What’s the definition of stupidity? Repeating anything from the Seventies. And yet:
BOSTON — The Federal Reserve chairman, Ben S. Bernanke, sent a clear signal on Friday that the central bank was poised to take additional steps to try to fight persistently low inflation and high unemployment.
“Given the committee’s objectives, there would appear — all else being equal — to be a case for further action,” he said in a detailed speech at a gathering of economists here.
AdvertisementMr. Bernanke noted that “unconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used.” But he suggested that the Fed was prepared to manage the risks associated with the most powerful tool remaining in the Fed’s arsenal of weapons to stimulate the economy: vast new purchases of government debt to lower long-term interest rates.
The problem with this economy isn’t low interest rates. (Actually, it is a problem — but not in the way the Fed thinks it’s a problem.) The problem with this economy is the fundamental uncertainty created by the endless tax and regulatory schemes foisted on top of it by this viciously anti-free market administration, and by this Congress, which wouldn’t recognize the Law of Unintended Consequences if it stole Nancy Pelosi’s gavel and banged them all about the head and shoulders with it.
So what’s the problem with low interest rates? Well — rates are so low that it no longer really costs anything to borrow money. And when something’s free, people get stupid. Because prices, as they teach in Econ 101, are information. Prices are signals as to what something is worth. So when the Fed tells everyone that the dollar is essentially worthless — people will behave accordingly.
Borrow money for free? Great — so why risk it in a business venture, when you can stick it into commodities? Because commodities, usually valued in dollars, will go up, up, up, as the Fed continues to print those dollars it then lets you borrow for free. Heck, people could just borrow some of that free money and just convert it into euros for instant profit. Oh, wait — people have been doing just that.
Let’s add something else to the mix. Yes, our economy is frozen in place, thanks to Obamacare, Obamataxhikes, and the undead threat of Cap & Obama. And now the Fed is promising inflation! It’s coming! Here’s yet another fundamental uncertainty — about the very value of the dollars you work and take risk for! — being added on top of everything else.
Avoid profanities or foul language unless it is contained in a necessary quote or is relevant to the comment.
Stephen, can we start swearing yet?
Yes.
F………………..ck!!!!
Thanks, I needed that. Now, I’m going to go save up to buy my $84.00 loaf of bread.
If “cap & FU*K You, AMerica!” eventually goes through (gawd forbid), you can bet that our food prices will go through the roof! Right now, decent food can be procured relatively cheaply if you are able to shop around (and can afford the gas to do so [!!]).
No more Hanky-Panky with Bernanke!
Release the HOUNDS!
Dammit. I should have bought a ton of Euros when they tanked because Greece went to hell. Now, I’m stuck with dollars in an economy that’s going the way of Greece.
Time to build a compound in Colorado next to an abandoned gold mine and wait for everything to fall apart. /Shrug
It looks like Chris Christie could do just fine as the 2nd coming of RR and I’m assuming Christie can find himself a disciplined Fed Chairman.
But, yeah, the economy does call to mind Wiley Coyote just going over the cliff.
The expectation of easing is already causing problems.
Without addressing the constraints on supply for energy and commodities, easing just raises costs and decreasing incomes for the general population. This means they need to save more, but are unable to. It creates more uncretainty and makes investment impossible. Only if prices actually lead to increased investment in production and bring down the relative cost of consumable to labor can things improve.
The uncretainty can slow money down and actually cause deflation.
“Without addressing the constraints on supply for energy and commodities”
Don’t give them any ideas!!!
To clarify, as the cost of everyday consumables rise, there’s less money for rent, mortgage, bigger ticket items, and investment. Cost of living rises, but overall, prices fall.
Oh great, the second coming of disco and leisure suits. That’s a big 10-4, good buddy.
VDH has the 10-step program on How to Turn a Recession into a Depression.
And then there’s the demographic wild card: Never in US history has there been as many people over the age of 60, which makes the need for a growing economy even greater.
I think we should get some ideas straight. Price, cost and value are not necessarily all the same thing.
If we devalue the dollar by flooding the market with paper that has nothing behind it, we devalue the currency. It has less purchasing power.
The “price” could stay the same on an item, but it would take more devalued dollars to acquire it.
