ThomWV
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Sun Sep-13-09 07:24 AM
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Maybe the Port of Long Beach is saving us from inflation |
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Economics 101: Inflation is caused by too many dollars chasing too few goods.
Its an easy concept to visualize, when you push many dollars into an economy prices rise, but in our present predicament its hard to see it in action. With billions and billions of dollars being pumped into the economy there should be rising prices across the board, but they don't exist. Why is that?
It is dawning on me that I'm only looking at one side of the equation, the 'too many dollars' side. In fact the answer may lie on the other side. Maybe prices aren't rising because there is no lack of goods. Maybe, and this is just a wild maybe, maybe we have managed to mask inflation in the most bizarre way - maybe we have managed to export it.
For just a moment forget about our economic activity other than that we spend huge amounts of money on goods from China. What does that do to China? It deprives them, by way of export, of the goods they produce and at the same time greatly increases the number of dollars in their country - many dollars chasing few goods.
Have we managed to transfer inflation that rightly belongs between our shores to our asian rival? Is every item we import and every dollar we export a hedge against domestic inflation?
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Warpy
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Sun Sep-13-09 07:53 AM
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1. Supply side economics stuffed the pipeline |
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20 years ago and it's remained stuffed. There have been too few dollars chasing too many goods for a couple of decades. The only thing that kept prices high was access to debt. Depressed wages would have depressed prices a long time ago without an inexhaustible credit limit represented by those little plastic cards.
The credit rug has now been pulled out from under the economy. While the inflationary pressure of the increased money supply under Stupid remains, there is at least an equal deflationary pressure from people with depressed wages who are now unable to buy anything but subsistence items.
In the short term, I do think we'll start to see deflation. Assets have already deflated and it's only a matter of time before goods and services follow. In the long term, Stupid's insane monetary policies will cause another round of double digit inflation, I'm afraid. I doubt we'll see Weimar level inflation, but anybody who went through the 70s knows how devastating even 12% inflation per year can be.
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DU
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Mon May 06th 2024, 12:35 AM
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