print“Libertarians have a keen appreciation of how governments monkey with the money supply. This is but one of the reasons principled libertarians abhor the optional war pursued in Iraq. By and large, the war accounts for the $9 trillion in national debt. It’s a debt that has been increasing ‘average of $1.47 billion per day since September 29, 2006.’ At the time of writing, every one of us owes $28,921.”
“Yet, never once have the war harpies and their hombres in the ideological trenches indicated they comprehend how and WHO is paying for all this. I know they believe we’re not being taxed in lieu of the debt, a faith they base on Bush’s promise not to raise taxes…”
Here’s hoping that “Inflation 101 for Women Pundits & Other Tyrants” —a primer about inflation at home and hyperinflation in Zimbabwe—will persuade ‘the distaff side of the commentariat,’ especially, to stop whooping it up for war.
Update: Related reading: “Lethal Weapons: Neocon Groupies“
Good article about inflation Ilana–But do you think Bush is making the decision about being in the war on his own? Isn’t it more plausible to think it is the bankers who pull his strings, and desire the U.S. economy to become weaker and weaker as to tighten their grip through collectivism and a world government?
[No I don’t; reality is bad enough without escaping into conspiracy pie-in-the-sky]
In an expanding U.S. economy, wouldn’t you need to print more dollars to keep pace with the expansion? This of course assumes you’re trying to keep the value of a dollar fixed.
If this is true, then the corollary is removing extra dollars in a shrinking economy. Again, only true if you’re trying to keep the value of a dollar fixed.
“By and large, the war accounts for the $9 trillion in national debt.”
OK, I’ll bite…
How do you figure that one?
[Libertarian economist Bob Higgs’ work is hugely illuminating. See “The Defense Budget Is Bigger Than You Think.” Dr. Higgs informs that this estimate has not been updated yet.]
Ilana you are right, but you also wrong. You see, the liberals and the libertarians both hate the war, but for different reasons. The libertarians hate it because of all the overpowering government involved, the liberals hate it because the US credit line is maxed out – so that means that now the only way to pay for it is to cut into their favorite programs. [I said “one of the reasons” libertarians dislike it. I should know; I’m one. In this archive are the others]
The truth is, the high costs of war (1-2 trillion dollars) is nothing compaired to the rest of the costs. Also, you mentioned the debt, but not the unfunded liabilities like Social Security and Medicare. So you need to add another 40 Tillion dollars onto your tab. That’s the real generator of inflation.
Bushes war pushed it over the edge, but it has been predestined to go that way a long time ago. BTW, I hope you own gold … God help us, the US dollar is doomed.
@Keith,
Printing up money does just as much damamge to an expanding economy as is does to a bad one. It just isn’t noticed as much. If your company grows 10% in value, but a thief steals 9% – you have still been robbed and damaged. Well if we increase our productivity 5%, but the Fed steals 4% by watering down the dollar, same thing. But it is even worse with the Fed, because it is not only printed, but loaned out. That means that all new investment comes from the Fed instead of savings. That not only punishes savers, but takes away their power over the economy. (think – central planning)
Keith, you would need to manage the quantity of currency to keep its value “stable”. Notice, though, that two huge assumptions are smuggled in here.
First is, “stable” in terms of what? The US government officially tracks inflation, but there is no concensus, and there can be no concensus, as to how “average price level” should be defined.
Second, there is the assumption that price stability is a valuable thing. I’m not so sure of that.
In any case, the idea that the US government does not take advantage of its currency monopoly by inflation is contradicted by most historical evidence. Rather, the value of the dollar in terms of most things has declined continually. There are well-known exception — computational power, for example. But even using the US government’s official CPI statistics (in which it has every incentive to understate inflation), the dollar is worth roughly a fifth of what it was in 1970. (See http://www.westegg.com/inflation/ )
I find it interesting that you would take special care to note that women don’t understand money. On average, they understand it less than men. But this essay proves that women are just as CAPABLE of understanding money as men. [No, just that there are exceptions to the rule. Mostly in the libertarian community, as I said in the essay.]
Other than that, I can’t imagine what it’s like for Westerners to live under a Marxist dictator in Zimbabwe. From what you say, it sounds like enough of a nightmare to live in South Africa. [Which is going that way.]
One of the ways that the Fed lies about the effects of its policy of inflating the fiat money supply is by directing our attention to the Consumer Price Index (CPI). The CPI is a dishonest record of the effect of inflation of the fiat money supply. There are many reasons for this and one of the most glaring is the failure of the CPI to properly include the effect of the rising price in fiat dollars of real estate. A large general rise in the price of real estate such as we have seen since 2001 is a direct consequence of the Fed pumping more fiat money into the economy to pay for deficits and war financing. The Fed doesn’t include the actual rise in real estate prices in its CPI calculations and instead hides (lies about) the housing sector effect by using rent and rent equivalent as the housing component of the CPI.
The rent price rise is less than the general price rise of real estate for a number of reasons. Rents are distorted downward by landlord investors expectation of profit from rising prices on their leveraged investment. Investors competing with each other for renters believe that they can afford to let rents rise slower than the general rise in real estate prices because they anticipate that the rising price of the property will be their main source of profit. Also, many investors bought several years ago and can afford lower rents to cover their smaller mortgages that financed the lower sales price from several years ago. This appears to work for everyone until investors and/or the Fed get nervous. When investors get nervous they stop bidding up prices.