The “cost” to produce that item might stay the same, or be impacted by other factors, not the least of which…the “price” of materials to produce it.
People don’t seem to like numbers or to dig too deeply into economics, but suffice it to say that listening to Paul Krugman won’t make them any smarter.
Our huge, deep, abiding, lingering, horrendous problem…is that our largest financial institutions are sitting on the a time bomb. Our entire residential and commercial property system is a powder keg in a match factory.
We can’t get a decent road map back to fiscal sanity without lighting these matches. And the leftists are looking around for someone to blame for the explosion.
Real estate value across the board needs a massive correction. The leftists gave the financial world a ton of lemons to suck on, the financial world took them and made lemonade…and the lemonade has salmonella and we have to drink it.
And unless and until we do…there will be no recovery. Period. End of report.
P-p-p-paul K-k-k-krugman?!?! Oh NO – you said the K word! Now I need the brain bleach. And did that guy actually say he wants to *increase* inflation to help the economy? Holy idiocy, Batman, I thought I read that wrong.
I’ll second your comment about him needing to go. Only thing is I don’t think that is the powers that be plan for the US. One thing about today’s speech (pretty much a slight of hand speech) is that people better be keeping an eye on the gold and silver markets next week.
The Fed? It is a public holding company. The same type of central bank Andrew Jackson said would have global interests, not national intrests in it’s heart. Clinton made the Fed worse.
Add our government using tax payer money to bail out countries holding the housing bubble toxic assects, and we are now in deep do do. America in hock to the CHICOMMS, and bailing out the New World Order, with millions on the sugar tit. WTF over?
How about we just get rid of the evil, parasitic, misanthropic federal reserve bank, permanently?
“The Federal Reserve chairman needs to go. Immediately. Before interest rates, the inflation rate, and the unemployment rate are all stuck in double digits.”
The above are already in double didgets. Only unemployment will remain thus. The other two will exceed double didgets.
I always knew Obama was the second term of the Carter administration. Wow, we’re headed back to the seventies. Let me dust off my bell bottoms, my disco shirt, and my 8-track stereo and I’m right there with you guys. I think I’m going outside now to stand in oncoming traffic. Ugh.
The problem is stated here: http://network.nationalpost.com/NP/blogs/fullcomment/archive/2010/03/10/75-years-of-funny-money.aspx
Printing more money will not solve the problem, as we see here: http://www.financialpost.com/Plan+monetary+policy/3661581/story.html
The result will include this: http://www.metronews.ca/calgary/comment/article/662909–latest-bank-scandal-may-be-massive-countrywide-fraud
An alternative is to have a currency backed by commodities, or a currency board, as communicated here by David Frum (amidst other stuff): http://guidoromero.wordpress.com/2010/02/04/greece-under-eu-protectorate/
A Carter rerun? I don’t know, the more Obama prefaces his explanations with “Let me make this perfectly clear,” the more he sounds like Nixon and his New Federalism (pre-Watergate), Nixon’s new war on drugs ( man made natural disasters), and Nixon’s wage and price controls of the early seventies to combat inflation (I’m sure that’s coming). Nixon was a lawyer too, and so was Lincoln. Lawyers as presidents usually suck, ’cause they’re always trying to game the system. But I don’t think Obama has the balls to carpet bomb Wiziristan.
Fine, fire Bernanke. I’m on board with that. However, unless we rid ourselves of the Marxist in the White House, firing Bernanke is akin to changing the drapes in a house that is on fire.
Nice article; But, too late.
Bernanke is deemed to be a Obama Regime Czar.
I trust my pizza delivery man more than him. And the pizza delivery man probably has a ‘Sigma Six’ certification.
It won’t change a thing. As long as Obama is POTUS, we are guaranteed to have a complete wanker in this position. When he goes, expect a ‘Van Jones’ type to take the job. We’re stuck until 2013.
Considering that the Federal Reserve followed similar policies in the 1920′s that caused the stock market crash, then didn’t change course until it was too late and that got us the Great Depression, isn’t the actual problem that of having the Federal Reserve in the first place? It is an institution incapable of learning from its mistakes and useful only to politicians wishing to manipulate the economy at the National scale to the detriment of the Nation. Any economy that depends on one, single, institution to help guide it is going to be in trouble and deep trouble the moment such an institution screws up… there is no perfect way to guide an economy, save into treacherous waters. We are always glad when the Fed does NOTHING and always at peril when it decides to do SOMETHING based on the limited knowledge within the institution, itself.
