| Beware of Obama Inflation Crisis |
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| by Tom McGregor | Mon, Mar 23, 2009, 11:24 AM |
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Germans before World War II suffered under hyperinflation, in which they pushed wheelbarrows of currency to make ordinary purchases. The collapse of the currency caused the rise of the Nazi Party. The New York Post reports that, “nobody is saying this is going to happen in the King explained that For more than half a century, the Yet the financial world has become smaller and According to the Post, “nowadays, a lot of our debt is purchased by foreigners, including the government of To read the entire article from the New York Post, link here:
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Comments (14)
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written by Ned Brown , March 23, 2009 TOM : You are correct to be concerned here : but the real, present problem for America is a total lack of leadership. Have you seen the fool that is showing up on the T.V. shows as a spokesperson for OBAMA and is his chair of the Council of Economic Advosors : she is a complete idiot : obviously she has no real world experience or capabilities. OBAMA is the same way. The people who are supposed to be out present "leaders" are a pack of "losers" some of whom have been given degrees of various sorts by elite schools, where "special" people sit around and assume that even if they do not know when [or how] to walk in out of the rain [or even know when, or whether it is raining] they are special people who are destined to tell normal people what to do and when and how to do it.
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written by Shadrach , March 23, 2009 I know many people on this board think everyone who is not GOP precinct chair is a moron, but that is simply not the case. Every increase in money supply does not produce inflation. Unlike in 1920's Germany, the cause and effect of money supply, productivity and inflation is well understood by all the major world Central Banks, including the Fed. For a detailed analysis, please see the St. Loius' Federal Reserve Bank's policy paper on the topic: http://research.stlouisfed.org.../Gavin.pdf As the report makes clear, pumping money into the system is a management technique in a recession that is not irreversible. The Fed can create and uncreate money supply with a variety of tools. But it must do so with reference to the need and effect of doing so. Yes, if the Fed pumps too much money into the system, inflation may result. However, this can be and is being avoided by matching increases in the money supply to contraction in the credit markets and other sources of funds. Thus, this current increase in money supply can stop the recession without necessarily creating increased inflation. As we come out of the recession, inflation will be avoided as long as the fed mathces the economy's increased productivity with a reduction in the money supply. In fact, if not for the Fed's action, there might have been deflation. Think about the Fed as the Thermostat -- when the recession came on, the economy went cold, and increasing the money supply was like turning the heater on. As long as the thermostat clicks the heat off when it gets hot again, we will be capable of avoiding "overheating" and the inflation that results.
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written by Amy in Austin , March 23, 2009 Tom-you must be one of those single issue Republicans (down with immigration or abortion?) because you obviously don't care about the market. Producing these kinds of myopic, nonsensical posts will keep people away from the stock market even longer. Not good if you have a 401 (k)..though I'm pretty sure all the Republican viewers on this blog are not exactly Country Club Republicans judging from their ridiculous comments. Jesus will save us. Not to worry.
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written by Amy in Austin , March 23, 2009 Why is the stock market up 300 points? I know it has nothing to do with anything good on Obama's part, so please illuminate me, my bright friends! P.S. How ironic that the Nazi Party is mentioned on this blog. Pretty sure half the bloggers are truly inspired by the Nazi party.
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written by jb , March 24, 2009 "Pretty sure half the bloggers are truly inspired by the Nazi party." [yet another bigotry inspired comment from Amy in Austin] Hmmmmm.......the ugliness speaks for itself.......
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written by ElHombre , March 24, 2009 Conservatives suddenly re-discovering their commitment to fiscal discipline as soon as a Dem takes the White House. Nobody could have predicted... blah, blah, blah. Soory, conservatives. You have absolutely NO credibility on anything to do with government. And you have only yourselves to blame.
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written by HSH , March 24, 2009 To Ned Brown: You are a sexist pig. Christina Romer has an amazing resume and is very talented and capable of handing the gigantic mess left by the train wreck of the previous 8 years. If anyone can do it, she can. Maybe you should check her out before you start disparaging her. She is an expert at macroeconomic volatility before and after World War II (if you even know what that means) and the Great Depression, among many other things.
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written by Steve Heath , March 24, 2009 ElHombre - there are a lot of conservatives who have been consistent for many years on fiscal matters - -i.e. -Ron Paul. There are a lot of Republicans who have been opposed to the profligate spending of their own republican leaders - that being said, if they continued to vote for these so-called "conservatives" who spent like drunken sailors -whether it be on foolish, immoral wars, or pork-laden medicaid prescription bills, etc. - then you are perfectly justified in claiming they have no credibility. I didn't vote for these types - at least not in the last 9 years. I figured out you have to read beyond the phony campaign propaganda to see who is really telling the truth. George Bush - Cornyn, Sessions, Hutchinson -or the phony conservative Tom Delay - the list goes on and on. These types have certainly done great harm to the conservative cause. Probably because they are not really conservatives. They're just a bunch of phony politicians who have their own agenda -or at least the agenda of the special interests that own them.
