be caused by several factors: monetary, demand, supply, or a combination of all three.

Deflation used to be a part of the regular economic cycle in the late 19th century United Kingdom (UK) under its gold standard regime. During that century, deflation and inflation alternated as if they cancelled each other out to maintain the equilibrium rate near 0% in the long run. During the 20th century, as the world gradually shifted into a fiat money regime, deflation disappeared from the UK. (Click to 3-1 Deflation Introduction)


Article 3-2
​Zero Boundary of Nominal Interest Rates​ (Click)
Why is deflation an absolute villain under modern fiat currency? In order to respond to this inquiry, we need to understand the constraint of modern fiat money, the zero-boundary of interest rate.

The current fiat money system creates an economic division between money deposited in a bank account, which is registered, and money hoarded at home, which is unregistered and untraceable. Negative savings rates could induce savers to withdraw their deposits and hoard them at home in order to avoid charges arising from negative interest rate policies. This would be disastrous for banks, as they rely on savers’ deposits to fund their lending business. In principle, modern fiat money sets the lower boundary at zero rate for interest rates on general transactions on the street. While central bankers can introduce negative interest rates into policy rates, which has enforceability among regulated banks, the private sector has to ensure that the majority of interest rates used for daily transactions, especially savings rates, remain positive. Consequently, a deflation that could demand a negative interest rate is an absolute villain. In brief, the structure of modern fiat money is asymmetric. Under modern fiat money, savings rates can be set to the sky toward the upside and constrained at zero toward the down side. Nevertheless, policy rates can go negative as an exception because of their enforceability on regulated banks through reserve accounts in the central banks.

In order to enable the central bank to enforce negative interest rates in a broader area in the economy, a monetary reform would be necessary to make money traceable universally, therefore, registered. One solution is emerging in the modern digitalised world: encrypted digital currency that could enable the central bank to uniformly apply interest rates negative or positive. But, are they prepared to do so? (Click to Article 3-2: ​Zero Boundary of Nominal Interest Rates​)


​Article 3-3
​Historical Anecdote of Deflation in UK 1874-97 (Click)
In our modern time, where money is fiat and floating currencies, the central bank, in principle, can print money infinitely. In this setting, central banks appear to be able to inflate price levels at will. In other words, deflation appears unlikely to be a monetary phenomenon. Apart from monetary causes, what could cause deflation? Do we encounter any parallels to historical deflation events in the past?

​This article undertakes a heuristic inquiry  into the causes of deflation with reference to the historical case of deflation during 1874-97. During this period, there were prominent events among major contemporary economies, including international monetary convergence toward the gold standard, technological convergences, and the development of a foreign labour market. This article summarizes those historical facts to address whether any parallel can be drawn to our contemporary deflationary pressure. (​Click to: ​Historical Anecdote of Deflation in UK 1874-97) 


​Article 3-4
​Deflationary Innovation (Click)
Innovation by itself is deflationary. It reduces per-unit production costs and lowers  sales price levels. Besides that, what impact could innovation have on the economy? Is it positive or negative? This article addresses the uncertainties surrounding the economic consequences of innovation.

Under an orthodox macroeconomic synthesis, innovation is expected to yield benign supply-driven deflation, which leads to an increase in production output. However, if innovation destroys a significant amount of legacy jobs on a net basis, it could impair demand. Consequently, benign supply-driven deflation transforms to malign demand-driven deflation. Overall as a net effect, its macroeconomic consequence could be contractionary. Therefore, the economic consequences of innovation remain uncertain.

Jarvis addresses a modern case of destructive economic impact of innovation; Stiglitz and Greenwald address a revisionary view of the Great Depression that innovation might have caused the price destruction; and Broadberry outlines the historical cost-destruction impact of 19th century innovation.

The recent innovative transformation has yielded a positive impact: it promoted a customized, decentralized method of conducting businesses. Network externalities incorporated by modern innovative systems now make it easier and cheaper for locally based, small-scale entrepreneurs with customized products to expand their market access to a wider geographical area without having a large hierarchical organization. This is a new ecosystem. This is an already-happening new paradigm. (Click to Article 3-4: Deflationary Innovation)

​Copyright © 2015 by Michio Suginoo. All rights reserved.

Proudly powered by Weebly