It is time and past time for this creature to go. We did without it very well between 1832 and 1912. And we can do without it again.
Audit the Fed. Then abolish it.
No! The problem is these ruling class nincompoops have to be removed completely from doing any further damage, they must be put in prison or a penal colony for people who think they are better than We The People and The US Constitution. These people, Bernanke and everyone, of the elite class have created an unmitigated disaster the likes of which boggle the mind. They took the greatest most prosperous, most free vibrant, innovated, industrious, productive country in human history and destroyed it.
The reason we are turning into a 3rd world banana dictatorship is exactly because of these complete idiots.
It is time to throw ALL of them out and for We The People to determine what is right and what is wrong for us. e have the finest rule of law and Liberty document ever created, The US Constitution. If it is followed in both law and true intention, it works beautifully. What do we need these clowns for? They have screwed up the best free lunch in history.
They have failed completely.
While uncertainty over taxes and regulation, and perhaps dead certainty about some of it, is a problem, it is not the major problem.
Germany has far higher effective tax rates, and is among the most regulated nations on Earth. With demographic implosion, it posted a 9% boost in exports this year and economic growth well over 5%, GDP, year over year (admittedly, bad year 2009).
The problem is that the US is now connected, globally, to every other nation and is not competitive in much of anything. About 85% of US jobs are service based, not manufacturing. Our services just are not needed, anything we can do in the US can be done cheaper in China or more cheaply at the higher end by H1-B Visas and illegals at the low end of the labor scale.
It is made worse by American Employers addiction to cheap labor, in the referenced article exploitation of illegals led to savings per worker per year, back of the envelope, of about $16,000. And that’s not counting benefits and other charges the car wash avoided.
No economic recovery is possible, without a sudden transformational technology not forthcoming, or sudden dirt-cheap energy, with an impoverished Mexico sending millions of workers who are high-social-welfare-cost to the US labor market each year. Employers get dirt cheap workers, everyone else is saddled with huge social costs.
The Fed could print money till the cows came home, it would make things worse, but not kill a boom economy, if US workers were suddenly productive and creating a huge engine of export and domestic consumption, with a net positive balance of payments and mass wage increases and job gains. In fact, that situation sums up most of the 19th and early 20th Centuries, including the post-war boom up till Nixon.
If wealth, real wealth measured in output gains, often through use of transformational technology, appreciates rapidly, printing money is no problem.
Or put it another way, the current stagflation (we are already there, with rising food prices now set to skyrocket due to global grain shortages) is a function not of printing money but ending productivity growth.
How are people going to get back to work? Only by huge job gains, like what Reagan put together, with cheap oil (he broke OPEC) and huge defense orders (government employer of only resort, but only for a while, to break the industrial order log-jam).
That’s unlikely to happen any time soon. Bernanke is not the problem, all he can think of to do is push on a string. True he makes things worse, but only at the margins. Everyone else is printing money too: Japan, China, Brazil, Russia, etc. to keep their currency dirt cheap and thus their imports expensive and exports cheap. The dollar is merely the least ugly of all the ugly sisters. Taxes and regulations don’t help either, but they are not central to our economic collapse:
Post NAFTA, America makes almost nothing, services are now traded around the world, and we’ve been on one giant bubble since Clinton took office.
Just to correct one point, it’s cheap energy, not cheap oil. If it suddenly became cheaper to run cars on nuclear-generated electricity or alcohol than on gasoline, the demand for oil would fall off a cliff. The price of energy is what is important, not any one commodity.
Hmm…Say the Polywell fusion demonstrator
proves the principal, and only the engineering
remains to provide power plants which run on
free fuel; Just how low would the cost of oil
go, if it were useful only as a chemical
feedstock ?
“clank”
We few, we scorned holders of the PMs, we continue to stack and wait. Getting closer every day…
Meanwhile, Helicopter Ben keeps dropping the cash like WKRP’s frozen turkeys. Unintended consequences, anyone?
