Posted on 04/23/2009 7:33:12 AM PDT by Liberty Valance
Famed Irish wit Oscar Wilde wrote, “I can resist everything except temptation” and legendary sexpot Mae West purred, “I generally avoid temptation — unless I can’t resist it.”
Humor aside, the way in which Obama and his successors, Democrat or Republican, confront one extraordinarily dangerous temptation may determine the economic and political fate of this nation.
That threat is wild inflation, and it doesn’t take a Nobel Prize or degree in economics to see it.
It happens when a regime runs up ruinous debt and yields to pressures to pay it off with money that goes from cheap to virtually worthless.
I write from experience. Verna and I survived hyperinflation in South America in the 1960s and ’70s. It works this way:
Picture yourself entering a store and finding that prices have been removed from all merchandise, shelves and counters. In their place, clerks hold lists of every item in each department. Each item has a price next to it, good only until a manager comes around with an updated list of higher prices that the clerk pencils in. As the day progresses, managers make those rounds again and again, and something that cost, say, 100 pesos first thing in the morning will cost 300 or 350 by closing time.
Still, you pay that inflated price, because you’re certain that it will be higher tomorrow.
You do so even if you don’t really need it, in hopes that you can sell or trade it for something you do need, and come out ahead. That’s likely to be true if the item is imported or made from materials or components from outside the country.
When things were at their worst in Chile under the Marxists in the 1970s, customers lined up outside shops every day without asking what was in stock, on the well-founded assumption that anything they could buy would hold its value better than the escudo.
Going to Chile during those years, correspondents filled our luggage with razor blades, toothpaste, coffee, even toilet paper for friends in that country.
Customs occasionally confiscated a lot of that or charged duties on what we couldn’t claim was for our personal use, but when one newsman explained that he was bringing gifts, the inspector waved him through and snorted, “They’re very lucky! They can’t buy any of it here any more!”
Newspapers reported that when a passerby dropped low-denomination bills in a beggar’s hat, the mendicant attacked him, screaming “Just because I’m poor doesn’t mean you can humiliate me!”
Credit in inflation-ravaged countries is available only to those with hard currency or political connections or both, and then only on terms that few can afford. When we considered buying a home in Argentina under the Peronists, the terms were 50 percent down and the balance in just two years, at 40 percent interest.
Since I was paid in dollars, we did comparatively well, but Chilean and Argentine friends suffered. A Chilean mom had tears in her eyes as she explained that she dared not let her teenagers entertain friends anywhere near mealtime, “because if I feed them, I won’t have food for my own family!”
Middle class Argentine friends switched to public transportation as they sold their cars. Family heirlooms filled auctions and antique shops.
By the time the military ousted the Peronists, inflation was at an annual rate of 17,000 percent. It probably was even higher in Chile under the Marxists, but no one is certain; so much commerce moved to black markets that official prices were meaningless.
Bad as things were, they were better than they are in once-prosperous Zimbabwe under dictator Robert Mugabe. In March, the currency had slipped so far that a loaf of bread cost 50 billion Zimbabwe dollars, and a former resident says that the price will reach 100 billion if Mugabe stays in power.
Obama and his advisers insist that this country can borrow trillions of dollars year after year and come out all right.
Regardless of our politics, we and our kids and grandkids had better hope that he’s right — that he and those who follow, of whatever party, can go one-up on Wilde and Ms. West and stand fast against “temptation.”
Joseph Benham is a Kerrville journalist.
The real threat is not hyperinflation but long term “Jimmy Carter” inflation of 18%.
Similar thing happened during the Weimar Republic hyperinflation. Evidently, men were paid every hour so they could give the money to their wives, who in turn would rush to the store to buy goods, before the inflation caused the price to go higher, in the next hour.
Oh, for the days when we had a Democratic president whose most dangerous temptation was the intern’s heart-shaped butt.
Dave Ramsey says the best investment against inflation is “Payed off Real Estate Properties”. Why? Folks always need housing to live. Why “Paid Off”? They you can’t loose it to a mortgage company due failed payments.
Seems like you’ve figured it out! The plan is enslavement via slow deflation of freedoms that bread&circuses fed citizens will willingly relinquish as they grow more needy of federal ‘help’. We are witnessing the ‘slow motion’ coup fashioned to end a Constitutional Republic. We The People are no longer the sovereigns and the rest has to be instituted slowly, gradually ratcheting up the economic pain to persuade the usurped to cooperate with the new world about to roll over them.
