Posted on 01/03/2014 10:22:34 AM PST by SeekAndFind
Arthur Laffer is a legend in Washington, having been the leading voice on President Ronald Reagan's hawkish Economic Policy Advisory Board.
His "Laffer Curve," which argued that there are diminishing returns after a certain point of taxation, was taken as gospel.
If his views are not quite as frequent a presence in public debate, it's largely because Laffer's pet issues, regulation and taxes, took a back seat during the George W. Bush and Barack Obama administrations.
But Laffer himself still occasionally makes appearances on the public scene.
And in June of 2009, he penned an op-ed warning excessive quantitative easing would inevitably lead to higher inflation and interest rates.
...we haven't ever seen anything like this in the U.S. To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits ...Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn't a pretty picture.
Obviously, nothing like that happened.
In an interview with Business Insider from his office in Tennessee, Laffer admitted that he was wrong. The old maxim that dictates increasing the availability of cash through lower interest rates will lead to higher prices, he said, may need to be reexamined.
"Usually when you find the model this far off, you've probably got something wrong with the model, not that the world has changed," he said. "Inflation does not appear to be monetary base driven," he said.
He's not totally comfortable with what the Fed is doing, however. "Ask me whether inflation represents longer term problem, I think there's a potential there for excess reserves to create problems."
But it now seems impossible to predict.
(Excerpt) Read more at businessinsider.com ...
Our country has spent the last 40 years working on virtual money. The balances in our bank accounts are just numbers. Our government has controlled our access to cash and we’ve gone along like sheep.
What would happen if 30% of the people in this country demanded their assets in cash.? Don’t worry, we’ll digitize it for you. There isn’t enough actual money in this world to go around in case you may need yours but there are zillions of virtual zeros out there for you.
I no longer believe in debts, deficits, or Government owing anyone anything. We’re in a virtual world and just like in your favorite SciFi the government should just give everybody 50 credits a week and get it over with.
Obviously, nothing like that happened.
The Fed did the same thing in the 1950's and 1960's, and nothing happened. But then Nixon was forced to close the gold window, and then all the built up inflation broke loose.
Laffer should know better, or his words are being twisted around.
yes, McD has been raising its prices. and the “dollar menu” is now a “dollar and more” menu, with the majority of items now priced above a dollar, some quite a bit above a dollar too.
for what it does, McD does it quite well, but I can’t eat there because I barf it right up (maybe my stomache is just getting more sensitive as I get older). So anyway I don’t suffer from McD-inflation. Just wait until they are forced to start paying double-scale wages......your “value meal” will cash out at about $15 or so
Gold and oil are not manufactured items and Asia can do nothing to produce them in large quantities.
Our gas prices are down from near $4/gal to $3.35 in my neck of the woods, thanks to fracking.
Blame the minimum wage for that. Near my house in a toen called Seatac, the minimum wage is now $15. Try buying a value meal there!
Then why is the price artificially low?
And, re:oil, I would maintatin that gas is still at very high levels compared to the amount of oil produced right now.
What is apparently happening is massive interference with the markets through manipulation.
...and I would think that situation is uncharted territory at least the levels of interference we are experiencing today.
Meaning that no one can predict what will happen, only that happen it will and it won’t be pleasant.
Art’s not ‘wrong’ per se.
What?
You mean that it’s actually an indicator of inflation when you can buy 3 pounds of hamburger for just a little more than 5 pounds of steak cost you a year ago?
bkmk
One reason....India is one of the biggest buyer of retail gold in the world. India just passed a law imposing higher tariffs on imported gold. Indian purchases have dived as a result.
As for oil, the demand worldwide, especially Asia is increasing at a high rate. You have not seen a really bad traffic jam unless you visit Beijing, Mumbai or Singapore.
My question is why Laffer sounds like he’s reconsidering his original opinion? We know they’re not including sustenance commodities. Why is he falling for these reports? Fools and old fools, not pretty.
Mind boggling ain’t it? The spin is dizzying!
Two things are in play here, surprised Laffer doesn’t see it:
1) Deflation, and
2) Inflation.
Deflation is strong, as the economy writhes on the floor, unable to stand.
Inflation is strong, as the Fed pumps trillions into the ecconomy.
The net effect of these two simultaneous sicknesses is the APPEARANCE of normalcy. However, our economy actually has TWO dread diseases.
“Where is the money?”
IIRC, in the last 5 years, the wealth of the top 1% has increased somewhere around 1 trillion dollars.
That’s where some of it’s sitting.
They are accumulating wealth faster than they can spend it.
The 1% are running out of things to spend it on, they already have it.
Prior to that money was moving so fast because of easy housing and consumer loans and electronic banking and debit cards and paypal etc., it was starting to skew traditional economic formulas.
Then the crash came and the lending rules tightened, like small businesses with large credit limits on Business credit cards (50K and up) got reduced to 500 bucks.
That slammed the brakes on the flow of money and the economy stalled hard!
We are gonna be feeling the effects of that for several more years!
Try shipping a next day letter via fed ex. Looks like a 300 % increase over that time frame.
Also smart money is taking US cash and depositing it over seas. No one sees any long term future in the US. That is why the extra dollars are not being seen here.
And the US economy has collapsed so all that new debt was wasted.
Here’s what I see...
The Fed can’t control the velocity of money (i.e., the average frequency with which a unit of money is spent on new goods and services produced domestically in a specific period of time). And that means the Fed can’t create rising aggregate demand. In short, Ben and eventually Janet, are shooting blanks.
For the past several years, most of the borrowing and lending activities have related to daily consumptive needs, including borrowing by the federal government as well as much of the recent upturn in consumer lending.
Borrowing to finance consumption does not generate a productive income stream nor does it create the resources to repay the borrowed funds. Consequently, velocity has collapsed and now stands at a six decade low.
Inflation cannot ignite in such an environment. Incomes will languish and growth in aggregate demand, as measured by nominal GDP, will slow except for brief, intermittent periods.
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