Unfortunately we are at a place where the only way we can continue to shoulder the international resonsibilities we have, both voluntarily and as foisted upon us by our “allies”; and liquidate our debt, is through inflation…. a tried and true method. Bernanke evidently believes he can control the genie outside the bottle. Got to give him credit for cajones if nothing else.
Whiskey, we still make a lot of stuff here. The UAW, steelworkers and others have taken a big hit[deservedly in some cases], but we still are the largest producer of ‘stuff’.
If BMW, Nissan,Honda, Toyota and Suzuki can make cars here and make a profit, there’s something wrong with what DC is doing to the domestic producers, or the UAW. Take your pick.
The world market is here to stay. Figure out how to do things better, more efficiently, or quit doing them and do something better in their place. If we don’t, our standard of living will fall from the ultimate to an also ran. Fact. We don’t have any monopoly on ANY job. We have to compete, or fall by the wayside. We’ve been deflating since 1946, eating our dollar, so to speak, and it is finally catching up with us. We had a good run with little to no competition from a war-torn Europe and Far East, but they learned, and are now competitive. Do better, more efficiently, and with better product, and you will succeed.
tom
What is all this angst about creating money out of thin air? Fractional reserve banking (mother of all Ponzi schemes) does this all the time. Look it up. It creates money out of thin air every time it makes a loan. Trillions of dollars are created this way until debt-to-equity ratios hit extremes and then the process reverses, which destroy money and value. Trillions of dollars of value vanish into thin air (deflation), which happens quite easily because value exists only in the imagination of the mind— not in assets.
When the secondary financial market outside of the traditional banking system developed for mortgages, leveraging went as high as 130 to one in capital reserves. Enormous amount of money was created out of air and spent in the housing bubble —- and not only that, that cash flow fueled unprecedented global economic expansion. Since this “mother of all Ponzi schemes” is of historical tradition, nobody seems to care when it creates $trillions out of thin air. But when the fed does this, conservatives of “closed system” Austrian perspective get unduly excited.
I fully expect equal failure by economic conservatives of Austrian perspective when attempting to balance the budget because everyone is ignoring the “big elephant” in the room. This will lead to a debacle for conservatives at the next election because public sector spending does seem to act as a floor that prevents the economy from sinking further, but cannot bring about economic recovery. (Japanese experience)
With debt-to-equity ratios maxed out at the end of a credit supercycle, this makes the difference between an ordinary recession and the possibility of long-standing malignant depression. Without the backstop of sufficient equity, the cycle of deleveraging will throw assets on the market, that nobody wants or can afford, because of default. Without intervention, the unraveling process can continue until almost total destruction of the economy.
In the ordinary recession, the backstop of sufficient equity is able to withstand a cycle of deleveraging, but the use of this example is misleading when debt-to-equity ratios have reached extremes.
During deleveraging when money is being destroyed, the Federal Reserve can actually create money out of thin air for replacement. It is just as important to print money to counter deflation as it is to stop printing money to stop inflation. The utilization of printed money should only be used to partially fund tax cuts that allows the private sector to pay down debt.
Until the ramifications of this “thin air” concept of value (which exists only in the mind) is made central to all things economic, macroeconomics will never be properly understood. http://economics102.blogspot.com/
What you say sounds good, but it is simply not true, as evinced by actual empirical results.
The fallacy is saying, “money is destroyed”. It is not. It is wealth that gets destroyed. The false wealth created by an artificial bubble gets destroyed. Real wealth, created by productivity, does not, at least not initially, for it is real.
The real wealth gets destroyed when the government tries to prop up the failing system or tries to “soften the landing”. It strips the excess capital from the economy, thus removing the means for businesses to develop new real wealth (productivity), which is the key to any recovery. This is what the Stimulus bill did.
Furthermore, when the government gets involved, it trumps the marketplace. Those involved in the marketplace either wait for the government to quit playing Calvinball with the economy, or they play the new government game. In either alternative, no new wealth (productivity) gets created.
If this continues for any length of time, then the real wealth (productivity) DOES get destroyed, because the downward spiral continues. The government intervention simply strangles the economy, by depriving the private sector of capital.
