Can someone help me with the math?
- 03-19-2009, 08:28 PM
- 03-19-2009, 08:54 PM
03-19-2009, 10:53 PM
Deflation is a temporary environment at best with a fiat currency and an interventionist central bank. Doubling the money supply may bring a temporary balance to the credit market, but I'd compare it to filling up a bottle with the faucet on at full blast.....no matter what, you will get spillage.....you can't just turn off the faucet when it fills up. That's how we'll get inflation. Massive inflation. I'm calling 6% by Dec 2009, 10%+ by Dec 2010. What will really suck is if the economy hasn't recovered by then. They'll have to raise rates and stop whatever recovery may have started, or let inflation get even more out of control.This isn't likely to create an inflation. It may moderate deflationary pressures. If prices and output are falling, increasing the money supply does not necessarily produce an inflation.
Like I said, buy gold, gold miners, and oil producers.
Nothing of the sort. Gold has been the currency of choice for 5000+years. Oil is what moves the world. They both have objective value. This is not 1930. We don't have a currency that will stay deflated.That gold and oil are wildly popular in an environment of rising unemployment and lowering inflation is a testament to the power of a thoroughly histrionic media.
The problem with your assumption is that when we had 140% GDP we were at war, a temporary condition. Today we have expanded permanent government entitlement programs, permanently expanding our debt obligations. This was not a temporary surge in spending, this was a permanent change in the size of government.Debt is at ~65% of GDP. This is a mid level for a developed economy. It has been as high as 140% of GDP. The majority of the interest is payable at 3-5%. Is it a problem? No doubt. Is it insurmountable? No, higher levels have been paid off with far, far lower levels of disposable income and in a low-inflation environment.
Not a Keynes fan. Printing funny money is not a solution out of an economic downturn. The dollar is at a precarious position right now, given that there are many nations want to reject the dollar as the worldwide currency of choice. Devaluing the dollar right now only adds to that sentiment. If the dollar lost its preferential status, America would have to start paying off its loans at the currency the debt was purchased in, which is suicidal in an inflationary environment. This has led to credit defaults in such countries as Argentina, Russia, and Thailand. Currency games is a game of economic Russian roulette. Play at your own risk.These deflationary cycles have to be disrupted with either fiscal or monetary policy, or we get a Great Depression 2.0. It means large increases in the money supply and large deficits in the short run, but if you don't disrupt these cycles, then you wind up damaging the real economic activity that is at the core of a strong currency and sound tax revenue.
Given time and a solid monetary foundation, the economy will heal on its own, in a healthy manner. With these currency games, we're setting ourselves up for an even bigger bubble than oil, techs, and real estate, that will pop even harder than the previous three. Currency games are the most surefire way to get a second great depression.