Inflation


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Posted by David Sherman on Monday, March 09, 2009 at 14:42:36 :

In Reply to: Want an eye opener? go to posted by 48PW on Monday, March 09, 2009 at 11:36:16 :

We don't see it now, but I think you're right in the long run. There's just no way the government can keep doing one trillion-dollar bailout/stimulus after another and pay for it with real tax money. The thing that's saving us now is all the other major countries are going down faster than we are, and foreigners are still buying lots of US Treasuries. The government knows that's going to stop, and they've already decided that when the Chinese etc stop buying government bonds, the Federal Reserve Bank will start doing so instead, so as to keep the interest rate down. That's a neat little trick that only a central bank can do, and it's equivalent to printing money out of thin air, which is equivalent to devaluing the dollar. So, we have our depression first, and then when it appears to be over, because prices of everything are going back up, we have hyper-inflation. Everybody's hard-earned retirement savings will be back up to the same amount of dollars they had before the depression, but a lifetime of savings won't buy them a month in the old-folks' home.

To some extent, inflation doesn't matter if you don't have savings, because your income goes up as fast as the prices of everything go up. The outcome of government finance Zimbabwe-style might be that we're paying $50/gallon for gas and $1 million for a crummy house, but if we're making $1000/hr, it all comes out even. Only the boomer retirees, who are too old to work and whose savings are worth nothing will be hurt, but presumably their good liberal President will provide them with some sort of socialized pension.

The basic problem with our economy is that several trillion dollars that people (especially many very rich people) thought they had turns out to not exist. It was carefully hidden in clever "investment vehicles" that make Bernie Madoff look like a street corner flim-flam artist. The money is gone, but nobody wants to admit it yet. They're hoping that by some governmental conjuring they can make it re-appear. The conjuring seems to consist mostly of shoveling hundreds of billions of dollars at the very banks, insurance companies, and brokerage houses that created this mess. I fail to see why any of that is necessary except to bail out the hyper-rich. If CitiBank fails, the depositors with less than $250K in that bank will get their money back, which seems perfectly adequate to me, and way cheaper than bailing out the bank over and over again. There will always be plenty of banks and plenty of insurance companies. Setting up a new one isn't like setting up a new General Motors from scratch. Throughout history, banks and insurance companies have failed and new ones taken over. What makes them so sacred now, that we have to devalue our dollar to save them?



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