Housing is an example of this. It was overpriced as a result of government policies. They essentially offered free houses, and it created a huge demand, driving up prices. Since the demand was not created by real wealth (productivity), it was unsustainable (bubble).
The houses still exist, and in many places are dirt cheap. They still do not sell. Why not? Because the economy is idle. Real wealth is not being created. The houses have structural value, but without an economy to support the purchase of them, they do not sell. They are “houses to nowhere”.
Government intervention will never solve this. Government IS the problem! Dial back the government. Stop it from siphoning off the available capital, and the economy will recover all on its own.
When the government prints more money, they are continuing to siphon off the real wealth. They are putting cash out there, but they debase the value of the already existing currency out there. They simply reach into your savings and investments and take out another chunk by devaluing what you have.
It does not “fight deflation”. It creates inflation. Your existing wealth buys less. You have less to invest in creating more wealth (productivity). Your absolute necessities end up costing more, absorbing more of your limited cash, meaning you have less for bigger-ticket items… real-wealth (productivity) items. This lessens demand, destroying wealth by destroying productivity.
Factories sit idle, as the demand for luxuries decreases. We thus become poorer. This is what 3rd-world-nations look like. 96% of the people live in poverty, focused on daily sustenance alone.
The other 4% are those in government, or with political connections. They live, and act, like Lords, but produce no wealth. They merely steal and consume what little wealth exists.
Poverty is way up in our country, and increasing daily. It is all caused by government meddling. We are on our way to 3rd-world status. Because the government is strangling the economy.
It is true that government contributed to the problem because the political class reflexively chooses policy that aggregates their power and their ability to direct spending that would enhance reelection.
Progressives experienced policy failure with the traditional Keynesian prescription of big government spending. The reason being, stimulus by government spending is trickle-down economics at its worst. It seems to take billions of government spending to support a few thousand jobs. And what does eventually trickle down to the indebted wage earner, after-tax dollars have to be used to pay down a lot of the debt. It will be years until debt-to-equity ratios get back to historical norms with the fiscal policy of government spending.
Nevertheless, the central problem is the fractional reserve banking practice, and it is not possible to solve the Gordian Knot associated with managing money supply through fractional reserve banking ——- that is, it is not possible to have interest rates at levels for optimum economic growth without causing credit bubbles. Cheap debt capital inveigles financial gold rushes that always end badly. It’s just human nature —-the weakness for a gamble. Any political party attempting to maintain sufficient tightness in money supply and regulations to prevent credit bubbles will be voted out of office for subpar economic growth. Political pressure is enormous for optimum economic growth. Voters want prosperity and the political class wants reelection. Therefore, we will continue having low interest rates that fuel credit cycles of booms and busts.
The boom and bust of credit cycles have been with us for centuries. The only thing the fed does is extend time length of credit cycles to ever-higher leverage. Otherwise, the fundamental problem is still fractional reserve banking. It is a Ponzi like scheme that creates money out of thin air through credit expansion, and then destroys money when the process reverses. This causes the price of money to soar relative to other assets and debts denominated in dollars become overpriced relative to assets —like housing. An economy burdened with overpriced debt becomes moribund –the Japanese experience.
There is no such thing as the “Elitist Class” without “US” voting them into gravy-train perpetuity whilst keeping ourselves in the barely surviving survivalists who champion honor, faith and charity.
There is no “Us v.s Them”! It’s about US vs. US! We have become complicit in the indoctrination of our country and we have become untethered at the seams because of our comfortable lives which knew no rude awakening as harsh as the 0bama administration has delivered in swift and frightful, unlawful and evil deftness.
It’s the sane against the INsane at this point.
And, I fear that the INSANE far outnumber the SANE.
I pray, too, Stephen.
Every day.
“All increases in wealth come from increased productivity”
This is not accurate, adding Value is how wealth is created. The best example are Mining, Manufacturing and Agriculture. taking ore from the ground, extracting its minerals and selling them in finished form, or taking raw materials and shaping them into finished products, or harvesting crops and packaging into sale able form, are how wealth is created.
These three sectors built America from the 1800-late 1900′s. Then we gave away the farm ( NAFTA ) or made it so expensive to operate that firms left for greener pastures overseas.
