The View From 1776

Why The Fed Will Not Be Able To Prevent Higher Inflation

As former Fed chairman Alan Greenspan admitted in post-meltdown testimony to Congress, no group of bureaucrats, no matter how intelligent or how well informed, can accurately predict the timing of economic turns or determine the correct theoretical equilibrium rate of interest.

Posted by .(JavaScript must be enabled to view this email address) on 05/31 at 12:50 AM
  1. Well, they want inflation. That is the goal as that would force asset prices up due to rising CPI in the raw materials used for homes, factories, office buildings, malls, etc. That increase would cover the defaults better.

    The problem is that it is going to cause everything else to rise as well because those raw materials also go into everything we buy either directly or indirectly, including food. Anything sold globally, including wheat, corn, soybeans, etc. will go up in price too. Our imported manufacturing goods we buy will go up.

    If wages were to rise as that happened it would offset much of the damage but, that won't happen with high unemployment and it is lagging factor.

    The big problem we have is the debt is to the point where we can't find enough lenders and other nations are seeking loans now that are 4 times more than what we are seeking. We also, I read, have about $2 trillion in debt that matures this year and has to be rolled over.

    We have Medicare that is already cash flow negative, forcing us to borrow to make up the short fall and S.S. will soon be cash flow negative. That means we would have to borrow just to send out S.S. checks to the growing number of seniors will grow by about 1.5 million a year, from the current 36 million to 71 million in about 20 years.

    This is a decades in building, problem and with interest on debt to quadruple in a few years, we can't tax or grow out of this. Just the interest on debt would consume 1/3 of the budget.

    The final problem is the world moving away from the dollar. Some have said there isn't another currency that would be accepted globally. Correct but, there doesn't need to be.

    China and South America and Russia are proving that. They aren't going to a global currency. They are making trade deals with each nation to trade in their own currencies. China has done that with six or seven nations already. Brazil and Argentina have done it with each other and four other S.A. nations have agreed to join in that move away from the Dollar. Iran sells its oil in Euro AND Yen.

    It may not be this year but, the world is slowly weaning itself off the dollar and that is going to mean they stop lending to us from the dollars they get in trade surplus.

    We have to monetize more debt when there aren't enough lenders and there already aren't enough for the future deficit needs. The cut in the deficit that the President hope for was based on unemployment peaking at 8.1% and we are already at 8.9% and expected to go over 10% before this ends.

    If they were to do what Volcker did, it would plunge the nation into a depression this time, not a recession like we had under Volcker. But, if they don't stop it, it causes different problems that lead to a dollar collapse.

    Now, short term, the FED works with central banks all over the world that may be able to help buy most of the debt, reducing the monetizing of the debt as much. We will just have to see.
    Posted by JanPBurr  on  05/31  at  09:55 AM
  2. I heard a psychiatrist on Glenn Beck say "Pain deferred is pain doubled". I am fond of saying that people confuse the absence of pain with healing. Someone with a broken femur on morphine feels no pain, but the femur is still broken.

    We are now reaping the lack of discipline and ignorance sown for decades by government education and the press/media.

    And we have no one but ourselves to blame.

    Illic est a tempestas in horizon. Instruo pro is.
    Posted by Amendment X  on  05/31  at  03:16 PM
  3. Tom and Jan-
    To prove your point on why central planning and control don't and can't work: http://tinyurl.com/ktaoej
    Posted by Amendment X  on  05/31  at  08:55 PM
  4. Thanks Amendment X

    There is a chance things will level out for a while but, I am prepared for a fall too.

    There are a lot of variables globally and trying to put the proper weight to all of them would be impossible, so I just try to have plans ready for whichever way it goes.

    But, as that article points out, even the FED isn't sure of what is going on.
    Posted by JanPBurr  on  05/31  at  09:34 PM
  5. "...even the FED isn
    Posted by Amendment X  on  05/31  at  10:44 PM
  6. AmendmentX:

    Thanks for the tinyurl.

    I posted something in that regard here:

    http://www.thomasbrewton.com/index.php/weblog/why_the_steepening_yield_curve/
    Posted by .(JavaScript must be enabled to view this email address)  on  06/01  at  12:58 PM
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