Wednesday, 30 October 2013

It’s inflation a go-go at the central banks tonight!

Generally, when governments and their flunkies intend to change direction, they test it first by launching a few “trial balloons” to see if they’re shot down.

Such a balloon was launched on the front page of last week’s New York Times, a launchpad only used when the plans being trialled are already well advanced, signalling for all to see that the US Federal Reserve (and, by extension, every central bank around the world who follows their lead) intends to double down on its attempt to inflate its way out of its present predicament.

That is, it intends to replace its present implicit policy of devaluing its currency (that has achieved no success anyone can point to) with an explicit policy to send its value down the toilet, and all the way past the ‘S’ bend.

Either that, or as an astute commenter said at one of my favourite blogs, “Looks like they expect to no longer keep their reinforced ebola in the bottle and are lining up their excuses in anticipation.”

You would have thought that the disastrous stagflation of the 1970s would have killed off forever the Keynesian experiment with monetary inflation.

Not so.

They’re obviously hoping too few folk wiped out by the Fed’s inflationary disaster of the seventies to remain alive to make a ruccus.

The key part of the inflationary con they wanted to put over last week was that a gentle deflation is bad (it isn’t) and a “little bit of inflation” won’t hurt you—and that they can control it if it looks like it might. Neither proposition is any bit of it true.

First, it it passing strange that even alleged economists bewail the prospect of the dollar in your pocket being able to buy more things. That means you and I--and especially low-income earners--becoming richer, not poorer. Second, “the leading cause of falling prices is economic progress, whose essential feature is an increasing production and supply of goods and services, which, of course, [is what] operates to make prices fall.”

Strange to call that a bad thing, when instead it’s part of a genuinely sustainable cure for what currently ails the likes of Japan.

Further, as Richard Ebeling points out,

the quick fix of inflation in creating “good times” and more jobs is short lived, is an illusion like many other “fixes” that provide an initial “high” but soon fade away… this “positive” effect … only continues for as long as the increased supply of money has not impacted on and raised all the prices in the economy.

Once the new tranche of monetary inflation does eventually impact on all prices in the economy, pumping up price bubbles along the way, the clamour comes for more of the sugar rush that was just sent out—setting up a vicious spiral that Friedrich Hayek once likened to having a tiger by the tail.

And in the meantime, those people getting the new money first and those whose assets are inflated are made richer, at the expense of savers those folk furthest from the government’s monetary spigot.

The hoped-for boom is bought by quietly picking some people’s pockets. A boom that in the end destroys all that it creates, and more. Because

the entire structure of the economy – the demands for investment and construction, the jobs into which workers and others have been drawn through the inflationary spending – is now dependent on the monetary expansion continuing and keeping the patterns of demands and jobs artificially created by this process to continue to go on-and-on.
    Once any attempt is made by the central bankers to slow down or stop the monetary expansion in the face of worsening price inflation, the entire house of cards begins to crumble. The boom turns into the bust, as investments undertaken and jobs created are discovered to be the misdirected outcome of money creation and the unsustainable patterns of demand and employments that could last only for as long as the inflationary spiral was kept going.
    The “little bit” of inflation that some Harvard economists, Federal Reserve presidents and some in the business world are saying is not only nothing to worry about but is the panacea for all our economic ills, is a phony elixir to cure our national ailments. It will only set America on an even worse inflationary boom-bust rollercoaster than the one that current Federal Reserve monetary policy has been already setting us up for.

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1 comment:

  1. What is interesting is that you point out correctly that not just savers, but earners (who are not on the government gravy train) are also hurt.

    DK Halling Author of Pendulum of Justice

    ReplyDelete

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