A
View on Inflation & Keynesian Talking Points
03/29/2012 - 23:38
The ponzi will fail, and the economy will reset - the only
question is when.
Submitted by CrownThomas on 03/29/2012
‘As the world spins helplessly into
insolvency, central banks are becoming more and more active in helping to
"solve" the crisis (although some would argue it's odd to have those
who helped create it be counted on to help solve it). As this is taking
place, the Keynesians (MMT'ers) and Austrians are
renewing their rivalry, and are once again going after each other for their
thoughts on the situation (note: it really doesn't matter what the Austrians
believe, as the Keynesians are currently in charge of the decision making).
Volumes can and have been written on
these two schools of economic thought - what I'd like to focus on is inflation.
Austrians are always sounding the
alarm on inflation, and the Keynesians always laugh and point to the monthly
CPI figures the BLS publishes. They say that it's in the 2%-3% range,
everything is fine. And besides, the velocity of money is down significantly,
so the Austrians need to be quiet and take their "crazy" somewhere
else.
That's one way to look at it. I would
argue that inflation is all around us, we just choose not to look.
Some context: Say you were buying
apples at your local store. What if you thought that there were only a dozen
apples in the store you were in, with no chance of more apples being delivered. You'd place a higher value on each
apple right? Now what if you knew there was a truck load of apples being
delivered shortly - you'd place a little less value on each apple, knowing that
the supply of apples will be increasing shortly.
This is the same way Austrians view
the value of money. They believe that individuals
value money based on both quantity, and QUALITY. If
the Federal Reserve can just print money and increase the money supply,
creating more dollars to chase a similar amount of goods, why would you
value each dollar the same as you would before the money supply was
increased? And in regards to velocity of money, the velocity of money does not create inflation,
it is a symptom of
inflation. Think about it, if you knew there were more and more dollars chasing
the same amount of goods around, you'd begin to draw on your account &
borrow to purchase goods now instead of in the future, thus increasing the
velocity of money. But the inflation was already there when the money supply
increased arbitrarily.
Inflation is all around us. I don't
need to get into things like WTI or Brent, you feel
the effects of those each time you get gas. What I'd like to point
out are things like healthcare, energy as a whole, housing prices, and
student loans. Do you not see the inflation in those areas? -- As an aside, I
recommend reading this
piece ZH published on student loans.
Here's the case I lay out for those
reading to make up their own minds. The Federal Reserve prints money,
"buying" treasuries & increasing the money supply, thus devaluing
the dollar. The Government then subsidizes all of the aforementioned areas,
which means more dollars are available to purchase those goods & services.
And this is how the game is played (also, banks net income swells as a
result).
A. M2 (Money Supply) skyrockets
(Fed printing)
B. An Example of Government
Subsidies in Student Loans
C. Here's Your Inflation (that
nobody can seem to find)
D. All with a declining velocity
of money
E. The USD is losing value at a
rapid pace (but who wants the paper tied to something of value, that's
crazy) -- Also, you can
look at DXY, but you'd only be looking at how the
And may I present to you the only
reason money is printed - so everyone can consume all those iPads
and sweet big screen tv's:
Eventually the game will be up folks,
and I strongly recommend you learn to live below your means before you're
forced to. The ponzi will fail, and the economy will reset - the
only question is when.
In the spirit of the Zero Hedge
Mob