The fact is ... the market is schizoid right now.
On one hand, we're facing deflation, on the other gold is spiking. In the EU they're talking austerity but in the US they're talking about renewed stimulus. Gold is jumping, but so are Bond prices - that's very weird.
As global liquidity flooded the China market, it meant China's economy has gained even more momentum but at the same time has taken on more risk of the threat of the influx of liquidity reversing. Also, instead of the widely anticipated inflation, we have ourselves deflation.
The spring of 2009 was also the period of the great inflation scare, in which everyone from Glenn Beck to US Federal Reserve presidents was warning that an awful surge in prices was just around the corner. That obviously didn’t happen.
At the heart of the inflation/deflation debate was and is a debate between two visions of the economy. One vision is basically an updated Keynesian view: sticky prices revised gradually based on unemployment and excess capacity, the possibility of persistent economic malfunction because people are trying to hoard cash rather than buying real goods. And this view also said that we were and are in a liquidity trap, in which things that might have been inflationary under other conditions — like a large expansion of the monetary base — weren’t at all inflationary under current conditions. In fact, the likely outlook was for falling inflation, and possibly deflation.
The other vision was basically a crude quantity theory of money view: the Fed is printing money, the government is running deficits, one plus one equals high inflation, maybe even hyperinflation.
Now consider that the expansion in the monetary base served largely to fill the void left when structured finance fell apart and a staggering amount of liquidity went up in smoke. The Keynesian model -- as I understand it -- does not incorporate this particular fact set. The lack of inflation over the past year or so does not vindicate the Keynesian model.
When the new financial regulatory regime is established and some level of structured finance is allowed to be rebuilt, THEN in the absence of a monetary contraction, serious inflation will occur.
There are no "scare tactics" here: just solid economic science. The Obama administration has destroyed American jobs. The Bush and Obama administrations have imposed on every American a debt, including unfunded liabilities, in excess of $200,000. This debt will never be paid back and you will never get the "free quality health care" you dream about or the government keeps promising. Facts, people. Not scare tactics, but cold hard FACTS.
Obama has already repeatedly broken his pledge not to raise taxes on anyone earning less than $250,000. Obama's health care is already causing insurance premiums to rise and jobs to be lost. Here, the outcome will be Japanese zombism.
Or perhaps the US will simply default on its obligations. It is happening in Europe (no, there will be no one big enough to bail us out). People want hope, be it denial of how bailouts have simply converted private debt to public debt.
It is true that interest rates and inflation have not yet taken wing, but this is no guarantee that these things are not 'just around the corner', for example. To wit, the government's injection of 'liquidity' has been largely targeted to keep interest rates low. If it were true that interest rates "do not" rise in an environment of low consumer demand, one has to ask why the government has so heavily mortgaged the future to serve the present.
My belief is that we need to reduce government spending dramatically, cut taxes to the bone, and push rates to under 0 so as to force banks to pay interest for any money they haven't lent out and in so doing facilitate credit flow.
History has spoken enough, are we ready to listen?
On one hand, we're facing deflation, on the other gold is spiking. In the EU they're talking austerity but in the US they're talking about renewed stimulus. Gold is jumping, but so are Bond prices - that's very weird.
As global liquidity flooded the China market, it meant China's economy has gained even more momentum but at the same time has taken on more risk of the threat of the influx of liquidity reversing. Also, instead of the widely anticipated inflation, we have ourselves deflation.
The spring of 2009 was also the period of the great inflation scare, in which everyone from Glenn Beck to US Federal Reserve presidents was warning that an awful surge in prices was just around the corner. That obviously didn’t happen.
At the heart of the inflation/deflation debate was and is a debate between two visions of the economy. One vision is basically an updated Keynesian view: sticky prices revised gradually based on unemployment and excess capacity, the possibility of persistent economic malfunction because people are trying to hoard cash rather than buying real goods. And this view also said that we were and are in a liquidity trap, in which things that might have been inflationary under other conditions — like a large expansion of the monetary base — weren’t at all inflationary under current conditions. In fact, the likely outlook was for falling inflation, and possibly deflation.
The other vision was basically a crude quantity theory of money view: the Fed is printing money, the government is running deficits, one plus one equals high inflation, maybe even hyperinflation.
Now consider that the expansion in the monetary base served largely to fill the void left when structured finance fell apart and a staggering amount of liquidity went up in smoke. The Keynesian model -- as I understand it -- does not incorporate this particular fact set. The lack of inflation over the past year or so does not vindicate the Keynesian model.
When the new financial regulatory regime is established and some level of structured finance is allowed to be rebuilt, THEN in the absence of a monetary contraction, serious inflation will occur.
There are no "scare tactics" here: just solid economic science. The Obama administration has destroyed American jobs. The Bush and Obama administrations have imposed on every American a debt, including unfunded liabilities, in excess of $200,000. This debt will never be paid back and you will never get the "free quality health care" you dream about or the government keeps promising. Facts, people. Not scare tactics, but cold hard FACTS.
Obama has already repeatedly broken his pledge not to raise taxes on anyone earning less than $250,000. Obama's health care is already causing insurance premiums to rise and jobs to be lost. Here, the outcome will be Japanese zombism.
Or perhaps the US will simply default on its obligations. It is happening in Europe (no, there will be no one big enough to bail us out). People want hope, be it denial of how bailouts have simply converted private debt to public debt.
It is true that interest rates and inflation have not yet taken wing, but this is no guarantee that these things are not 'just around the corner', for example. To wit, the government's injection of 'liquidity' has been largely targeted to keep interest rates low. If it were true that interest rates "do not" rise in an environment of low consumer demand, one has to ask why the government has so heavily mortgaged the future to serve the present.
My belief is that we need to reduce government spending dramatically, cut taxes to the bone, and push rates to under 0 so as to force banks to pay interest for any money they haven't lent out and in so doing facilitate credit flow.
History has spoken enough, are we ready to listen?
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