There is a reason Mining is outperforming all else, and making economic powerhouses or resource rich nations, it creates wealth.
We shipped manufacturing overseas and gave birth to the Chinese economic miracle. The last sector keeping America sound is Agriculture, but we are selling it to Monsanto and ADM one crop at a time.
We will pay for our mistakes…unfortunately it is already starting.
Spain dug up more gold than any country before it — and quickly went from Europe’s mightiest empire to a basket case. All that gold did was create inflation.
The OPEC countries are rich because the West is rich, and because we have chosen to buy their oil rather than expropriate it. Before the West was rich, Arabia was poor — even though they still sat on all that oil.
In other words: You couldn’t be more mistaken.
Quite right, Spain mined large quantities of a non-renewable resource and traded it to other countries in exchange for their renewable resources (food, wool, etc.). Eventually Spain ran out of its resource so it could no longer buy so much of the resources that other countries still had.
Here’s something else you can do with the government’s free money–loan it back to the government at interest. Later repay the government and keep the interest. Viola, banks can essentially print money too.
Oops, I forgot to add the all important last sentence to the first paragraph: Plus they had all Spain’s gold.
“Holy Freaking Moley, Batman, we’re screwed this time!”
“Yes, old chum, I’m afraid it’s the end…”
No one is strong enough to bring down America. Or so we thought, never suspecting it would be some bland, incompetent bureaucrats who’d figure out how to do it.
Allston, I have been seeing the “i” word (incompetence) all over the place recently.
It is not incompetence. It is all extremely competent. It’s the goals that are being mistaken.
When the true goals are perceived (easiest done by seeing what has been achieved and comparing with actions taken) it is evident that everything is going according to their plan.
Please look at Garet Garrett’s 1938 essay: The Revolution Was (mises.org/daily/2726) .
It’s what they were doing in 1938 and it’s what they are doing now.
Who is they?
Perhaps Paulson might know. And any of the rest who shoved the ‘bailout’ through.
CAN we fire Bernanke? He’s been confirmed, and he does not serve at the will of Congress.
The existence of the Federal Reserve–especially in its current form–is an affront to the very notion of self governance.
These people do whatever serves the interests of the power elite who run the system, and there is NOTHING we can do about it.
If you want to be Constitutional, the net effect of inflation is a decrease in the value of our money, which as a de facto tax is an abrogation of the stipulation that that power was solely a legislative function.
Stephen Green;
You are assuming bad management of wealth somehow supports your statement that wealth comes from productivity. Spain lost its wealth through decisions such as losing most of its armada attacking england, losing its Atlantic Sea routes to strategic blunders, choosing the wrong sides of royal bloodlines, and other bad choices.
Your example of Petroleum again fails to support, it is only when petroleum is removed from the ground that is gains value.
Productivity does not create wealth, only when value is added to a raw product can wealth be created.
Let’s say you’ve written a book. You print it out on some paper and send it around to the New York agencies. One of them loves it, and sends you a check for a million dollars.
According to your theory, the paper is the important bit.
That’s about as silly as the Marxist labor theory of value.
I like Heinlein’s example of the apple tart:
Starting with the same ingredients, and expending
the same time and effort, three pastry chefs,
incompetent, ordinary, and extraordinary,
will produce an inedible mess, value zero,
an average tart, and a gustatory delight,
worth every penny of its exorbitant price.
Mike Huckabee’s your Reagan and Ron Paul is your Volker. Now we just need to convince them to take the jobs.
Huckabee is no Reagan. He’s George W Bush, but with twice the charm and half the intellect.
Or maybe it’s the other way around, but whatever.
I missed the part where Bush advocated doing away with the income tax. I also missed the part where Bush’s budgets made any sense.
Its not theory, it is how wealth is created; by adding value. You keep using analogies that torture reason and rationale.
All Nations go through the same general economic curve; resources, agriculture and manufacturing are developed with skills and talent, value is added to each step which in turn creates wealth.
The United States is a perfect example; Tobacco, Cotton, Coal, are what developed the economy, the Silver Comstock mine in Nevada funded most of San Francisco and Nevada, and was the basis for much of the silver coins struck for the US mints in the late 1800′s.
