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Posted on 12/06/2008 10:17:42 AM PST by rabscuttle385
Stow the red wheelbarrow back in the shed. Despite forebodings by Texas Rep. Ron Paul and other gold bugs about hyperinflation, your wallet will be sufficient to hold your spending money for the foreseeable future.
Paul and other inflation hawks correctly note that the Fed's printing presses are running full tilt. Nevertheless, some economic experts argue that we won't require wagonloads of debased currency to buy a stick of butter, mirroring Germany's 1923 nightmare. Reason: Deflation still hangs like a low, dark cloud over our sinking economy. Too few dollars are chasing too many goods, and this will worsen as unemployment hits 9% or more sometime next year. People fearful of losing their jobs are hoarding cash. Banks have become careful, stingy lenders. The danger is that, despite all the government stimulus, demand will stay weak.
Paul doesn't believe this. He argues that an estimated $8 trillion in bailout commitments by the Treasury and Federal Reserve and other government units has increased the monetary base by 75% over the past two months. "If something that is used as money becomes too plentiful, it loses value," writes Paul in a recent article. "That is how inflation and hyperinflation happens. Giving the central bank the power to create fiat money out of thin air creates the tremendous risk of eventual hyperinflation." He favors a return to the gold standard.
(Excerpt) Read more at online.barrons.com ...
Ron Paul ping!
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Why does Barron’s feel the need to denigrate Congressman Paul at this time?
As an unabashed Paul supporter I can report that FreeRepublic is a great place to get denigrated. This used to be a great conservative site...now it’s more of a GOP site.
“the Fed’s printing presses are running full tilt”
They are trying to make up for a year of tight money they imposed just prior to the collapse in October. But they aren’t actually increasing the money supply. They are increasing what is called “high powered money.” That’s basically currency, cash in the vault, and federal reserve credits to the banks. But that is a small part of what we use as money, and the mere fact that the statistic is increasing very fast means nothing when the rest of the economy is in a liquidity crisis and the money is not changing hands very fast.
At some point after the recession is over, we may have inflationary pressures, but there is a lot of time to reel in the money supply between now and then, if it becomes a problem.
I voted for Paul in the Virginia primaries, and I think he's 100% right about the present economic charlie foxtrot. That said, I try to post articles from both sides of the spectrum.
Because they — like most all their New York based, highly sophisticated, overeducated Ivy League idiot pals — are friends of paper money.
You have got to be kidding...we’re not facing inflation, we’re facing deflation. what are these people smoking?
I would not even worry too much about that. The dollar is fine now. The currency traders bet against the dollar earlier on, when it appeared that the fed was being too free with the credit, and they turned out to be wrong. With our slow economy, we aren’t going to be importing as much, and with the price of oil tanking, our balance of trade will improve. Don’t get too worried about that until either the economy recovers or the price of oil starts going back up.
>your wallet will be sufficient to hold your spending money for the foreseeable future.<
Does anyone know what “the foreseeable future” is in hours, days or weeks?
How does the Fed expect to reel in this money that they are currently printing when inflation sticks her head up. Do you sincerely believe that they will catch her before she becomes a problem?
I don’t. The reason why is that Printer Bernacke and Paulsen haven’t done a damn thing to give me confidence in their actions so far.
“Do you sincerely believe that they will catch her before she becomes a problem?”
They might not, but the fact that they are expansionary now doesn’t mean they will be expansionary when inflation is out of control. I would point out that the stock of high powered money did not grow at all for about a year because Bernanke was trying to put a brake on the inflationary pressures caused by the increase in oil prices. In fact, it was that tightening that caused the breakdown in the financial markets in October. Immediately after the breakdown, he realized that the new enemy was not inflation, but recession. So he started increasing the stock of high powered money like crazy. But the problem is that the money is stuck in the banks and in any event, high powered money doesn’t mean that much anymore. Exchanging federal securities (which are already quite liquid) for money (which isn’t much more liquid) doesn’t increase overall liquidity that much. He needs to buy nonliquid assets that the fed doesn’t normally buy, directly from the private economy, if he really wants to make a difference.
Does anyone know what “the foreseeable future” is in hours, days or weeks?
Prices will continue to be weak (i.e. deflation) until the economy begins to recover, which is unlikely before early 2010.
At that point, inflation rates will depend a lot on the monetary and fiscal policies of the regime in power, but my guess is that if prices rise too quickly, they'll reduce the money supply and/or increase interest rates.
You may be able to get some idea from this artice:
Gold is money. IOU’s are money. What we have today is a vigorous contraction in the IOU component of the money aggregate.
A bubble is bursting. Governments can crank up the printing presses but only God knows when to stop to prevent inflationary overshoots.
Give Mr Market a shot at economic stimulus in a recession, depression, or that old fashioned word panic..
Distribute stimulus certificates whose dollar value declines at say 10% year. Misers won’t hang on to them. One would spend them immediately. If the grocer won’t accept one since he couldn’t pay the farmer with one he could pay his taxes with it.
T’was known as the velocity dollar. As the IOU money aggregate resurges one just stops making velocity dollars.
For a little history Google “Aberhart” for such an attempt in Alberta, Canada 1936.
Hopefully they will get the clamps on in time so as to not create a bubble/bust scenario.
I have seen that one too many times for my taste.
I would guess as soon as economy activity picks up inflation will be a problem, How about long term interest rates?
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