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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: suanny who wrote (62244)	5/31/2006 4:23:14 AM
From: shades	Read Replies (1) \| Respond to of 110194

In 73 and 74 Unions ruled and wage increases of 6 or 7% were common,also people in general were not as deep in debt. mosler.org Posted by Winslow R. (70.230.210.160) on 00:59:23 05/30/06 In Reply to: on inflation expectations posted by Warren Mosler : Under that reasoning, it was an inflation expectations "trap," and not higher : : oil prices, that led to double-digit inflation in the 1970s. And it did so : : quickly. As Armenter and Bodenstein noted, "the high inflation of the 70s was : : preceded by a decade of low inflation." : : They called their findings "an important step forward in exploring the : : hypothesis that the high inflation experienced by the U.S. in the 70s was : : driven by expectations." What caused the expectations in the 70's and 00's? Vietnam and Yom Kippur wars in the 60's and 70's Iraq and possibly Iran in the 00's and 10's What causes the expectations to be fulfilled? Political necessity. To blame an 'inflation expectations trap' for inflation is circular reasoning or at best only half the answer, what caused the expectations? What caused the expecations to become reality? Excess money creation is the 'cause' of inflation but there are many contributers to that cause. Expectations would be more properly called national politics. Overall, legitmate economic activity is deflationary (profit or 'savings' motivated) and therefore 'must' be offset with 'wasteful' economic activity to avoid recessions and depression arising from 'excess' savings. Money creation in excess of GDP growth is difficult with a productive economy. Government 'butter' spending, if done too efficiently actually increases GDP and wealth and therefore may not create the desired inflationary response. To counter the deflationary effect of 'butter' , 'guns' are added. Inflation emanates from money creation that lacks a matching increase in real wealth. Butter' was insufficient in the late 60's and early 70's so the government added the 'guns' of the Vietnam war, a large money creator unmatched by real wealth creation. Where does Vietnam fit in your model? In our current situation, Iraq is the generator of 'wasteful' economic activity. Firms, just as households will reach a point where they require higher income to maintain their current level of activity. Perhaps through conservation and efficiency we will be able to 'fund' the wealth destruction occurring in Iraq but I doubt we could handle an additional war with Iran without a falloff in standards of living. The question becomes who's standards will fall. Something that will be decided politically as people's expectations are either denied or granted.