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written by Amy in Austin , March 24, 2009 It's "BIGOTED", jb, not "bigotry". Though thanks for proving my point about the sophistication of my Republican friends on this blog. Oh, and make that 500 points.
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written by Dallasite1 , March 25, 2009 @Shadrach: First, I'd like to thank you for a well thought out post. Unlike the others on this blog, it wasn't filled with hate, Bush Derangement Syndrom, or snarkiness. Having said that, I disagree with some of your conclusions. @"Every increase in money supply does not produce inflation. Unlike in 1920's Germany, the cause and effect of money supply, productivity and inflation is well understood by all the major world Central Banks, including the Fed. " True, but the Fed hasn't exactly acted very responsibly either leading up to this mess, or handling the resulting fallout. Other powers across the globe seem to be convinced that the Fed's actions will lead to a weaker dollar, as evidenced by both Russia and China pushing for a different currency reserve system. @"The Fed can create and uncreate money supply with a variety of tools." Except the Fed isn't the only entity that has control over the value of the dollar. With its $2 trillion in US cash reserves, China could destroy the dollar with nothing but a press conference. @"Yes, if the Fed pumps too much money into the system, inflation may result. However, this can be and is being avoided by matching increases in the money supply to contraction in the credit markets and other sources of funds." Except that the sole purpose of this action is to loosen credit markets, not contract them. Couple this with the $2 trillion 2009 deficit, and they are risking a massive, uncontrolled drop in the value of the dollar. @"As we come out of the recession, inflation will be avoided as long as the fed mathces the economy's increased productivity with a reduction in the money supply." That relies on the assumption that we are coming out of the recession soon. If this is a long recession, and it looks to be one, then they just bankrupted the United States. DS
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written by Dallasite1 , March 25, 2009 @ElHombre: "Conservatives suddenly re-discovering their commitment to fiscal discipline as soon as a Dem takes the White House. Nobody could have predicted... blah, blah, blah." Trying to compare fiscal Conservatives to the Republican Party of the last eight years is like comparing apples to engine blocks. "Soory, conservatives. You have absolutely NO credibility on anything to do with government. And you have only yourselves to blame." The GOP screwed up big time, but that doesn't give the Democratic Party a free ticket to screw up even worse, and it most certainly isn't relevant in whether the current Administration's policies are helping or hurting. It is nothing but a strawman to keep you from having to come up with a defense for the indefensible.
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written by Shadrach , March 25, 2009 DS1: Thanks for the polite comments. My replies: ------------- I said, "The Fed can create and uncreate money supply with a variety of tools." You Responded: "Except the Fed isn't the only entity that has control over the value of the dollar. With its $2 trillion in US cash reserves, China could destroy the dollar with nothing but a press conference." My reply: I think you overestimate China's power to do so since their currency is not even free floating. Even more, why would China do that? Their interests are in protecting their investments. China has too much invested in our government via direct cebt purchases, and their economy is too dependant on our markets. They might get mad at us, but their short term economic interests lie with us. ----------- I said, "Yes, if the Fed pumps too much money into the system, inflation may result. However, this can be and is being avoided by matching increases in the money supply to contraction in the credit markets and other sources of funds." Your Respponse: Except that the sole purpose of this action is to loosen credit markets, not contract them. Couple this with the $2 trillion 2009 deficit, and they are risking a massive, uncontrolled drop in the value of the dollar. My reply: My comment must not have been clear, you are correct, the purpose of expanding the money supply is to loosen credit markets. This action is a direct counter-measure to a credit tightening caused by recession. When credit tightens, there is a drop in economic activity. When money supply expands there is an expansion in economic activity. As a general rule, as long as the money supply expansion is equal to the contraction, there is no inflation. You are right that a "Money Drop" can lead to inflation, but only if the "Money Drop" is too big in comparison to the contraction. BTW- if the “Money Drop” is too big, the result is often stagflation, which is the presence of both inflation and the absence of economic expansion. ----------- I said: "As we come out of the recession, inflation will be avoided as long as the fed mathces the economy's increased productivity with a reduction in the money supply." Your Response: That relies on the assumption that we are coming out of the recession soon. If this is a long recession, and it looks to be one, then they just bankrupted the United States. My Reply: No, it does not rely on the presumption we are coming out of the recession soon. Rather it relies on the presumption that whenever we do come out of it, we will both (1) know we