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By Stephen Green

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Point and Laugh (and Cry)

August 23, 2010 - 3:03 pm - by Stephen Green

It’s That ’70s Economy! Really — stagflation is set to make another comeback. Jeff Harding has the sharp analysis:

In economic terms, buying Treasury debt is called “monetizing” debt. In plain English it means that the government prints money to pay for its debts. This policy has been the downfall of many governments who destroy their currency through hyperinflation.

As soon as unemployment starts to go up again, and I believe it will, the politicians will be all over the Fed to “do something.” That “something” will be massive QE. I’m quite sure that the Fed hasn’t figured out how much QE they’ll need, and that they’re unsure of its impact on the economy.

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I have a pretty good idea of where it will all end up. Since they’re not dealing with the underlying problems, this papering over of the problems will lead to inflation and economic stagnation, a phenomenon we saw in the 1970s called “stagflation.”

Of course, Keynesian theory holds that you just can’t have stagnation and inflation at the same time — which is why anyone who’s spouted that nonsense even once since about 1978, should be ridiculed, and mercilessly.

Let’s start with Paul Krugman, shall we?

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4 Comments, 4 Threads

  1. 1. Evil Red Scandi

    Forgot the link: http://dailycapitalist.com/2010/08/20/the-road-to-stagflation/

    And also don’t forget the best alternative to Keyensian theory: Austrian theory. Lots of information at http://mises.org

    August 23, 2010 - 3:48 pm   Link to this Comment
  2. 2. ConservativeWanderer

    …anyone who’s spouted that nonsense even once since about 1978, should be ridiculed, and mercilessly.

    And those of us who warned that B-O would be Carter’s second term can sit back with a smug grin and say, “I told you so.”

    August 23, 2010 - 4:30 pm   Link to this Comment
  3. 3. Pursuit

    Amen my man. Tough thing is that it pays to be a debtor in inflationary times, but until we get there – and I believe it may be a year or so out, we’re going to see deflation. So pay-off debts now, get lean and ready, and then if (and it’s a big if) you can time it well, gitch yerself some of the sweet, sweet low interest 30 year money and make some solid real estate bets. Upside, some nice real returns in inflationary times, downside – you lose everything if I’m wrong!

    August 23, 2010 - 6:17 pm   Link to this Comment
  4. 4. rbj

    Whoever brings back disco, well I’m just going to go postal on him. You are warned.

    August 24, 2010 - 7:17 am   Link to this Comment