02/08/10 Baltimore, Maryland – What a delight it would be to have some inflation! Yes, dear reader, that’s the real reason that fiscal stimulus appears to work. That is, that’s the reason inflation can sometimes boost employment. It creates inflation. And inflation lowers wages. Lower wages make it cheaper to hire people. And they make US output more competitive on the world market – so exports tend to increase.
And one other thing. Inflation reduces the debt burden. Right now, debt is crushing the private sector…and the whole economy. But it will soon crush the public sector too. Nouriel Roubini says government debt is a “ticking time bomb.” He’s right.
That’s why the government would love to have some inflation. Trouble is, inflation is harder to conjure up than you might think.
The more we see the Geithner, Bernanke, Summers team in action, the more convinced we are that the nation is headed for serious trouble.
Alan Greenspan was a knave, no doubt about it. But he understood how money worked. He was even a follower of Ayn Rand and a member of the libertarian ‘collective’ in New York. When he joined the president’s council of economic advisors, Rand was on the scene. She said she had ‘her man in Washington.’ Trouble was, her man was a sell-out. His convictions were no more solid than ocean foam. They disappeared as soon as he got to the capitol. After that, he spoke in gobbledygook sentences that no one could decipher…and played the game.
Here at The Daily Reckoning we don’t particularly like sell-outs, hypocrites and turncoats. We have our principles. And we wouldn’t turn our back on our own convictions. Not for less than, say, $10,000.
The current team, on the other hand, are not sellouts. They’re fools. They really have no idea what is going on. They think the problem with the economy is that consumers and bankers have gotten the jitters. They believe that a lack of demand is the root cause of a weak economy. So, all they have to do is to replace the missing private demand with demand from the government.
Anyone who bothered to think about it seriously for a few minutes would see that demand is not what causes an economy to grow…or what makes people prosperous. People always have demand for goods and service. Demand is always, theoretically, unlimited. It’s the purchasing power that is lacking.
And purchasing power comes from earnings – both accumulated and current.
The key to a real recovery is to increase earnings – not increase demand/consumption. How do you do that? Well, if you’re a government economist, you can’t do a bloody thing but get out of the way. You have to let private businesses find ways to make money…which they then share with their employees.
Think Summers, Bernanke and Geithner will get out of the way? Not a chance…
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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So what happens when Timmy and friends run out of money to spend to stimulate demand, huh? They can’t keep propping up demand by using public sector spending forever…I guess that means deflation is the end game?
What we have here is a conundrum. The American shopper is maxed out and many have lost their jobs and homes. This has created a consumption deficit which has eroded top line revenue for the “The Bigger The Better Corporations”. Levered with debt up to their eyeballs, these Behemoths are sheddings jobs and rolling back wages in order to meet their financial obligations. Less jobs and less wages equates even fewer purchases. As for the successful businesses, that do eke out a profit, I won’t be holding my breathe expecting them to share their earnings with their employees. Not when there is so many unemployed. Besides isn’t the mantra of the firm “to maximize profits?”.
The pressure to can these three stooges will grow. They are either deliberately corrupt or stupidly believing their own twisted data. One does not have to wish for inflation, it will be here soon enough.
Yes Larry, Curly and Moe (aka Summers, Geitner & Bernanke) are fools. But they make great viewing. My favorite is Geitner. He’s a cheeky little kid who hasn’t changed a bit since primary school. Not even being alumni of …. oh i don’t think they want to advertise that. Anyway young curly makes Palin look like an intelligent and witty speaker.
Since the Dollar is the world’s reserve currency, and the government can simply create all the money they want, there will be a hyperinflationary currency collapse of global proportions. This has never happened before in history. It will inevitably result in another world war, as the US will be unable to pay for oil imports any longer and will have to take them by force. That is why our armies are already in the world’s strategic oil producing reagions and in areas that are vital oil and gas pipeline corridors to the west. If our supplies of oil are seriously interrupted, and our system of mechanized agriculture in seriously impaired, it will mean global starvation, world war, and the collapse of both world trade and our modern civilization. Before oil-based modern agriculture, there were never more than a billion people in the world. In today’s degraded natural environment it would be extremely unlikely that even a minute fraction of that number would survive. And don’t forget to have a swell day.
Sure. Greenspan took his job at the Fed because he didn’t have enough money and power. Go look for yourself at all of companies he sat as corporate director. (Prior to his stint at the Fed). This is nothing but the great and powerful wizards managing all of us munchkins.
Greece rescued!! Doomers run for cover!
That should be the next headline. More great data in the US today. Inventories continue to show strong demand. Now with the Greek “issue” behind us, we’re set for a huge rally.
Lol, I just love Harry’s comments, so predictable!
Dean said
“Anyway young curly makes Palin look like an intelligent and witty speaker.”
But then she opened her mouth and still sounded like a moron . Substance over form for me thanks.
I am not so sure that demand (not even theoretically) is always unlimited. But then, if you are in the game you may see it differently.