A good read, but I do not think they are correct to assume a deflationary result from the end of the bubble, nor are they correct in assuming our gov is running a surplus:
"It is my contention that only the net creditor nation can really have this kind of deflation, particularly under a free-floating exchange-rate system, hence Japan's recent experience. The primary reason being that it is in the debtor nation's interest to inflate its way out of debt. A spoiled debtor nation will never tolerate the deflationary burden of its debt.".....Ludig von Mises
From the following Fed Gov report: "Excluding Social Security and the Postal Service, there was a small on-budget surplus of $0.7 billion" This is in the 'fine print', right under the headline that claims 124+ billion surplus. Can you imagine what would happen to a Fortune 500 CEO if he had the accountants 'borrow' inflows destined for the employee retirement account in order to show positive earnings and cash flow??? He would be facing criminal charges.....but not our President...:
fms.treas.gov (needs acrobat reader)
The true bubble is the credit bubble, last Spring's NAS bubble was just one of the symptoms.....
More from Mises and the unwinding of credit bubbles:
"The course of a progressing inflation is this: At the beginning the inflow of additional money makes the prices of some commodities and services rise; other prices rise later. The price rise affects the various commodities and services, as has been shown, at different dates and to a different extent."
"This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy."
"But then finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against "real" goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap pater. Nobody wants to give away anything against them."
"It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German Mark in 1923. It happened with the dollar in 1973. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds.
Inflation is a policy that cannot last."
"Inflating its way out of debt" is a nice way of saying balancing the books by reducing the value of the general public's financial assets to offset the malinvestments that were the result of the credit bubble allowed to bloom by Greenspan & Co....... Jerry |
