Posted on 06/10/2009 5:35:31 AM PDT by SeekAndFind
Rahm Emanuel was only giving voice to widespread political wisdom when he said that a crisis should never be "wasted." Crises enable vastly accelerated political agendas and initiatives scarcely conceivable under calmer circumstances. So it goes now.
Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That's more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers' expense, acquired enormous stakes in the banking, auto, mortgage, health-care and insurance industries.
With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs -- such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid -- are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.
But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.
About eight months ago, starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base -- which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash -- by a little less than $1 trillion.
(Excerpt) Read more at online.wsj.com ...
Steve Malanga of RealClearMarkets.com makes the same point here :
http://www.realclearmarkets.com/articles/2009/06/why_inflation_is_so_scary.html
“Although few people in Germany actually “remember” the Weimar years because not many were alive then, the lessons of that era (and perhaps the notion of the pain the country experienced) have been repeated over and over again until they have been seared into Germany’s national consciousness.
By contrast, we’ve largely forgotten our most recent brush with raging peacetime inflation, the 1970s. Although nothing like Germany’s in the 1920s, ours was nonetheless powerful enough to be more dispiriting and more transformative of our culture than any stretch of post-World War II recession has been. It’s probably not a coincidence that America began its long transformation from a nation of savers to one of consumers and debtors just after the inflation of the 1970s. That’s what can happen when money seems to be “crumbling to dust in your hands,” as Fortune magazine described the inflation of that era.
One reason that inflation can be such a powerful social force is because it affects virtually everyone. To people who’ve worked their whole lives playing by the rules, that is, to the majority of adult Americans in the early 1970s, inflation at the hands of wayward government policy seemed to be a betrayal. People who had been thriftiest watched down payments for buying a home disappear, college savings accounts shrivel, retirement net eggs vanish, the value of monthly pension checks shrink. Harvard Business School Professor Samuel Hayes recounted the damage to a relative of his in a magazine story: “He was the epitome of the Protestant ethic. He had inherited money, he had saved, he was very frugal, had a very modest house, had part of his investment money in bonds and short-term securities, had always maintained liquidity. And he came out of the Seventies looking like a fool.”
In the 1970s, inflation turned the chronology of the American dream on its head and made our lives less predictable and more chaotic. What I remember was how our own family’s financial situation became tenser and more anxious than it had been just a half-decade earlier even though my father’s career and salary had advanced over time. This was what inflation did, taking people who thought they were building economic security and upending it.
The anxiety and confusion was not terribly surprising given that through the 1950s and 1960s Americans got comfortable with prices that rose just 21 percent and 24 percent, respectively, per decade, but then increased by 150 percent between 1970 and 1982 before Fed chairman Paul Volcker, backed by President Reagan, applied the tough medicine that broke inflation.
Still, after a 14 year roller-coaster of inflation, counting the upward surge that began in 1968, America was a different country by 1982. Subsequently, our savings rate declined and our consumer debt started rising more rapidly. Our fascination with real estate mounted, as those who had bought homes in the 1970s saw their value soar and their mortgage payments decline relative to their incomes—windfalls that transformed the way people looked at housing ownership and the amount of money they might borrow to buy a home. “Buy, buy, buy, buy” was the message of the inflationary 1970s to the average America, Fortune opined.
A new round of inflation would send some of the very same messages as in the 1970s. It would undercut those who behaved most sensibly during the recent housing bubble—who took out affordable mortgages and banked money toward their retirement— by eroding the value of what they saved. It would significantly raise people’s anxiety about the future. How much money will we need to retire on? To buy that house that is our dream? In inflationary times, the goal line for such things keeps moving further and further away, as if someone is painting and repainting the lines on the field every day. You think the stock market has wrecked havoc on your 401(k)? Just hope you don’t get to see what inflation does to it.”
I’m awfully glad that I lived long enough to cast my first national vote for Ronald Wilson Reagan.
btw, did you know that Mr. Laffer was and still is a Democrat? He is.
But that was the genius of President Reagan. He wasn’t an idealogue. He insisted on the best and the brightest, regardless of idealogy. He was open to everything. President Reagan gave birth to the the Log Cabin Republicans, in fact, because he could see no reason why gays should not teach in schools. And this was nearly 30 years ago, far before it was fashionable!
I sure hope I live long enough to vote for another Reagan. I really do.
....I remember that in the 1970s when you walked into a bank there were big signs showing CD rates of 5%,6% and 7%...then over the years, those signs were replaced by big signs touting the bank’s credit card....that shift from save to spend is what got us to where we are today.