Be careful of property taxes.
I just checked the property tax laws here, Mobile. If you have 'taxable' income of less than $12,000 a year and are over 65, you're eligible for a property tax exemption that is renewable annually.
I worry that my 'taxable' income will disappear before we're out of these problems. So...
I think its worse than that...
defang the nation
destroy the defense,
destroy the allied relationships,
empower the enemies,
create hyperinflation,debase the economy
Who was it that wrote the surest way to communism was through debasing the currency??
I guess, I will be buying more silver this weekend (again).
***Middle class Argentine friends switched to public transportation as they sold their cars.****
No wonder “O” is wanting to build high-speed rail system! The socialist’s dream, no cars!
Deflation is a sustained decrease in the general price level of goods and services.
By Telegraph(UK) Staff
Last Updated: 9:54AM BST 21 Apr 2009
It is often associated with periods of negative or stagnant economic growth like the Great Depression of the 1930s and the Japanese economy in the 1990s.
What causes it?
Only a united front at the London G20 can save the world from ruinDeflation is typically triggered by falling consumer demand, as companies cut prices as they try to encourage spending.
In the UK economy, spending has fallen as consumers are nervous about rising unemployment and investment losses, while tight credit markets limit borrowing.
[snip]
I grew up in my grandfathers Tudor mini-mansion in Black Rock, Connecticut. He got it for taxes during the Depression.
By and large, the US is way over housed. 1/3 of housing either has no one living in it, or one person. The number of square footage, bedrooms, bats per person is at a all time high.
People will be renting out rooms, basements and garages cheaply for cash or to pay the coming rise in local taxes.
“Be careful of property taxes.”
You are correct. No one truly owns land, because of taxes — they lease it. That is my fear, being taxed out of my house.
Wrong. If we have hyperinflation you want to have borrowed as much money as you can could. You get to pay it off at pennies to the dollar.
Yep.
Let me qualify my agreement. Yes, but you will want to have borrowed at a guaranteed fixed rate only. Credit cards or other debt that would be adjustable will end up destroying you because the banks will simply raise rates to offset the inflationary effect.
Every day there is an article about inflation “just around the corner.”
That’s been going on for at least the past 6 months.
Hasn’t happened.
Japan has been *trying* to generate inflation for 20 straight years...they can’t do it.
One has to wonder if all of the talk about inflation is just empty, wishful thinking.
Won’t happen.
Yeah, of course. That’s why you need to borrow before the hyperinflation starts.
Be careful of property taxes.
Absolutely. A major aspect of the "big squeeze" on the citizen (squeezing away his earned affluence through government intervention).
Anything administered by government is administered by gunpoint. Even "owning", i.e. paid off real estate, is still just borrowing from the "government." And incidentally such dependency is also reflected in restrictive land-use control.
The good news is that property taxes are more or less determined locally, allowing more direct taxpayer scrutiny and pressure on the mandating political entities.
Watch! Campaign! Demonstrate! Rebel! And dismantle big centralized government to local control.
Same fear of property taxes here. No mortgage here but i’m still looking for a second job to make up for the approx. 40% drop in our ‘real estate related’ business. They’ve raised our property taxes 10 of the last 15 years living here. Still 10 years away from the over 65 discounted taxes and property valuation freeze. I’ve learned you can never really ‘own’ or pay off your own home.
You can never have too much.
Nam Vet
I don’t think we will see much inflation for a few years since it takes time to print all that Monopoly money. My guess is that we won’t see high inflation rates until Obama’s second term and he is planning to use that as his excuse to nationalize banks and everything else.
Japan is a special case because of the structure of their retirement and banking system. Eg: http://www.businessweek.com/magazine/content/03_23/b3836159_mz035.htm Simply, Japan is a savings-based economy that funded its growth on the backs of its saving citizens (paying them very low interest in return), in contrast to the credit economies like the US that grow because of increased credit.
Long-term, broad based, and sustained inflation requires increases in wages, or at least in income. Japanese wages have been actively falling for some time now, and interest rates and returns on capital for individuals are negligible. They can't jumpstart inflation because they haven't been able to increase wages. There will be no problem with that here because the wages either go up to match raw materials costs and other inputs or there are riots in the streets.
The inflation everyone is fearing is not happening.
