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Posted on 03/04/2009 1:25:30 PM PST by 2ndDivisionVet
In the last five months, according to the Federal Reserve Board, the money supply in the United States has increased by 271 percent. It has almost tripled.
Have car sales tripled? Home purchases? Consumer spending? Corporate investment? Not only have they not tripled, they have all declined more sharply than they have since at least the recession of 1981-82, and perhaps since the Great Depression.
So where is the money? If it isn’t being spent, where is it?
It is being parked, squirreled away. Consumers are using it to pay down their credit card balances, pay off their mortgages, reduce their student loans, make the payments on the car sitting in their driveway — not the one in the dealer’s lot. Businesspeople are buying T-bills, investing the money and saving it. They aren’t spending, either.
But one day this recession — despite Obama’s best efforts — will end and things will begin to look up again. Then we can expect all of this money to come out of its parking space and get back on the highway of commerce. All at once. The inevitable result will be double-digit hyperinflation.
Since the spending and borrowing splurge is not confined to Washington, but is being mimicked all over the world, the inflation will not strike just one country but will be global in scope. The first global inflation in our history (except, perhaps, right after World Wars I and II), it will confront our policymakers with yet another unprecedented challenge and send them back, once more, to their economics texts. There, they will find that the only remedy for global inflation is global recession, a la Paul Volker. Having just emerged from a ruinous depression, nobody will be in the mood for more unemployment, but that is just what will have to happen to cool off the inflation and break the inflationary psychology that is likely to set in.
The point of this gloom and doom is that all this pain is entirely preventable. It will be caused by Obama’s excessive spending and trillion-dollar-plus deficits. This spending, of questionable utility in overcoming the current recession/depression, is so far out of line with what the economy can handle that it will do more harm than good when the inflation hits.
Proof that his spending will have little impact on the depression is the vast increase in money supply with no commensurate improvement in the economy. Providing money, via spending hikes or tax cuts, does not guarantee that the money will be spent. Tax cuts can be saved and spending increases, while surely spent once (on the initial project), can rapidly lose their multiplier effect as wage-earners on the government payroll bank their money just like those who get tax cuts will do. Getting out of this economic mess depends on consumer and business confidence, a faith that Obama is eroding with his looming tax increases as rapidly as he tries to kindle it with his excessive spending.
None of this should come as any news to Obama. He likely knows all this. But he is determined to pass his agenda of bigger government, nationalized healthcare and vastly greater spending even at the price of inflation and subsequent recession. He puts ideology first and the economy a distant second.
The stock market has figured out his priorities and is responding accordingly. One can only hope that voters also eventually realize what is going on.
>> ammo.
You can’t eat ammo. It’s filling, but poisonous.
However you can use ammo to shoot stuff that you can eat. Like PETA activists.
It may make the Wiemar Republic look like the go-go 90's!!
It would be awesome if just 50% of all of Dick Morris’s predictions came true.
Yes
We need an inflation/deflation ping list for all the inflation and deflation predictions
marking...
It sure keeps me awake nights.
Cash is a doomed investment. That much is easy enough to understand.
but...
What to do with it?
When?
Will the onset of inflation be sudden, or will there be a ramp?
Will there be a separate, delayed bottom in other asset classes, like real estate?
Will the signs be clear? Will I miss them?
Will I jump prematurely at a *false* sign?
&etc
As much as I disagree with the ballooning Obama budget and the stimulus package I just don’t see inflation coming back any time soon.
The reason I say this is the experience of Japan. They pumped much larger amounts of money into the economy than even Obama is (their national debt is around 150% of GDP, ours will be around 65%) and their inflation has been even lower than ours for years. In fact they’ve had deflation.
Yes a lot of money is being injected into the economy, but you have to balance that with the amount of wealth that is being destroyed. The destruction of wealth is at least an order of magnitude bigger than the money being pumped in. So deflation is much more likely than inflation.
I don’t so much object to the money injection, but the how and where. I wouldn’t mind if it did go for infrastructure and tax cuts (empowering productive people) - instead most of it is going to entitlements and new government programs that are going to empower the government and make us less free, productive and affluent.
Obama is Carter II plus Mugabe/Chavez and the Islamification of America like what happened to
England(istan).
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The Obama presidency = Jimmy Carter II
I remeber those times well even though I was only 14 years old. My father owned a business and was paying 19.5% interest on his operating notes.
maybe the could get the ink from the shrinking print media which by now has a huge surplus
271????
oh boy. so a dollar could actually lose half or more of its value.
“boiled frog”
For a variety of reasons (disastrous rise in price of oil, crash in home prices, even more productivity improvement in all sectors of our economy, and so forth) we suffered a severe reduction in the money supply. The loss is in excess of $6 trillion.
At some point deflation plus more cash should create a new equilibrium. Inflation can occur afterwards simply through creation of more wealth to be pledged as credit.
But if (when?) hyperinflation hits, gold prices will skyrocket too. But I take your point.
I've heard the Fed claim they can just mop up all that extra money when the time comes, and thus prevent hyperinflation. This sounds a little (ok, a lot) too simple for me. Can anyone comment on how plausible it is that the Fed can change course and restrict the money supply when the time comes, without more economic havoc?
Remedial Math 101 for you!
Silver was higher this time last year, but it might go up in Hyperinflation.
I'd be careful buying silver.
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