The View From 1776

The Chickens Have Come Home To Roost

Ill effects of relentless inflationary government spending are becoming more painfully clear every day.

Democrats (and Republicans of late) believe that the answer to every discomfort is increased Federal spending.  The nation is being buried by Federal deficit spending on the never-ending surge of new programs atop the monsters of Social Security and Medicare-Medicaid. 

Inflation is the inevitable result, and the rest of the world will tolerate it only so long (see

Exporting Inflation to China;

Federal Reserve’s NewSpeak;

Macroeconomics and Market Meltdown; and

Pyromaina and the Fires of Inflation).

The Wall Street Journal Online reports (September 20, 2007—Dollar Goes Loonie, By Matt Phillips):

Surging prices of oil and gold, and the increasingly enervated U.S. dollar, have fanned inflation worries after Tuesday’s interest rate cut.

After tumbling through a psychological barricade against the euro, the dollar also plunged to near parity with the Canadian dollar Thursday…

The U.S. dollar’s slide is partly an off-shoot of the Federal Reserve’s decision to lop a half percentage point off its benchmark federal-funds rate two days ago. While Fed chief Ben Bernanke’s move to hack away at the rate was welcomed on Wall Street, it also served to make it less appealing to hold dollar-denominated assets by cutting their cash yield. Coupled with the rate cut, the weaker dollar combines for various potential effects, including making imports pricier and raising risks of inflation while also making it easier for American companies to sell overseas…

Adding to pressure on the buck was Saudi Arabia’s decision to keep interest rates on hold this week, rather than cutting as it often does in lockstep with the Fed. The kingdom’s currency is basically pegged to the dollar, and the fact that it hasn’t followed the Fed’s cut with one of its own “has many speculating that they are moving closer to removing the dollar peg,” said Camilla Sutton, currency strategist at Scotia Capital in Toronto. If the Saudis do clip their tight ties to the dollar, Ms. Sutton says, “it would cause both a psychological and real drop in demand for the dollar-denominated assets, which would be U.S.-dollar bearish.” Likewise, BNP Paribas analysts divined more weakness against European currencies and noted that “the U.S. dollar index risks breaking its historical 1992 low, which would intensify the bearish U.S. dollar tone.

This sort of thing, however, is just what the doctor ordered, according to liberal-Progressive-socialists, who still worship at the altar of Keynesian economics.

Economist John Maynard Keynes, whose doctrine guided New Deal socialistic policy-making in the 1930s, preached that savings were bad for the economy, that Federal spending was the only appropriate way to attain full employment.

When reminded that his approach guaranteed inflation in the long run, Keynes flippantly observed that, in the long run, we are all dead.

The long run is again at hand, just as it was in the stagflation of the 1970s.