The only explanation I have at this point is credit is decreasing at pretty much the same rate that the money supply is increasing. Also, credit worthy borrowers are retiring debt (deleveraging) as quickly as possible, business is downsizing (not expanding) and as govt asserts it's dominance in the biggest banks capital is looking to invest overseas.
The radical left that is destroying what's left of a free economy in this country and won't be stopped for awhile yet. We are probably seeing a shift to a pay as you go economy rather than credit based. No one has confidence in the future, so why borrow?
Buy Yamana Gold (AUY). If inflation comes, it will go up. If it doesn’t, you lose. Depends on what you believe.
Bump for later.
How has our monetary policy differed from theirs?
Great 30 yr fixed rates available right now to those with prime credit.
I pulled 200k out of the house.
I’ll pay it back with mini Obamabucks.
We are seeing the initial stages of this here. Savings rates are way up. Available credit is decreasing, deleveraging is expanding and for the first time in 50 yrs the the yrly CPI has declined.
Long-term, broad based, and sustained inflation requires increases in wages, or at least in income. Japanese wages have been actively falling for some time now, and interest rates and returns on capital for individuals are negligible.
I'm in real estate and wages are down big time. Contractors are laying off crews and bidding jobs down just to have the work. Govt. Motors is closing down for 9 wks this summer. IOW, wages are beginning to drop.
That assumes that your income is nice and steady and things like getting laid off never happen. In this economy that's kind of naive.
No, the scripture says "The borrower is the slave of the lender". When you borrow you put your neck in the noose and are standing on a barrel. If something hits the barrel, you dangle; the mortgage defaults and your marraige goes into the tank.
Debt is a tool to make the banks rich, not you.
No it doesn’t. It does assume you were smart enough to finance the debt at a fixed rate. You get to pay off the mortgage for what a hamburger would cost. And even if you default, so what? Wait a week and pay it off for the cost of a pack of gum....
I repeat, what if you loose your income? I speak from experience here.
Great point.
I'm in real estate and wages are down big time. Contractors are laying off crews and bidding jobs down just to have the work. Govt. Motors is closing down for 9 wks this summer. IOW, wages are beginning to drop.
Wages are definitely falling in some markets and industries, but I can't see it happening across the board when we have to pay more for raw materials and inputs from other countries because of dollar weaknesses. At that point, the pressure for wage increases -- fueled by Dem propoganda and bread and circus handouts -- will push wages up. That's my opinion, but you're right that there are opposing indications.
Well, that will be true if we have hyperinflation. If we don’t, then the timing on selling it will be key and it could stay at around $6 for a decade, as it did from ‘95-’04. Plus, it’s heavy and bulky to store a lot. ;) But thanks for encouraging my new hobby!
You're right there are two different economies right now and for the forseeable future. The govt controlled economy and the private global economy. The govt economy has wage growth, expansion and no real restraints other than what the govt oligarchs decide. The private economy is in a big contraction and globally the USA is becoming less attractive as a safe haven.
I don't believe the actions of the govt have averted the depression they feared. I think their actions are causing it. A few of us at FR cried out against the bailouts, but fear ruled the day and now crony capitalism and propping up bad business models is going to not only hurt us, but harm the next generation.
I pretty much have too but, I started collecting six rolls of nickels every week. Nickels are 25% nickel and 75% copper. If inflation goes crazy, they'll be worth more than a nickel but, always worth a nickel.
Here's what I think. Just like in Japan, every month or so you are going to see an article or editorial claiming that "Hyper-Inflation is just around the corner," but it will never actually get here.
Japan has had deflation and/or disinflation every year for 20 straight years...they want inflation...they can't get it.
Inflation makes it easier to repay debts. Well, the U.S. consumer is a massive debtor. She went into hock, and the powers-that-be aren't going to let her pay all of that debt back with mini-0bama-bucks.
Instead, the economy is going to do whatever hurts the most people...which in this case means that debt will become more onerous, not less, due to deflation.
Inflation would be a godsend. Hyper-inflation isn't even in the realm of possibilities.
But don't believe me. Just watch how inflation never manages to show itself month after month...even though the pundits keep printing that it is "just around the corner." Uh huh...
Thanks for the ping.
Obama thinks he's walking on a super highway, but in fact he's on a tightrope... a very thin one - shaking in the wind.
Paid off is good - but the looters run the tax game. Cities are going to divide their costs between fewer and fewer home owners.
Deflation will rule the day.
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