by the Zac Brown Band
While I tend to side more with the Austrian school–for the simple reason that it is monetarily sound and makes no presumptions that government can succeed where private enterprise fails–it seems that North has invested too much stock in this inflation vs. deflation debate.
I’ll give you the more honest answer: no one has a freaking clue which scenario will play out. Either is entirely possible, and it matters not whether you are a Keynesian, a Monetarist, or an Austrian schooler.
Yes, the Treasury and the Fed–and their respective counterparts in the international community–have teamed up to inflate the money supply and bail out banks. This is an inflationary threat of a very high magnitude.
Yes, our government has spent money on an unprecedented scale for the last ten years, adding to an already serious debt problem. This is an inflationary threat of a very high magnitude.
Yes, our manufacturing–our true productive capacities–have increasingly been moved to other countries. This is an inflationary threat of a very high magnitude.
On the other hand,
The money created by the Fed and Treasury, is not moving.
While many of our productive capacities have been offshored, we still have a large workforce (labor), lots of land, and lots of human capital. Ergo, we still have a lot of capacity to produce.
There is still a large amount of debt, the liquidation–or chargeoff–of which remains necessary for economic recovery.
Will the monetary policies of the Fed and Treasury, overwhelm all deflationary pressures and result in the mother of all inflation debacles? Will we see double-digit, even triple digit, inflation? It is possible, but no one really knows. Why? Predictive models do not capture every necessary variable, nor do they necessarily quantify accurately the behaviors of those variables, or even the variables that are known.
Will the deflationary trends–massive debt that will be defaulted, high productive capacities–overwhelm the inflationary pressures and yield us a nasty period of deflation? It is possible. This is what happened in The Great Depression: efforts at bailouts and monetary creation were overwhelmed by the scope of defaults and bank failures. Hoover and FDR pulled every interventionist tactic they could, and we still failed to see recovery until 1939. Still, does that guarantee a deflationary scenario now? Not necessarily. Why? Predictive models do not capture every necessary variable, nor do they necessarily quantify accurately the behaviors of those variables, or even the variables that are known.
If North would lighten up with the vitriol, he would realize that Denninger–in spite of his Keynesian leanings–is not all that far apart from many Austrian schoolers. In fact, Denninger’s explication of why the CPI is unreliable, is very much in line with what Peter Schiff says in his book Crash Proof: How to Profit from the Coming Economic Collapse. Denninger and Schiff differ on the inflation-deflation prediction, but ya know what? They differ in spite of agreement on most of the basic problems.
While Denninger is correct in that Keynesian methodology involves saving money during prosperous times, in order to use it for recessions, the Keynesians fail on a couple of practical fronts:
- It presumes that government will create opportunities that are being destroyed by the market, as opposed to merely propping up malinvestments.
- It presumes that government knows where the real opportunities are.
- The stimulus spending by government almost always will involve the creation of government agencies, resulting in bureaucratic layers that will become dependent on taxpayer subsidy long after they serve their purpose.
Still, both Keynesians and Austrians can appreciate the deflationary–and inflationary–trends at work, as well as the futility of government efforts to stave off disaster. The latter are only deferring the reckoning, at compound interest.
But whether we will see massive deflation, or massive inflation, or some succession of both–I would hazard to suggest we may see the latter–is anyone’s guess.
I talked with a long-time friend last night. This friend is living a certain lifestyle that is – to any reader of Scripture with eyes to see – completely and totally sinful.
Amir & I spent a long time talking about certain popular modern philosophies. I lamented over the fact that there is certain teaching that I have been blessed with that my friend hasn’t. When I am at my best, I can be compassionate and that opens lots of conversational doors.
Adam’s comment on the Amir’s recent “Keep Grabbing . . .” post kind of feeds into the conversation we were having last night. This in conjunction with some recent moves made by Amir’s M-i-L, I am left wondering if there is anything left of the colloquial phrase “common sense”. It doesn’t seem like such a thing exists anymore. Maybe it never did.
There is always Romans 1 to reflect on as well.
Sometimes, when dealing with people who just don’t “get it”, one may feel like they are beating their heads against a brick wall. I suppose that marriage may feel this way at times.
