Too Much Money Chasing Too Few Goods

Constitutional Guardian ^ | 11/13/2009 | Nancy Tengler

[timesthattrymenssouls]

One of the best economic minds of our generation is Dr. Arthur Laffer of Laffer Curve fame. So when he talks, I listen. You should, too.

In a report published yesterday entitled, Market Expectations and Causative Reasons For Inflation he argues that conditions are ripe for the CPI to move rapidly from deflation to "the 2.5% to 3% range" over the next three months. And higher from there.

His argument is two-fold but is driven largely by the Federal Reserve's decision to increase the monetary base. "The current increase in the monetary base (Sept-08 to the present) is more than 10 times larger than the next largest percentage increase (last half of 1999) during the past 50 years."

All the while the manufacturing sector of our economy is contracting. Consider, a dramatic rise in the supply of money, fewer goods being produced; can it mean anything other than higher prices? Econ 101: Inflation = too much money chasing too few goods.

But that isn't the biggest worry as far as I am concerned. Dr. Laffer reminds: "No economy will prosper if:

Tax rates are rising;

Government is overspending;

The Fed is printing too much money;

The economy is being overregulated; and,

Foreign trade is being restricted."

Check. Check. Check. Check. And check.

With the markets staging a robust recovery from last year's lows and considering the economic news, current monetary policy and the looming fiscal policy changes, investors would be wise to balance their portfolios with commodities, technology and steady, stable consumer-non durable companies.

And hunker down for a long, cold winter.

[The Sons of Liberty]

Too Much Money Chasing Too Few Goods

The classic textbook definition of inflation.

[2banana]

You can not have inflation with stagnant or falling wages and stagnant or falling housing house prices...

[RobRoy]

>>You can not have inflation with stagnant or falling wages and stagnant or falling housing house prices...<<

I sort of agree and disagree. That is, if nobody has money, nobody is buying anything. However, even if the entire population loses their jobs, the money did not go away. It is somewhere and in someone’s hands and if there is a lot of it, prices will go up for that reason.

Except, to demonstrate through extremes, if the entire population is unemployed, but 10 people have all the money, it means those ten people will eat really nice steaks, but there will be very low demand for steaks, making prices very reasonable. It is as if there is a lot of money, but controlled by few people that simply don’t need that much “basic stuff”, while everyone else starves. Demand would be low, as would prices, even though there would be a lot of money. But the money would be rotting away, unused.

I oversimplify for one reason: generate thoughts and ideas from people other than myself. Some of you can tell me where this is all wrong, partly right, and in either case, what it may mean for all of us.

[norraad]

My thoughts are that you are spot on and perhaps not oversimplified at all.

A big factor is that we do have more "things" than ever before.

Many have too much "stuff"(in the classic George Carlin routine fashion).

Storage unit facilities are one of the few growth industries.

We've reached full of crap capacity, just at the peak of "retail" efficiency.

So ironically, just when we don't really need anymore things, we're expected to help all these needlessly over redundant stores keep their doors open.

Anyway, that's my two cents worth as a little expressed factor in this big storm.

[Republican Extremist]

I’d like to read the Laffer article, but can’t find it...

[RobRoy]

>>Storage unit facilities are one of the few growth industries.<<

For the last five years I have said that the proliferation of Storage units in this country is one of the biggest indictments of our culture.

[Oatka]

You can not have inflation with stagnant or falling wages and stagnant or falling housing house prices.

That's my take, despite the upward spike in money creation. There is so much debt and unbacked "securities" (a misnomer if there ever was one) that no matter how much Bernake & Crew create out of thin air, the Black Hole of debt will suck it up.

And, to put things into perspective on Laffer's credibility, check out the YouTube segment where Laffer was ridiculing Peter Schiff when he was sounding the alarm about the real estate bubble. (He bet Schiff a penny if Schiff was right (53 secs into the video) and when that was brought to his attention on a later show where he was hawking his latest book, he lamely replied, "That's why I only bet a penny." His advice is worth the same.

If you haven't watched it in its entirety, check it out to see how wrong "experts" can be - especially the gal who disputed Schiff and said, "Excuse, me I'm from Detroit. Been in an auto plant lately?" Hilarious in an ironic way.