Stop such a what? Ours are at least as good as Gus, I should hope!
But in a fiat money system, survival is based on the adage, "Inflate or Die!" One does not get on the Federal Reserve board unless one has testified to Congress of the willingness to inflate to couteract a Kondratieff Winter event, which is something we've entered. Deflation destroys the welfare state as it destroys the entire fiat-based economy. This is why the natural tendency of politicians is to reflate any burst bubbles.
Paul Volcker has been lauded for "breaking the back of inflation", but all Volcker really did was move the inflationary bubble in consumer prices to stocks, setting off a 25-year secular bull market. The money also went into real estate. Confidence in the private sector had been restored, so money left government hands (cash and bonds) for assets in the private sector (stocks).
Over 25 years, that bubble got moved around, from real estate to stocks to real estate again. Now the bubble is in Treasuries, which are producing a negative rate of return as people run into the government's arms. As long as this continues, we will follow Japan's path into zero-rate hell. Survival of the system requires inflation, which is why we're trying one "stimulus" concept after another. The bubble needs to be moved into private assets again.
But if the supply of future bonds is to explode, where does the money come from to finance stimulus? The Chinese are altready discreetly moving out of bonds and into gold. Once we have our first failed auction and the rest of the world understands that the dollar can no longer be relied upon as a reserve currency, how do we finance our reflation efforts?
The answer comes from a scholarly paper published by the Fed in 2004. It suggested that because the government has a prior claim on IRA's and 401(k)'s due to their tax defered status, the government could seize those accounts and place them under the control of the Social Security Administration, which would create a huge pool of capital to finance government borrowing. This has already been brought to the attention of Congress but under a different guise. The argument is that because 401(k)'s are shrinking into 201(k)'s, government might need to take control of these accounts "for good of the people" to guide them into good, safe, reliable government bonds which will never lose value. Of course there will be a popular outcry.
This is where Richard McHugh and his "money drop" idea come in.
McHugh has argued that bailing out banks, Wall Street and Big Business are all well and good, but nothing will improve until Main Street is bailed out, and Main Street's problem is excessive debt. McHugh has suggested that Congress refund 5 to 10 years worth of income taxes to individuals and small businesses with the proviso that the money be used to pay down debt: credit card debt, student loan debt, car loan debt and -- most importantly -- mortgate debt. The remainder could be spent or invested. Those who were wise enough to avoid debt could spend or invest the full amount.
Denninger argues that this would lead to a hyperinflationary environment, which is true. But it would also solve the deflation problem that threatens to undermine the welfare state.
If McHugh's money drops were added to the mix to sweeten the seizure of people's retirement accounts, if would make the seizure acceptable politically. Your left hand gets robbed, while you get a money drop in your right hand. This is why I suspect both ideas will have a longer shelf life than Denninger suspects.
One of the reasons that Card Check is geting a good reception in Congress is to give workers more pricing power to support a more gentle inflation rather than find all the money running to stocks, gold and real estate.
Bottom line: Congress has to reflate this bubble unless it is willing to accept a return to the harsh discipline of the gold standard (or some other hard money standard), the end of the welfare state and the general shrinkage of the US government until it is small enough to fit into the constitutional prison that Madison designed for it. Congresscritters will never vote themselves out of a job, and the American people want nothing to get between them and their government checks.
In this political environment, deflation cannot be tolerated.
Bumparoo
I don’t know if there will be hyperinflation or not, but let me make a note to myself.
Never waste my time listening Karl Denninger, whoever he is.
This is just dumb. Strong unions have nothing to do with inflation. Supply and Demand rule money just like any other market. Increase the supply of money without changing the other side of the equation and you will get inflation.
Companys will be forced to pay higher wages to stay in business. As Denninger himself points out, if nobody can pay their bills they’ll have no reason to go to work. Unions aren’t necessary to balance the equation.
Based upon everything I have read about this since the election, I believe Obama and the congress are actually going to try to spend their way out of this.
They have no clue as to what will happen to them if they try.
Is a violent overthrow of the federal government an impossible outcome at this point? I see a steady march to that conclusion.
Then, realistically ask yourself one simple question.
HOW WILL THE UNITED STATES DEAL WITH THIS DEBT?
Answer: Massive Hyperinflation.
You think we're really going to pay off the Chi-coms and the OPEC-types with strong dollars?? You think Obambi & Co. are going to do away with entitlement programs?
Sure, it looks like a 100% chance of deflation right this second, but look down the road a year or so, and you'll see that the dollar is toast.
Anybody get a warm fuzzy when reading this statement?
The next crisis is the Credit Card crunch. It has already started to a small extent with the cutting/suspension of credit lines to those with good credit. When it becomes full blown, it will make the housing crisis look like child’s play.
I forget to mention that the economic crisis will force the US to take its eyes off another growing storm, the coming cold war with Russia and China. These countries have a fall back plan for economic collapse, and that is going back to Communism and planning wars. Remember that this also happened in WWII with Nazi Germany, Fascist Italy, the Soviet Union, and Imperial Japan.
Stop such a what? Ours are at least as good as Gus, I should hope!
I am not familiar with Denninger....who is he and what are his credentials?
Economic Illiteracy Of The NY Times
Boycott The New York Times | January 12, 2009 | Don Feder
Posted on 01/12/2009 1:00:46 PM PST by AIM Freeper
http://www.freerepublic.com/focus/f-news/2163341/posts