Comments on: The Gathering Storm… Rational Conservatism from the Rocky Mountains Sun, 06 May 2018 06:27:30 +0000 hourly 1 By: Drax Mon, 28 Jun 2010 22:56:28 +0000 Of course, once you’ve cut the prime to zero, the only way to stop deflation is to try to induce inflation, and one way to induce inflation is to double (perhaps triple) the money supply in the economy.

The problem is that the banks have been sitting on their piles of cash, waiting for “better times” when loaning the money has both a better chance of being paid back and paid back at a better rate.

And, I, too, am convinced that no one knows what’s going on, except from trial and error both here and elsewhere — and, unfortunately, many of the “experts” are convinced that their view of the economic world obtains and this time things will go differently because he/she/they got involved, leaving them to ignore the lessons of history.

The best thing to do is for the government to make the economic environment as inviting to business as possible, make taxes as benign as possible, and get out of the way allowing the economy to fix itself. (This includes allowing those businesses which made bad decisions to go bankrupt…)

By: CosmicConservative Mon, 28 Jun 2010 19:53:43 +0000 See, I really don’t understand economics….

I think Bernanke gave a speech a long time ago where he warned about the potential for deflation and suggested a path of dropping interest rates as far as possible, and then printing huge amounts of new money as a way to flood the economy with enough dollars to keep deflation from creating a total economic meltdown through the devaluation of personal and coporate debt. The concern expressed then was that deflation would put the loan to asset ratio so negative that people would simply walk away from their loans and that would wipe out the banking sector, which would then create a funding crisis which would lead to virtually every corporation and small business in America (and the world) not being able to meet payrolls.

I think that’s more or less what he warned about.

And what I’ve seen in the past two years and change has been a deliberate effort by the government to follow exactly that path, which is why I think the Fed is terrified of deflation.

I dunno, as I said, I’m no economist, but my real concern is that neither is Bernanke or anyone else. Krugman is out there saying our problem is that we haven’t thrown enough bailout money at the problem, and people take him very seriously.

My real fear is that nobody really knows what is going on, nobody has a clear understanding of what needs to be done, and even if we did, our politicians are so short-sighted and greedy that they won’t do what needs to be done even if it becomes clear what that is.

I am seriously concerned that this is not going to end well.

By: Drax Mon, 28 Jun 2010 19:44:37 +0000 I don’t have much concern about inflation. I have a HUUUUUUUUUUGGGGGGGGGGGEEEEEEEEEEEEE concern about hyper-inflation. Governments have been using inflation as a method of getting out of crushing debt since we all went off the gold standard. Some have been successful in doing so…others saw (and see) hyper-inflation.

Deflation is a problem, of course. But, deflation, like inflation, is simply part of the ordinary course. Unfortunately, we have been artificially “deflating” the economy for well over a decade — going on three with the Fed constantly pushing down (almost without exception) the prime rate until now it is essentially (and has been for some time) ZERO. In what bizarro world does the cost of borrowing money keep going DOWN no matter the economic circumstances — at least until there’s no more “down” left?

I would be happy to see inflation. A healthy 5% inflation for a decade or so would pretty much wipe out the national debt — if spending were restrained and taxes were cut.

By: Dadman Mon, 28 Jun 2010 19:42:03 +0000 Economics is not only a dismal science it is vitually incomprehensible (to me at least).

CC/Drax, all of your concerns may be valid, but I can’t help thinking that one of the reasons the private sector is presently so stagnant is the high level of uncertainty that exists in the environment. Businesses are concerned about significant tax hikes related to healthcare reform and the expiration of the Bush tax cuts, etc. that they are standing pat in terms of hiring. Even more serious is the economic fear gripping the average American consumer. Americans are simply not spending and investing the way they used to. Until this psychological dynamic changes – and I’m hoping it will begin to change with the November elections – the economy will be stuck in neutral.

Ironically, political gridlock in Washington (as opposed to the one party rule we are currently enduring) might just release the economic gridlock we see now. I’m hoping that more Washington gridlock = less economic uncertainty.

We’ll see…

By: CosmicConservative Mon, 28 Jun 2010 18:52:43 +0000 Drax, I just can’t help but think that part of Obama’s (and Bush and McCain’s) goal with the first “bailout” was to try to inflate ourselves a bit out of the mess.

You have this great concern about inflation and hyper-inflation, but if I understand things properly, inflation itself would actually help the situation a bit by putting more mortgages (home and commercial) above water. The Fed seems far more concerned about DEflation than INflation based on their actions the last year. I can’t think of anything that’s been done to hedge against inflation, but just about every major thing I’ve seen the government do seems to directly target the potential for deflation.

I think the Fed sees a deflationary spiral as an existential threat to the industrialized world. I think they see inflation, even significant (if not “hyper”) inflation as preferable to the threat of total economic collapse.

By: Drax Mon, 28 Jun 2010 18:43:56 +0000 The commercial mortgage crisis is coming, and it’s going to be worse than the housing crisis.

At some point, the banks will be forced to release (loan) some of those hundreds of billions that are (virtually) sitting in bank vaults throughout the nation. This will happen when they can no longer make money off of loaning the loans back to the government and making a profit off of the difference. When this flood of money hits the economy, inflation, perhaps, hyper-inflation, will set in. Hard.

But…it’s just possible that we will be able to elect enough conservatives to force a budget which not only cuts taxes but cuts spending — enough to gin up the engines of growth fast enough to grow our way out of this mess.

By the same token, if inflation sets in (not hyper-inflation) and is controlled sufficiently, then we could inflate ourselves out of the debt mess. If combined with restrained spending and tax cuts (especially captial gains and corporate tax cuts) there could be light at the end of the tunnel yet.