Category Archives: Inflation

Updated: ‘Don’t Bet On A Recovery’

Debt, Economy, Federal Reserve Bank, Inflation, Labor, Uncategorized

PETER SCHIFF CHALLENGES “those who fantasize about a consumer-led recovery to describe where the spending money will come from. Most consumers are tapped out, millions are unemployed, and home equity has been wiped out. The only reasonable thing for them to do is to pay down debt and sock away as much money as possible to rebuild their savings.

Beyond the question of ‘how’ the spending could be achieved, is the deeper question of ‘why’ such activity should be sought at all. Excessive spending, fueled by an insane housing bubble and catalyzed by reckless monetary and fiscal policy, was the reason that our current recession became unavoidable. Why would we want to go down that road again?

During the run up to the crash, excess spending had created economic distortions that have yet to be resolved. Too many resources, including land, labor, and capital, were devoted to servicing an unsustainable economic model in which Americans borrowed money to buy homes, products and services they really could not afford. In many cases consumer behavior was influenced by overly optimistic assumptions regarding real estate related riches.

However, now that the real estate bubble has burst, Americans are coming to terms with a more sober reality. Many have cut up their credit cards, dramatically reduced their spending, and have squirreled away as much money as they can. This change in behavior should necessitate a dramatic shift in the labor market as workers move away from jobs associated with consumer spending and toward jobs associated with real production, primarily for exportable goods.

The real problem is that monetary and fiscal policy designed to re-inflate the burst spending bubble is preventing this transition from taking place. As a result we are not creating the jobs we need to replace – the ones we have lost in mortgage servicing, home improvement, and real estate sales (which we never really needed to begin with). As these jobless remain unable to find alternative employment, our economy will continue to languish.

Some will argue that the new jobs created by government stimulus spending will provide the additional purchasing power necessary to revitalize consumer spending. There are two problems with this expectation. First, those jobs being ‘created’ by the government are outnumbered by those being destroyed by government domination of resources. Second, even if it were possible for job growth to return, having hopefully learned from their mistakes, workers will be far more frugal with their paychecks than they were in the past.”

The complete column is HERE.

Update: From the U.S. Bureau of Labor Statistics comes “THE EMPLOYMENT SITUATION — FEBRUARY 2010.” It’s not good.

BO The Joker

Barack Obama, Debt, Economy, Federal Reserve Bank, Inflation

“Obama signed a bill Friday reinstating budget rules known as ‘paygo’ — short for ‘pay as you go.'” (The Washington Examiner)

President Barack Obama said Saturday new budget rules that say spending cuts must accompany spending increases will force Congress to “pay for what it spends, just like everybody else.”

A list of the programs that are exempt is here..

This, after having just increased the debt ceiling from $12.4 trillion to $14.3 trillion.
The National Debt is $12.3 trillion! It increases an average of $3.85 billion per day in lieu of interest payments.
The federal budget deficit is “a $1.6 trillion deficit this year, $1.3 trillion next year, $8.5 trillion for the next 10 years combined.”

Not that this is what he’s promising, but if BHO never again spent another dime, the US would still never again run surpluses, not in my lifetime.

Is Ben Having A 'Meltdown'?

Debt, Federal Reserve Bank, Inflation, Political Economy

Or is Mr. Bernanke reading Meltdown? “The Federal Reserve Chairman’s views on asset bubbles,” writes The WSJ, are slowly changing.”

“Earlier this decade, when Mr. Bernanke was a Fed governor, he and other central bank officials said financial bubbles weren’t something the Fed could identify or pre-empt effectively. Its focus was on keeping inflation and unemployment low. [And how well that has been achieved.] Its bubble strategy was to mop up after a bubble burst with lower interest rates to prevent damage to the broader economy.”

In a speech on Sunday at the American Economic Association’s annual meeting, BB repeated the shibboleth about the need for “better regulation” as the first line of defense against future crises. But he also conceded to the need “to ‘remain open’ to using the blunt tool of higher interest rates to avert or pop future asset bubbles … particularly if other approaches aren’t working.”

Why is raising interest rates considered a “blunt tool,” keeping them artificially low is not?

Is Ben Having A ‘Meltdown’?

Debt, Economy, Federal Reserve Bank, Inflation, Political Economy

Or is Mr. Bernanke reading Meltdown? “The Federal Reserve Chairman’s views on asset bubbles,” writes The WSJ, are slowly changing.”

“Earlier this decade, when Mr. Bernanke was a Fed governor, he and other central bank officials said financial bubbles weren’t something the Fed could identify or pre-empt effectively. Its focus was on keeping inflation and unemployment low. [And how well that has been achieved.] Its bubble strategy was to mop up after a bubble burst with lower interest rates to prevent damage to the broader economy.”

In a speech on Sunday at the American Economic Association’s annual meeting, BB repeated the shibboleth about the need for “better regulation” as the first line of defense against future crises. But he also conceded to the need “to ‘remain open’ to using the blunt tool of higher interest rates to avert or pop future asset bubbles … particularly if other approaches aren’t working.”

Why is raising interest rates considered a “blunt tool,” keeping them artificially low is not?