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 ...
Gold demand and deliveries remain high. India is only one of numerous buyers of gold. Russia and China are both stockpiling record amounts. There is absolutely logical reason for the metal to be at it's current price except that it is being artificially depressed.
Since Laffer’s day the goobermint has bastardized how statistics are calculated. Just since Obama gasoline is up 100% food at least 30% electricity is up huge amounts but not shown because of massive taxpayer subsidies. Who even knows what real unemployment is when the feds just make up the numbers to fluff Obama.
if they can find buyers on the open market for the rate the it’s possible, but what happens when the buyers demand a better return? Does the fed take a hit and increase the interest rate? Or do the bonds not sale - then what does the fed do?
If Laffer was wrong he was only wrong in suggesting that the inflationary repercussions would always manifest as GENERAL inflation.
What we did have in the early 2000s was massive inflation that mostly landed in the housing sector (but somewhat in commodities as well), due to a combination of factors that came together at that time.
IF those conditions had not been manifest there is no way of telling how Greenspan’s easy money would have otherwise affected the economy, in general or in what sector or sectors.
That makes sense. And I guess they're putting it in the stock market. Good times, good times...
Smallish loaf of bread yesterday 4.79.
Swiss cheese 22.95 a pound. Gas 3.69 a gallon regular, 3.89 ethyl at cheapo station. Breakfast (no orange juice ) with tax and tip at small diner 22.70. One bedroom apartment rents in marginal neighborhood ( pretty much ok to walk in daytime if you keep your wits about you; stay in at night) 2900 and climbing. 3600 in a safer area. But no, there’s no inflation. Because the fed govt doesn’t include these things in its “ inflation statistics “. Everything’s wonderful. The Obama regime is in power. What could possibly be wrong?
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Please tell us where you live and where you shop.
I can buy an excellent large loaf of bread for $2.78.
Don’t eat Swiss, but premium aged extra sharp Cheddar is $4.40/lb. Imported Danish Blue is $8/lb.
Regular gas is $3.24 and has just surged .15/gal.
Full breakfast at the best place in the area, including juice, is under $8 before tip.
Even in the larg-ish city (50k) closest to us, $1200/month would be a luxury downtown condo or an apartment out in the high-price-point suburbs. Average one bedroom in my nearest small town (4k) is $650/month.
All of that is increased by 40%+/- in the past 5 years.
Besides the banks not lending their capital, the other reason we aren’t seeing inflation is wages have declined or remained flat. There is no velocity because money, especially discretionary income, is in short supply to individuals and costs of living such as taxes and energy have skyrocketed. Now, the cost of both health insurance and actual medical care are up astronomically for some and 20% or so even for retirees with both Medicare and a supplemental policy. It takes more to most of a SS check just to pay for health insurance. Most businesses are just trying to stay alive, can’t raise prices and have higher costs for everything, so the net is smaller and is further taxed.
Price increases aren’t inflation. They reflect taxes, energy costs and the various costs of added governmental fees and regulation. One third of my electric bill is fees, taxes and involuntary contributions to funds to pay for energy for others.
I track the USD, just for my own information and, of course, I see the price of gas daily. I see little correlation. Today USD is slightly up from a few weeks ago to 80+ and gasoline is up around 5% in my area. The Euro and the GBP are both far higher than the USD by roughly 1/3-3/4 and their price for gasoline is 3x+/- what ours is.
Their taxes and fees are way higher.
The regime won’t deny our costs have increased. They will also contend it is for our own good. As they put industry after industry out of business and take over the sectors they have destroyed, it will get worse, with exacerbating shortages, to boot.
It always comes down to government meddling with supply and demand while limiting the ability of people to earn, save and invest. If they would stop micromanaging everything, reality would reassert itself.
The inflation was there in the form of a prevention of a significant fall in wage rates and prices which normally would occur during a recession. A significant fall in wage rates and prices would have cut costs, which would have enabled businesses to start hiring more people sooner and would have sped up the recovery from high unemployment.
The Fed would take the hit if it needed to, to reign in inflation. The FED has by law, 3 goals: Full employment, a stable dollar and low interest.
They will keep easing until they are satisfied with the employment picture. Then they will worry about inflation. If we hit full employment and inflation was kicking up, I doubt they would hesitate to sell the bonds.
The FED makes a fortune anyway that they had back over to the treasury each year. They can afford to take the hit.
Thought crime. Re-educate yourself.
Why is rent so inexpensive?
The money is used to buy bonds. Why is that terrible? What way would be better?
No. The Fed is buying bonds from the banks with the QE money.
The way I understand it, is that the US essentially prints the money for the FED to loan at zero interest
No. The current discount rate is 0.75%.
the banks borrow the money (at no interest)
No.
to buy US bonds (which pays a low, but very safe interest rate).
No.
The Fed is buying bonds from the banks and giving them cash yielding 0.25%.
It is a money making scheme, just the reverse of your claim. The Fed (Treasury) is making tens of billions of dollars that would have been earned by the bond holders.
Buying fed govt bonds with the new currency only enables the fed govt to waste more money or give more of it to obamaS terrorist Muslim comrades Or whatever. This only further depresses the economy. ( on top of all the administration’s other anti- business and job- killing policies. ). Even the communist Chinese are openly warning against more printing of fake money or else they will start selling their us bonds instead of buying more Others here can provide you with more detailed explanations but basically almost everything g the washDC politicians have been doing the last several years is depressing the economy further and further.
When I first became interested in economics, I gravitated to the Supply-Siders because of their supposed free-market orientation. But I've learned [and this post just confirms it], that they are clueless about how the Fed's inflation policies distort the economy.
Government should not control our money supply any more than it controls our corn supply. And we all know how well that's worked out.
We’re simply pushing our inflation on to the rest of the world because of reserve currency status. It won’t go on forever.
Why have the Fed make all that money. How about a system where the people are invested in their own country rather than the fiat currency schemers?
They think it will help the economy.
How about a system where the people are invested in their own country
Sounds good. We need to cut taxes, cut spending, a lot, and seal the border.
Hmmm. Who got to Art? Wonder if the Texas Public Policy Foundation will have to *remove* ‘ol Art as one of their Experts, now.
It’s all smoke & mirrors since the marriage of the Fed, Wall St. and the electronics age. No one prevented “the worse recession since the great depression”, they merely prevented massive uprisings of the public by pacifying them with give-a-ways and so-called entitlements(all paid for with monopoly money)...and all done just to keep the illusion going....while the global elites continue to rape and plunder America of it’s REAL assets.
Consider also that gold was at $300 just a few years back.
Nothing keeps going up parabolic for ever.
Another factor is that Stocks have been the place to make money in 2013. Why put money in gold when stocks are going up parabolic?
Everything goes in cycles. I am sure we will get a period when gold does better than stocks.
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