Category Archives: Inflation

UPDATED: Barnanke is Stealing Your Wealth by Stealth

Debt, Economy, Energy, Federal Reserve Bank, Inflation

As Terence Corcoran of Canada’s National Post puts it, “The Fed’s claim … is that all that is happening in the world economy—rising commodity prices, a falling dollar, rising bond yields, price increases in developing nations and Europe—have nothing whatever to do with the Fed’s unprecedented trillion-dollar quantitative easings and monetary expansion.”

“The Fed has a bit of a credibility problem,” concludes Corcoran. My countrymen (I’m a naturalized Canadian) are known for the understatement. Corcoran continues:

It wouldn’t be the first time in economic history that growth and employment dragged while prices -due to monetary inflation -rose. This year, U.S. consumer prices in March rose at an annual rate of 6% and were 2.7% higher than a year ago. In a recent speech, Fed vicechairman Janet Yellin called the CPI gains “transitory” inflation. Meantime, producer prices are up almost 6% year over year and import prices -thanks to a falling dollar -are up almost 10%.
Despite this evidence, the Fed sees no real inflation and is waiting to see if price increases begin showing up in “inflation expectations.”

[SNIP]

The enormous increase in the stock of money—a deliberate and destructive policy pursued by Ben Bernanke, the man with the reverse-Midas touch—is responsible for the steady rise in the prices of all commodities, crude included.

Prices are rising because mounds of paper money are printed and credit expansion policies promoted in order to fund the government’s profligacy. More fiat currency in the system means that every unit is worth less. This is the essence of inflation—it is a hidden tax, another way for government to steal your wealth by stealth.

According to the post hoc illogic of others (Bill O’Reilly and Attorney General Eric Holder, for instance), you ought to blame gas speculators, “profiteers” or foreign producers for gas prices—anyone but your government. Apparently, they believes that the price of fuel is causing prices to rise.

This topsy-turvy chain of causality should not make a lick of sense to a sane individual.

UPDATE: Herschel, on Facebook, wants to know, “who has all this new money? Certainly not the people who are suffering under high prices.”

Exactly: When money markets are flooded, the first counterfeit down payment goes into the coffers of the selected government contractors and employees. And also to all the DC hacks. It spurs artificially created demand, causing suppliers to raise prices. It’ll take time, but the new money will generate price hikes throughout the economy. By the time you and I, politically unconnected suckers that we are, experience a meager rise in money income (but not in tangible wealth), rising prices will have obliterated the tiny gain.

UPDATE III: Austerity à la America (US Vs. UK)

Britain, Debt, Economy, Europe, Government, Healthcare, Inflation, Military

In their agreement to fiddle with future spending, our politicians are like bank robbers who’ve planned a string of heists, but then decided, charitably, to spare one bank.

The reckless high rollers in DC are congratulating themselves for agreeing to cut about $38 billion from federal spending this year (Bloomberg.com). This minuscule “cut” claws back some parts of an enormous entitlement program that has not yet kicked in: Obamacare.

“According to the Treasury Department, the federal government spent more than eight times what it brought in in the month of March. Eight times.” (CNN)

And the more money you stuff down the feds’ greedy maw, the more it’ll spend.

“Heads between knees, arms over heads, hold that position. Pray if you’re inclined to. Brace for impact!” That’s John Derbyshire’s advice about the coming economic collapse in the US. (If you’ve escaped the debased dollar, all the better.)

UPDATE I (April 10): “Friday’s 348-70 vote to fund the government through the week”: Only “twenty-eight of the ‘no’ votes were cast by Republicans. Sixteen of those are members of the 87-member freshman class. Also voting no: Tea Party star and possible presidential candidate Michele Bachmann, R-Minn.”

That’s an abysmal showing for Republicans and Tea Partiers. Can someone please send a link with an exact breakdown, plus names?

UPDATE II: Two hundred and eight House Republicans voted “yes.” And that’s not a disgrace?

UPDATE III (April 12): Little mentioned in American media is that the non- Micky-mouse countries in Europe and the English have gotten religion on austerity. In his first 100 days in office, David Cameron had gone further than Thatcher did in cutting government. Yes, yes, that’s nothing very impressive, but it’s more than anything that has been done to tackle the debt in the land of the free and home of the brave. The Merkel (Angela) told “financier- philanthropist” George Soros—also an all-round radical and BHO surrogate—to jump when he tried to muscle her into printing and inflating her country’s currency to Weimar-Republic levels.

If our media made these contrasts, perhaps Americans would begin to think beyond the “rah-rah we’re the best” mantra.