He sure is.
And, in fact, he reminded us of this a few weeks ago on Glenn Beck.
I wonder if he’s one of those “good” democrats, from back in the day. Honest to God, if JFK were alive today and held the same views, he’d be a Republican.
Nevertheless, I was as surprised as you to hear that, no doubt. But he remains an admirer of my favorite president....ever.
:)
P.S. I’d give up every single penny of my time and treasure to wake up tomorrow morning and find that Ronald Reagan was my president.
With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs -- such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid -- are over the $100 trillion mark.
It's difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed's actions because, frankly, 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.
$100 trillion in unfunded liabilities with annual U.S. GDP and tax receipts totaling about $16.4 trillion? And with China - our biggest lender - headed for the exits? The 1970s may not have been a pretty picture, but may soon be considered pretty by comparison to the likely consequences and results from current economic and government policies.
So what to do? Hold stocks,real estate, pay mortgage with inflated dollars?
Funny to hear someone reference those days.....
I can tell you the exact moment I became a conservative. Not everyone can, but I CAN.
I graduated high school a little early; so I was able to get a job a The Big Downtown Bank. We were very middle class so my family lived on coupons, “final sales”, and NO credit cards. This was our life.
You can imagine my shock when at The Big Downtown Bank, I was receiving phone calls from customers whose mortgage payments were doubling (Pres. Carter). These moms (and they were always moms) were sobbing and crying. This was the most frightening thing I’ve ever heard, and to this day, I will never forget it.
It effected me to this very day. When I was married to a spendthrift (wishing to put a HELOC on our home), my nerves were shot. He demanded my appearance at a bank to sign papers. I showed up all right. And refused to sign everything, showing I meant business.
It is almost impossible to calculate the damage President Carter did to this nation. I’ve often thought of doing the research myself, but I’m afraid I’d drink cyanide afterwards.
No way. Obama is in control. Utopia is just around the corner.
“So what to do? Hold stocks,real estate, pay mortgage with inflated dollars?”
...I think we’re all doing the right thing just by being on this board....it can be a powerful tool that we can use to help each other....here’s what we’re doing at our house:
1.strict budget and using coupons
2.if a stock doesn’t pay at least 4% dividend I sell it.
3.wife and I joined the gym to improve our health(the ultimate wealth)
4.we’re holding on to our hi-milage vehicles
5.we split 4 cords of oak in May for our wood burning add-on furnace next winter.
Reagan did not give birth to the deviants claiming they are republicans. Perversion is not fashionable just because hollywood is marketing deviance. Reagan was however, a great president. You seem a bit confused about the nation’s number one threat to public health. Check the CDC disease register to find the science behind the threat—it ain’t the will and grace marketing log.
“It is almost impossible to calculate the damage President Carter did to this nation”
...yep...and then he blamed us...said we had “malaise”...in a way though he opened my eyes to the destructiveness of the Dems....I voted Reagan and have been a Republican ever since....I’m praying that the devastation Obama will cause will trigger another “Regan revolution” and we can take back the country.
Good ideas Stonewall. We do some of the same including burning wood. Our furnace has not been on more than once/year for a decade. We have one high mileage vehicle. I bought a new Chevy truck in December, before hussein stole the business, for $400 dollars more than my Dad bought a 1987 toyota. Go figure.
Look for taxes on dividends to double if Hussein has his way—this was a campaign promise. Investing in tillable land is another option.
We also raise a large garden, can, raise beef, and fruit. Stockpiling and being able to defend it are keys to survival. Think prevention, preparedness, response, and recovery.
Yup. More to the right than many Republicans today.
Save nickels...the poor mans silver/gold.
The Nickel Is Worth 5 Cents Again!
Wednesday August 20, 2008
"Reading the headline of this post, you might wonder why it is newsworthy that a nickel is worth a nickel. The answer is that around this time last year, a nickel was worth almost a dime! I'm talking about the melt value of the U.S. nickel coin, which is actually made out of 75% copper (and 25% nickel.) Most people are aware that the U.S. Mint stopped making the penny out of copper back in 1982 because the metal in the coin was worth more than face value."
[snip]
If inflation is severe enough, you'll be selling nickels by weight at the coin shops (It's unlawful to melt US coins). On the other hand, they're currency and will always be worth a nickel.
Well it is unlawful to melt currently issued coins. Ninety per cent silver dimes,
quarters, halves, and dollars are melted in huge amounts because they were demonetized. (I would argue the slugs were monetized, hm)
Recent ammo sales are simply currency exchange.
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