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To: Pelham
The inflation rate when Nixon abandoned the gold standard was less than 4%. Not exactly a hyperinflation. But the pressure on the dollar had been building since Kennedy

We have been insulated from the kind of ruinous inflation that Argentina has experienced for one reason. The US$ has been the world's reserve currency. You want something from the world, you print the money and buy it. Because it is a reserve currency, you are not inflating your own economy, but the economy of the world. When we do this to buy more of what the world produces than we othewise could, other folks in the world get less of it. Inflation is great if you happen to be first in line for the newly minted money. If you are last in line, it sucks.

23 posted on 02/24/2010 9:00:40 AM PST by AndyJackson
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To: AndyJackson

Being the reserve currency isn’t the sole reason we don’t have hyperinflation. Reserve currency status allows a greater creation of dollars than otherwise, but it’s also the root of its troubles. It leads to a situation described as the Triffin Dilemma. In the years following WWII Europe began holding more dollars than we had gold to back them. The resolution would have been to contract the American money supply, but this would have thrown the US into recession and no President was willing to voluntarily have this happen on his watch. Instead they let the pressure on the dollar grow and chose devaluation.

Volcker and Reagan demonstrated how to break the back of inflation. Choke off the growth of credit until the inflation cycle is broken, promote tax and regulatory policies that shift the economy’s supply curve to the right. But inflation isn’t what we are confronted with today. We have a bad debt induced deflation so large it dwarfs the huge increases in the monetary base. The problem isn’t something that government can cure, it’s going to take a long time for all of this bad debt to be liquidated. Government policy to prop up real estate prices will simply drag out the process.


24 posted on 02/24/2010 8:55:04 PM PST by Pelham
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