When the Fed gets nervous it changes its policy of easy money and decides to increase interest rates to slow the rate of fiat money supply growth. The higher interest rates make the cost of financing speculative real estate higher and so investors can’t afford to continually bid up prices. Prices can drop leaving lots of people left standing in this financial game of musical chairs. This is now happening in many cities throughout the US. No one can confidently predict how big the drop in real estate prices here will be. The long recent price drop in Japan lasted 15 years and lowered prices in many areas by two thirds!
At the beginning of the novel The Stand, by Stephen King, two characters argue about this very issue. One believes that all the government needs to do “to make things better” is to print more money. The other one sees through it and tells the other that if everyone had twice as much money, well, everyone would realize it and double their prices. It’s actually a humorous bit of dialogue.
Mr. Zucker, I am not convinced that rents will rise more slowly than real estate prices over the long run. It is true that the underlying cost of the good – the apartment in this case – is relatively fixed: the landlord has a mortgage on the property, and this mortgage payment is probably a fixed monthly payment. So yes, there is no natural upward pressure on the cost of producing the good.
However, if rents were consistently to rise lower than housing prices over the long run, then at some point it would simply become a preferable choice to rent rather than own. As a deliberately simplistic example, assume the price of a house rises by 5% per year. The price of a rental rises by 2.5% per year. At the end of 10 years, the house’s price has gone up 62%, while the rental price has risen by 28%. There are other benefits of owning a home – having something that’s yours, the tax deduction of mortgage interest, etc. – but still, it is unlikely that a material difference between housing price increases and rental increases can exist in the long run. I’m willing to be proven wrong, and would be interested to see some data on it.
But I’m admittedly picking nits. The larger truth holds: increasing the money supply fools no one in the long run, though there are plenty of fools who think otherwise. And I can’t write about Bush’s drunken spending without having a meltdown, so I’ll just say that there is no fundamental difference between big government conservatives and big government liberals, other than the lip service that each pay to their base.
I agree with Mr. Macguire’s point that the rent rise can’t remain slower than the housing price rise in the long run. That is why I wrote, “This appears to work for everyone until investors and/or the Fed get nervous.” And, I also wrote, “Prices can drop leaving lots of people left standing in this financial game of musical chairs.” My intention was to explain why the slow CPI rise in the past six years is a poor indicator of the distortion the Fed has been causing. I absolutely agree that the distortion will eventually have to be corrected, most likely with the price drop I wrote is already going on in many parts of the country. I doubt we are at the end of it.
Very well then, I see that we agree. The CPI definition as you describe it is subject to short-term distortions that would be reduced if both rental and housing costs were included. I wouldn’t put it past the powers that be to change the definition of the CPI with the changing relations between the two component costs.
The following link is an article by Ben Stein in which he argues that real estate values do not outpace inflation in the long term, while stock prices do (historically, anyway). Aside: I really enjoyed the show Win Ben Stein’s Money when Jimmy Kimmel was the host.
http://finance.yahoo.com/expert/article/yourlife/21845
I love reading debates about money.
I was having a conversation with some associates at the retail store I am working at. They were musing at how an increase in minimum wage was going make everyone richer. Of course, not being soft headed, I understood otherwise and explained it to them.
I guess that maybe people understand, on a base level, that things are slowly getting worse, but they would rather try and be more positive about what is going on.
Or, then again, maybe some really are that clueless…
With regards to your comment on women; I’m amazed that you can make such comments! I figured you would have been brutally spammed or flammed on here from feminists.
Maybe they’re just afraid of you. Or something.
“With regards to your comment on women; I’m amazed that you can make such comments! I figured you would have been brutally spammed or flammed on here from feminists”
Judging by the immense credit card debt people are in and how many Americans live paycheck to paycheck (these are rules in North American life, not the exceptions), I have to wonder how many men understand money too.
When I go to the grocery store today to buy a loaf of bread for $1.50, I’d like to be able to buy the same loaf of bread next week for $1.50. That’s what I mean by a “stable” dollar.
The dollar, like any resource, is subject to the same laws of supply and demand. The value of a dollar will rise and fall with regard to its supply versus its demand. In simplistic terms, if the total U.S. GDP is $10 trillion, then there better be 10 trillian dollar bills to back that up.
Of course the U.S. economy is an extremely complicated system with all sorts of positive and negative feedback mechanisms. I imagine the task of maintaining a stable dollar is a difficult one, especially with globalization of the economy which brings along other monetary systems like the Euro, Yen, etc, which investors may value higher than the dollar. In the end, what is any currency worth? How do you gauge it, especially the long-term value of investments tied to a specific currency. Should I place most of my assets in U.S. dollars or in Euros? Much of the value of any currency is the faith placed in the economic and political system of the issuer, i.e. is the government stable, is there rule of law and not whim, does the government purposefully de-value it’s currency by intentionally over-printing, etc. That being the case, it seems most investors prefer the U.S. dollar.