UPDATE II: A Capsizing Debt

Debt, Economy, Federal Reserve Bank, Inflation, libertarianism, Republicans

“The United States is facing a crushing burden of debt – a debt that will soon surpass the size of the entire U.S. economy and ultimately capsize it if left on its present course. This is not the future of a proud and prosperous nation. It is the future of a nation in decline.” Republikeynesians have come a long way; this is their description of the debt crisis in “Path to Prosperity: Restoring America’s Promise” (PDF)—the House Republicans’ 2012 budget proposal, authored by the House budget committee’s chair, Paul Ryan (R-WI). And although the role of the Federal Reserve Bank in monetizing the debt is finessed—this is still more than we’ve come to expect from the GOP:

“The lenders who buy much of the federal government’s debt have noticed the disconnect between the government’s perilous fiscal situation and the low rates of interest it is paying on the bonds that constitute the government’s debts. Some have even decided to purge their portfolios of U.S. debt, and others are advising their clients to do the same.

“Through its interventions into the economy, the Federal Reserve has recently become the largest buyer of government debt in the country, and these purchases have helped keep interest rates low. But the Fed is scheduled to stop making these purchases this summer. Congress must show the market that it has a credible plan for getting the national debt under control, in order to ease concerns over the government’s creditworthiness and stave off an interest-rate spike.

… nearly every fiscal expert and advisor in Washington has warned that a major debt crisis is inevitable if the U.S. government remains on its current unsustainable path. The government’s failure to prevent this completely preventable crisis would rank among history’s most infamous episodes of political malpractice. …”

Of course, the actual steps proposed to ward off stagflation and hyperinflation are not nearly as drastic as they ought to be.

MORE.

UPDATE I (April 6): Vox Day, on Sean Hannity’s radio show, warns of “The Return Of The Great Depression.” A good reality check is my interview with Day, my WND colleague, “Great Depression 2.0’: An Interview with Vox Day.”

Mr. Hannity seemed eager to pick Vox’s brain about prudent investments during a depression. Asset protection, says Vox, is essential, over and above a focus on returns: metal and companies with a real business model; companies that also provide real services.

Listen to the interview. Notice the alarm in Sean Hannity’s voice. Austrian economists such as Vox Day have not wavered in the “apocalyptic” predictions they’ve been making. This column was warning in 2003, if not earlier, of the consequences of endless debt, credit expansion, and the dangers of hyperinflation. As did I explain to those who bothered to listen that production, not credit-fueled consumption, was whence came wealth.

UPDATE II: To Myron, below: Your cynicism alert and my point are not mutually exclusive. The GOP has come a long way, thanks to the Tea Party, in accurately describing the coming, and calamitous, effects of the debt. We both agree that it’s too little too late.

DiLorenzo Dishes It Out To Subcommittee On Domestic Monetary Policy

Business, Debt, Economy, Federal Reserve Bank, Healthcare, Individual Rights, Inflation

Pearls before swine? Probably. Still, the freedom movement is gaining momentum. First came Randy Barnett’s powerful testimony before the Senate Judiciary Committee (read “Turning Citizens Into Subjects: Why The Health Insurance Mandate Is Unconstitutional”). My good friend Thomas DiLorenzo, Professor of Economics at Loyola University in Maryland, followed. Tom tried to explain to members of the Committee on Financial Services (Subcommittee on Domestic Monetary Policy and Technology) that the “Fed’s monetary policies tend to create temporary and unsustainable increases in employment while being the very engine of recession and depression that creates a much greater degree of job destruction and unemployment.”

Here’s an excerpt from “How the Fed Fuels Unemployment”:

When the Fed expands the money supply excessively it not only is prone to creating price inflation, but it also sows the seeds of recession or depression by artificially lowering interest rates, which can ignite a false or unsustainable “boom” period. Lower interest rates induce people to consume more and save less. But increased savings and the subsequent business investment that it finances is what fuels economic growth and job creation.
Lowered interest rates and wider availability of credit caused by the Fed’s expansionary monetary policy causes businesses to invest more in (mostly long-term) capital projects (primarily real estate in the latest boom-and-bust cycle), and there is an accompanying expansion of employment in those industries. But since the lower interest rates are caused by the Fed’s expansion of the money supply and not an increase in savings by the public (i.e., by the free market), businesses that have invested in long-term capital projects eventually discover that there is not enough consumer demand to justify their investments. (The reduced savings in the past means consumer demand is weaker in the future). This is when the “bust” occurs.
The economic damage done by the boom-and-bust policies of the Fed occur in the boom period when resources are misallocated in the ways described here. The “bust” period is actually a necessary cure for the economic miscalculations that have occurred, as businesses liquidate their unsound investments and begin to make decisions on realistic, market-based interest rates. Prices and wages must return to reality as well.
Government policies that bail out businesses that have made these bad investment decisions will only delay or prohibit economic recovery while encouraging more of such behavior in the future (the “moral hazard problem”). This is how short recessions can be turned into seemingly endless ones. Worse yet is for the Fed to create even more monetary inflation, rather than allowing the necessary economic adjustments to take place, which will eventually set off another boom-and-bust cycle.

MORE.