are; and (2) be able to respond quickly enough with actions that contract the money supply in a manner that can prevent inflation without killing the recovery. I do not know which is more or less likely to occur in the real world (quicker recovery or the Fed beiong able to act quickly and accordingly), but I will take these latter presumptions over letting the markets free fall. Your presumption that the spending required to pay for the current temporary bailout will "bankrupt" the company is invalid for two reasons. First, it ignores the cost of letting the market freefall and the resulting increase in the deficit caused by such a freefall. Second, it assumes that the current costs are not affordable in comparison. I believe in Capitalism, but I know that markets have limits. I also believe in the body, but the body has limits. My analogy is to a person who has broken his leg. Sure, maybe we have to borrow too much to go to the doctor to fix it; but if we do not, the leg might not heal right and is certainly to take a lot longer to heal forcing us to miss more work and lose salary. Thus in the end, not only is not seeing the doctor riskier, it is more costly too. Even though I believe in the body's capacity to heal, I also believe in medical intervention when necessary. Even more, when markets heal or the economy heals, it is no the doctor that did it is how a body works that does it. Similarly, if the Fed reacts timely to preserve any future expansion without creating stagflation or inflation, then it is not the Fed “working” it is the nature of capitalism to react to the medicine adminsitered. The problem is knowing how to calculate the costs when both the costs of action and inaction are not truly known. Your fellow citizen, Shadrach
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written by ElHombre , March 25, 2009 "Trying to compare fiscal Conservatives to the Republican Party of the last eight years..." 'Last eight years'?!? EIGHT?!?!?! Try the last THIRTY!!!
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written by Dallasite1 , March 25, 2009 Shadrach: @“I think you overestimate China's power to do so since their currency is not even free floating. Even more, why would China do that? Their interests are in protecting their investments. China has too much invested in our government via direct cebt purchases, and their economy is too dependant on our markets. They might get mad at us, but their short term economic interests lie with us.” First, it’s not their holdings in Chinese currency that affects us. It’s the $2 trillion in U.S. dollars that affects us. If the Chinese decide to announce to the world that they are dumping dollars, it really won’t matter if they dump them or not, the affect will be exponentially worse than the Great Depression. Second, who says that their interests are solely economic? China is openly hostile to U.S. interests. $2 trillion is a lot cheaper than waging war, and the outcome isn’t as uncertain. The U.S. has essentially handed the weapon to destroy us to our enemy. @“My comment must not have been clear…” It was perfectly clear. I just disagree with your conclusions. @“No, it does not rely on the presumption we are coming out of the recession soon. Rather it relies on the presumption that whenever we do come out of it, we will both (1) know we are; and (2) be able to respond quickly enough with actions that contract the money supply in a manner that can prevent inflation without killing the recovery.” Except that the ability for the gvt. to pay its obligations without incurring additional debt relies on economic growth. If it is a long recession, then we can expect even higher deficits than either the White House, or the CBO have predicted. Increasingly adding debt to a shrinking economy will most likely lead to inflation, at least in the short term. @“Your presumption that the spending required to pay for the current temporary bailout will "bankrupt" the company is invalid for two reasons. First, it ignores the cost of letting the market freefall…” The social cost of the market drop aside, the financial cost of a market collapse, to my knowledge, has not been estimated. It will be massive, and it will come with, or without, this “stimulus” plan. The current plan may delay it for a year, but it is coming. “…and the resulting increase in the deficit caused by such a freefall. Second, it assumes that the current costs are not affordable in comparison.” I’m assuming by “current costs” you are referring to the interest on the debt (debt service). You can’t add this much debt to an already overburdened system. Most of the new debt, that which was added as part of the stimulus plan, is permanent. That is, it isn’t a one time capital expense; it is a permanent increase in operating expenses (entitlements). http://tinyurl.com/dh7cqb Our national debt will soon exceed our GDP, and debt service will soon exceed all spending outside of Social Security and Medicare. This will lead to an untenable situation as the U.S. government will be unable to meet its financial obligations without raising taxes to a point that completely stagnates growth. The CBO, EU, China, Wall Street, and pretty much everyone but the American Left, agree with me on this. Write comment
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Some people may not fully comprehend the profound significance of the Federal Reserve’s decision this week to buy $300 billion of U.S. long-term debt, but ponder the words of Wall Street savvy Ben King, “it’s the nuclear option … commence the Weimar Watch.”
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