Ron Paul makes a good point -- we should be willing to allow risk to be priced into markets rather than asking Bernanke to feed it with easy money. If risk was priced into bonds they would be far higher in yield. If risk was priced into the dollar it would be far lower in price than it is today. If risk was priced into the stock market then stocks would be trading at far lower multiples. But no matter what the Fed does with money supply, the risks are there and will in time be priced into markets -- the Fed can only slow the process so much, and even then only for so long. If the Fed raised interest rates risk would be priced in sooner. If the Fed lowers rates the process can be stalled for a few months, as we have seen. But regardless of what Bernanke does there will be and can only be one realistic outcome -- inflation -- because as risk gets priced into our markets then our assets are going to be wiped out. In a one currency world that would lead to deflation. But in a multi-currency world the outcome depends on your current account position -- and ours is a disaster. A large current account surplus, as Japan had, would bring us a deflationary outcome. A huge current account deficit, as we have, will lead us into an inflationary spiral. Just how bad it gets we will only know in time.
The only thing we can know with some certainty is that we are not heading into broad-based deflation -- and I do mean deflation. We sell our assets to the highest bidder to service our current account deficit -- and right now the world is telling us that our assets are not worth as much as they used to be worth -- we will have to fork over more of our assets to buy the same quantity of goods as before. Of course we could just stop driving and eating and give up buying much of anything like clothes and electronics etc., etc. -- that would slow the rate of inflation somewhat. But again, no matter what we as consumers do, the current account deficit is too large and pervasive, as are our government debts, to turn this ship around in less that a period of many, many yeas, and not before a ruinous inflation has taken its toll. Good luck -- by the way, I don't like you -- I think you are rude. |