(sidenote: Being the woman in the marriage I can see the temptation to get angry at her husband because he should “just know” what you are thinking. He did MARRY you after all . . . why can’t he read your mind?)
I think it is important to note that one must cloak all interactions with those who lack “common sense” in compassion and humility. I just haven’t figured out how to do that well, yet.
The friend I talked to last night is, hopefully, going to visit in the next couple of months. They are very familiar with my blunt streak and have yet to meet my husband. 😉
Amir is kind of like me, except with more life experience, more testosterone and a more thorough knowledge of Scripture. His G.a.S factor is also much lower than mine.
(sidenote: these are several reasons why he is my better half.)
Vox rightly smacks down the Paul Krugmans of the world, who attempt to hide behind nebulous predictions–leaving so much wiggle room that they can claim, “I called it!”, even as they wash Obama’s jockstrap and sing the glories of Keynes.
Instead, Vox lays down some hard predictions:
1. The BLS will report U-3 unemployment to be in excess of 11 percent. The actual number of unemployed workers will be much higher.
2. The BEA will report at least one quarter of negative GDP growth. The GDP figures for Q309 and Q409 will be revised downward. Again.
3. The Federal budget deficit for 2010 will exceed the projected $1.17 trillion.
4. More than 200 banks will be seized by the FDIC. Their deposits will represent more than two percent of all U.S. bank deposits.
5. Commercial bank loans and leases (TOTLL) will fall below $6.3 trillion.
6. All sectors credit market instruments excluding corporate equities and mutual fund shares liability, which is published in the Fed’s quarterly Z1 Flow of Funds Accounts, will fall below $52 trillion.
7. The national median existing-home price will not rise four percent from $172,600 to $179,500 as predicted by NAR’s lead economist Lawrence Yun. It will fall instead to a level I will attempt to estimate before the next NAR release.
Not sure it will get this bad by the end of next year–there will be more government-induced prop-ups that may mitigate the damage for a season–but I’d wager that Vox is closer to the truth than Krugman is.
Having read Return of the Great Depression, I noticed that Vox provided a very ominous insight at the beginning of his book: he illustrated the diminishing marginal effectiveness of monetary policy.
Why is that ominous? Effectively every response to a major economic crisis–from the 1987 crash, to the hedge fund disasters of the 1990s, to the dot bomb meltdown, to 9/11, to the housing debacle–has been to print more money. Greenspan’s response in 1987 was quite effective. In contrast, the extended response to dot-com/9/11/global financial morass–has lost its effectiveness.
The Fed turned the money spigot on as high as it could go, and yet that has not resulted in an avalanche of economic growth. Right now, the Fed Funds Target Rate might as well be negative. This has all the effect of trying to fix a stopped toilet by mere flushing.
We’ve printed trillions of dollars out of thin air, and stuck the taxpayers with trillions more dollars in liabilities. And yet the best we have is a slightly higher GDP, over 60% of which is due to one-time spending in the form of Cash for
If you think the Tea Party movement is “angry”, just wait till the American taxpayer gets the bill for all that money we’ve printed. . .
Hat tip to Karl Denninger of The Market Ticker.
While most Americans were busy considering good cheer associated with Christmas, The Great Messiah The Holy Obama of Nairobi effectively told Americans to keep grabbing their ankles, as he pledged an unlimited supply of our money to prop up Fannie and Freddie.
Karl Denninger has this to say.
Against this backdrop, I have a couple questions:
1. Why is it that Vox Day and Karl Denninger are giving us better assessments of the economy than the MSM talking heads?
2. When are Americans going to wake up and realize that we are getting our country stolen from us by the neocons and neocommies?
3. Does this new pricetag–which comes out of my pocket–include government providing me lube or handrails? I will need these, as government appears determined to ream me for the forseeable future. . .
. . .sucking up to the late mass murderer Mao Zedong.
The people who did this don’t even deserve to drink of Recon’s excreta. I can’t even find words to describe how despicable this is… except to say that it’s one more example of how depraved people can become when they embrace the occult.
The Obama “Stimulus” was never about creating jobs for the little guy.
No, it was all a bribe to keep his Democrat base, wearing their Presidential kneepads.