We’re Not Threatened by Inflation but by Depression

The Daily Reckoning ^ | 12/07/09 | Bill Bonner

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So, central bankers are beginning to wonder if the US can pull off "another Volcker." Even Paul Volcker himself, who is still alive, doubts it. Today, too many people owe too much money and too many political favors. Put up rates to 18% today? Unthinkable. Cut 10% off government spending? Impossible.

But don't worry about it. Now, we're not threatened by inflation...but by depression!

It's fighting the depression that makes people worry. Smart investors and shrewd central bankers are afraid the depression-fighters will go too far...that they don't really know what they're doing.

Ben Bernanke is up for re-appointment. "Bernanke fights for 2nd term," says The Wall Street Journal. Does he know what he is doing? Well, no. He was wrong about the biggest single event in recent financial history. He thought the 2004-2007 super bubble was actually a period of "great moderation" brought about by his own superior monetary policies! He was still patting himself on the back when it blew up in his face.

And now, he still thinks the way to solve a problem caused by too much debt is to offer more debt. Of course, it didn't work for the Japanese. It won't work for us. But what we don't know is HOW it won't work.

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The RAT-infested politicians created an economic catastrophe and then used it (never let a crisis go to waste) to strip trillions of dollars from the American economy. They are con artists and should be in jail. There is no honor among thieves.

[HiTech RedNeck]

Nobody is going to want to grow a business (except maybe Wall Street bankers) with the loose cannons around better known as a socialist Congress and President.

[nathanbedford]

Good point.

I think that a right of center candidate (today it might be a conservative , a tea party patriot, a libertarian, or even, gasp, a Republican) can win an election on the issue of putting the leash back on government, that is, restoring constitutional checks and balances which will bring the stability which is indispensable for economic growth. This is even one step short of taking sides and favoring one interest group over another, this simply says to the world that common sense will be restored to Washington.

This says to both the Angels of Wall Street and the businessman on Main Street that government is withdrawing from the Fray; it is neither a cow to be milked nor a bull in our china shop.

Republicans had better find their voice and start blaming the left for so distorting the economy by government intrusions. They should tell the people that there is no asset left , no more spending, no more regulations, no more interventions, no more bailouts, no more experiments, no more options, apart from controlling government and freeing up the economy.

[Vet_6780]

The failing economies (Iceland, Spain, Greece, UK, etc) have one thing in common.

A banking system that grew to multiples of their GDP.

Bankers are blood suckers and through political control force lending to those who otherwise cannot afford it.

We see the result and it is a death spiral of banking bailouts and higher taxes.

End the banking oligopoly.

[DontTreadOnMe2009]

” Cut 10% off government spending? Impossible.”

So, cutting 40% off gov spending is even more impossible???

Too bad, cuz that’s the only thing that will save us.

Didja see the Fed Gov income vs. outlays???

40% difference!!!!!!!!!

Not 5% or 10%!

40% !

[JohnQ1]

Sorry, but W did believe Paulson and start the bailout frenzy. My Representative is John Kline, in some ways the best man in the whole congress, but he (too) voted for the first bailout. Twice. He, W, and several other good people helped to set the table for the damnable Marxists now in the White House!

I hope for severe, but survivable inflation. I about half expect Obama and Co to take the dollar into full collapse. One next “logical” step would be a world currency. Another would be armed rebellion: awful, but better than surrender.

[familyop]

Well, there’s only a little inflation in food and energy commodities for now. But as bonds are gradually dumped, the dollar will become internationally inflated. And as the dollar becomes worth less internationally, imported product prices may eventually rise much more. That and much higher oil (after a few bumps down) coupled with domestic depression would present an interesting situation.

But the defaults will be a blessing. We’ll have smaller government after all. And with the severe lack of production facilities and experience for cranking up revenues, the government won’t be able to emulate the Soviet Union (no production facilities or equipment to nationalize). ...kind of a shortcut to the nonpolitical politics and general strike phases.

...rosy outlook for government employees and government funded corporates, huh? ;-)

[familyop]

"I hope for severe, but survivable inflation."

So you're in favor of trying to pay something back to the Chinese investors. That's interesting. That's the way to having more time to prepare. Most of the folks around here are opting to continue propping the dollar up with higher rates--kind of like speeding up toward that rock wall in hopes that we'll come out all alive on the other side.

The difference between the two paths is like the difference between members of a party building a huge bonfire or a smaller bonfire for warmth on the small patch of thin ice under them in the middle of a large lake. Either way's fine with me, though. We need all kinds of new leadership and small government, whether it comes very quickly or quickly enough. ;-)

[Jimmy Valentine]

"Cut 10% off government spending? Impossible."

This is a major crapola statement from the writer.

Spending can be cut whether it is legislated in place, COLA based or not. It just takes an act of Congress.

Know what would help immediately?

Across the board wage cuts for all government workers; 10% for staff and 15% for executive pay!

That would send a really positive signal.

[Thermalseeker]

Cut 10% off government spending? Impossible.

Why is it always assumed that gubmint, any gubmint, can never do with less? If published GAO figures are correct, one third of every dollar taken in by the Federal gubmint is wasted or stolen. Given these numbers I could easily see how the Federal budget could be cut by 40%. If you eliminate the Department of (re)Education, the Department of Commerce and dramatically cut back the budget of the Department of Agriculture even more dramatic reductions in budget would be achievable. Of course, not with the current crop of crooks in Congress, though.....

[Oztrich Boy]

We’re Not Threatened by Inflation but by Depression

But they have medication for that now

[Citizen Tom Paine]

100 miles an hour down a dead end street. What are we leaving to our grandchildren????

[17th Miss Regt]

California has applied a 1.5% rated of deflation to the income tax brackets for 2009. The effect is that if you made the same amount this year as you did last year, you will pay more in taxes.

Liberals. You can’t live with them and you really want to live without them.

[Texas resident]

Typical. The libs put us in this position, now they want to raise taxes to get us out of the situation. PFFFT.

[Don Corleone]

We’re Not Threatened by Inflation but by Depression

We are threatened by both ....simultaneously. Money...worthless...jobs unavailable. Government in total control, at least until the revolution starts.

[JohnQ1]

I prefer inflation as the only likely alternative to complete collapse of the dollar to value zero. The latter would require us to accept our present government’s fiat values for... everything! All of Obama’s inner city “constituents” might receive (and destroy) homes, but we who’ve managed to buy homes in which we’ve planned to retire might lose everything to insane government policies.