Apple and Exxon are the worlds largest companies by Capital, both are prime examples of creating wealth; either by extracting raw materials and processing them ( adding Value), or by technology and inventions (adding Value).
Productivity can increase rates of efficiency, but in of itself does not create wealth.
Using your analogy, “Productivity can increase rates of efficiency, but in of itself does not create wealth.” This statement will not hold water in any manufacturing process.
If I can increase productivity (through use of technology, methodology, etc.) without increasing personnel, I will most certainly increase the profit of the company because the cost/unit has gone down while the price (sell price) has stayed constant. Even if I reduce my sell price, I will still make more money because people (consumers) will get my product at less than my competitors. Even playing percentages allows me to win in this endevour.
I would rather have 10% inflation than 1% deflation. DEFLATION is destructive, it destroys businesses, people lose their jobs, can’t pay their mortgage and lose their homes, and this depresses the Real Estate market. Isn’t this what is happening right now?
Supply and Demand is such a simple concept but how difficult to understand. If the supply of a commodity shrinks, while demand remains the same, the value of the commodity will rise to balance the demand against the supply. The M3 money supply (which includes mortgages, but which the Fed stopped calculating in Oct. 06 “convenient timing huh?”) is shrinking at a 6% yearly rate at the moment, according to http://www.shadowstats.com. At the same time the demand for money is rising as evidenced by the hoarding of money by banks, businesses, and individuals, therefore the Dollar is appreciating in value, this is DEFLATION. No matter what the very narrow measure of inflation CPI says, 60% of American family net worth is held as equity in their home, and with home prices crashing, the Dollar is appreciating in value vs. the Real Estate market.
$4 trillion in US treasuries are held by foreigners. I believe we should cash in our chips, which we earned by allowing foreign nations and people to manipulate their currencies, by having the Fed pay all of these treasuries off (it would only take an accounting change in the Fed computers as there isn’t any paper involved). This would kill several birds with one stone. It would increase the money supply, maybe enough to get us out of this destructive deflation. It would increase exports as foreigners purchase US products and services. It would increase foreign investment as foreign dollars seek returns in US equity, bond, and real estate markets. And finally it would force US hoarders off of their piles of money, as the Dollar stopped appreciating and began inflating again.
There are two types of deflation: monetary deflation, which, when it follows monetary inflation, is the primary means of artificially creating a Depression.
The second type of “deflation”, however, is when the purchasing power of money increases. This is the natural order of things, given a fixed money supply and steady increases in efficiency. Contrary to common belief, though, we have NEVER had a truly stable currency; not with central banks, and not in the Wild West periods when we had hundreds and even thousands of currencies.
”
As far as the silly notion that “Productivity does not create wealth, only when value is added to a raw product can wealth be created.”, the point on consufing paper with product is correct.
First of all, ideas–like supply chain management, production efficiency, software, patents–don’t take up much in material space. They effect the movement of things, but don’t constitute things.
Secondly, things can be harvested more efficiently. Oil can be found and brought to market quicker, for less money. Farming can be made more efficient, and so on.
Capitalism is a system for producing a steady motion in the direction of innovation. We would all be wealthy, in my view, if we had also maintained a stable currency. Gold has little to do with it. The only advantage of gold is that since the quantities are constrained, tying currency to it makes inflation harder.
The core point to be made in this regard is that inflation can only occur when somebody gets something for nothing. My series on what I suppose we could term Phantom Economics–since it seems to be explained clearly and concisely nowhere that I know of–is here:
http://www.goodnessmovement.com/Page14.html
Its confusing productivity with value that we have the present state of economic risk.
Bringing heavy diesel that belongs to Venezuela to market more productively, does not create wealth for the USA. Processing M100 for Russia more efficiently does not create wealth for the USA, but will make Russia fortunes, as is occurring in both examples.
The US Govvt has been making it so difficult to Mine in the USA that US companies and personnel moved operations overseas, making fortunes for Chile, Canada, Australia, Russia, China, Brazil, everywhere but the USA.
The big 3 are manufacturing, mining and agriculture. From these spring all wealth, and everything you touch today is made by a combination of these sectors. The fact that the worlds strongest economies are based in Mining and Manufacturing should be self evident.
It is truly unfortunate that simple economic principles have been lost.