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| Let's Have Inflation |
| 2009-01-20 |
| Required reading: a word from my favorite deflationists — bond investors that have beaten all others handily, at Hoisington Investment Management (.pdf). They agree with my view that most of the actions taken by our government are useless or even counterproductive. They cite Kindleberger, Schumpeter, Minsky and Kondratieff. I would add in the Austrians. High levels of debt and debt complexity lead to large recessions/depressions eventually. High levels of debt and debt complexity rob an economic system of flexibility. So long as the debt is increasing, there can be one tremendous boom. But when the asset cash flows can no longer carry the debt, the system goes into reverse, with falling asset values. During that time, monetary policy is useless, and fiscal policy is useless, until the debt levels are reconciled. |
| Posted by:g(r)omgoru |
| #14 Temporarily restrict legal immigration (and, of course, the other kind, too), and buy American. Don't laugh. Leftists who think they're liberals (progressives, anyone?), a la those currently now in control, can be very draconian when their power is threatened. WE can do something about the latter. |
| Posted by: Hyper 2009-01-20 21:06 |
| #13 An excellent article at the pdf link. It illustrates the split between economists (at least from my amateur POV) On one side you have Fisher's debt-deflation analysis. When excess debt occurs deflation/depression will occur until the excess of debt is washed out of the system (after many years of pain) On the other side you have Friedman's THEORY, as opposed to Fisher's real life analysis(he himself went bankrupt during the depression) Friedman postulated that it was a contraction in money supply which caused the depression. Bernanke is a follower of Friedman and will maintain or increase money supply.(How, I've got no idea, he has used up his monetary options and is only left with fiscal options. So unless there is massive cuts in government expenditure, nothing much is going to happen there. So Fisher's depression/deflation V. Friedman's recession/inflation. Interesting times ahead. |
| Posted by: tipper 2009-01-20 16:36 |
| #12 M Murcek "How to protect the garden out back" Male dogs, dont have to be danes, main use is to sound the alarm, your job is to respond with a weapon (12 gage shotgun preferably) |
| Posted by: Rednek Jim 2009-01-20 16:07 |
| #11 Also, consider how / where / what savers save. If it's put in the wrong kind of savings, the gummint can expropriate it any time in the name of "the national good." REAL money in the mattress, bars on windows, crates of .223 ball looking better all the time. How to protect the garden out back, I know not... |
| Posted by: M. Murcek 2009-01-20 14:29 |
| #10 Remember 70% of the US economy depends on consumers consuming (not on their saving). Shrinking that part of the economy & replacing it with saving/production will be extremely painful. |
| Posted by: Anguper Hupomosing9418 2009-01-20 12:22 |
| #9 Tugwell's The Dreamer I am strong. I am big and well made. I am sick of a nation’s stenches. I am sick of propertied czars. I have dreamed my great dream of their passing. I have gathered my tools and my charts. My plans are finished and practical. I shall roll up my sleeves – and make America over. The traditional incentives, hope of money-making and fear of money-loss, will be weakened, and a kind of civil-service loyalty and fervor will need to grow gradually into acceptance. Rexford Tugwell |
| Posted by: Besoeker 2009-01-20 11:51 |
| #8 The government has set an example regarding living beyond its means so it is a surprise that many Americans followed? Don't get me wrong, credit is wonderful and makes things far easier, but every high school should have some basic courses on never getting into debt and having a couple months salary saved away in case. |
| Posted by: rjschwarz 2009-01-20 11:47 |
| #7 Unquestionably this crisis will change the habits of the American people. Or more properly the young people (my children) who come of age during this crisis (which will not end soon) will acquire habits of frugality they will retain throughout their lives as their spendthrift debtor parents (my peers) leave the population after declining into poverty and the American people will have changed. It has all happened before and it will again. Read this book to understand why. |
| Posted by: Nimble Spemble 2009-01-20 11:31 |
| #6 While we're on the subject of spending/saving habits, do you think this 'crisis' has been/will be bad enough to permanently change Americans' spending/saving/borrowing habits like the depression did to the following 2 generations? My guess is it has not yet, but if the economy does what I fear it might, it probably will. |
| Posted by: bigjim-ky 2009-01-20 10:55 |
| #5 Anonymoose, I think you are right about a few things, but we don't need state issued currency when we have gold. I'm not a gold bug, but I think I may change my views in the near future. Gold and Silver specie are the only money that really have any value in my mind. |
| Posted by: bigjim-ky 2009-01-20 10:52 |
| #4 Good posts & info, thanks. I humbly bow before your superior grasp of macro/micro economics, etc. (no snark intended) |
| Posted by: Andy Ulusoque aka Broadhead6 2009-01-20 10:30 |
| #3 If consumers keep their money tight then the consumer sector is not going to witness hyper inflation. Even with prices at the pumps radically down from just a couple of months ago, it appears the public is not going back to its previous level of consumption. Neither did the public bite on the hyped pseudo sales before and after Christmas. If indeed thrift has infected enough of the population, there still won't be more money chasing fewer goods as the behavior and priorities of consumption has changed. |
| Posted by: Procopius2k 2009-01-20 10:26 |
| #2 Neither inflation nor economic growth will work this time, unlike in the past 60 years when they did work, because the easy credit economy has been stretched far beyond its limits. Artificial economic edifices were created that should not have been, and cannot continue to exist on their own. They have to collapse. Most policy makers, and even many economists, have become convinced that money is just created by fiat, out of thin air, and can be done so indefinitely. What an amazing yet improbable notion. One that does not stand up with examination. The best we can hope for now is that the real economy, of goods and services is protected during the collapse of the imaginary, leverage economy. And in doing so, people, Americans, are not neglected and come to serious harm by not having shelter and food. States should be encouraged to create provisional script currencies (not legal tender), as stable complementary currencies to the USD, which may be whipsawed by deflation, hyperinflation, and even bank paper runs. Kept under strict control, they keep commerce flowing, allow USDs to be pooled to buy things the State doesn't have in abundance (imports from other States), protect local and State tax revenues, and overall mitigate a recession or depression in that area. In a time of deflation, a State currency provides a common currency for trade, acting as a substitute of scarce dollars, easing deflationary pressures. While a pound of hamburger may cost only a US nickel, yet nobody has nickels, it may alternatively cost 1SC scrip, like a dollar, that many people have. Thus hamburger can be bought and sold, and nickels are under less pressure. In a time of hyperinflation, when a pound of hamburger costs $100, it still alternatively only costs 1SC scrip. So people don't have to dash to the store with their paycheck to buy before the prices jump again. Again, taking pressure off inflation. The iron rule of currency is that "bad money pushes out good". This means that people want to save good money, but spend bad money as quickly as possible. But a complementary currency biases this iron rule, because it is an artificially bad currency. A SC scrip is functionally worthless, that is, it is not legal tender. However, when the dollar is under deflationary or inflationary pressure, or just shortage pressure, it gives an SC scrip value, and in turn, the scrip normalizes the dollar. That is, what is the bad currency and what is the good currency? It actually fights with the USD, and forces it to take the opposite side of the iron rule than it should, which helps it considerably. So right now, States should be encouraged to create the enabling legislation they need to create a SC, under an emergency order by their governor. It will both protect them, and help the USD recover as well. |
| Posted by: Anonymoose 2009-01-20 10:13 |
| #1 Asset deflation causes inflation. As asset values deflate less is invested in new productive assets and the supply of consumables from those productive assets decreases causing inflation. We going to see an enormous inflationary surge as the supply gaps hit from the many chip factories, car plants, metal mines, etc which are currently being closed or not built. |
| Posted by: phil_b 2009-01-20 09:48 |