Inflation dangers ahead?
Washington keeps looking for quick and easy ways to get the economy back on its feet and return us back to the good old days. Some Americans think we can shop our way back to happiness. At least that’s what Washington would have us believe. As such, our national government is now spending like never before, forgetting that we are running up our collective credit cards to the limit and that the tab will ultimately have to be paid. But never mind they say, it feels good for now – and some would have us believe we need all this “stuff” are buying.
Between the U.S. Treasury and the Federal Reserve, Washington has committed well over $12.8 Trillion in new spending. The Europeans warned President Obama during this last round of G20 meetings that this is a dangerous course to take. The head of the European Union, which is always worried about inflation, w arned that the spending of the U.S. Government is taking us down “the road to hell.” The French and the Germans have made similar warnings and have pressed for a repair to the regulatory system. Unfortunately, the Democratic Administration has brushed past these requests. While acknowledging that their arguments have merit, the Democrats called for even more stimulus spending.
One of the dangers of all this historically unprecedented spending is that it will spark a very dangerous new round of inflation. Never mind the spenders argue, before inflation can get started, we will pull the money out of the system. This of course sounds very much like the drug user who says that he is not hooked and can quit anytime. Washington does not work that way and never has; real spending cuts have rarely been seen. A brief history of the size of government as a percent of GDP shows that government never shrinks. At best, it plateaus from time to time.
Were this a run of the mill recession, where there was a mere imbalance in asset supply and demand, government spending might do the trick. But this is a deeper financial sector crisis that will require major structural changes. No amount of spending will fix the structural problems in the economy. We may very well pump up the economy into a short term sugar high. But there is an underlying illness that very much needs tending, lest we set ourselves up for a repeat of 2008. In some w ays, the experience of the crash of Long Term Capital Management (LTCM) in 1998 was, in effect, a dress rehearsal for this crisis – from which we learned nothing.
First and foremost,…
). What a meeting! Many people spoke their piece, the likes of which hasn’t been heard for quite some time. One business owner stated that this unplanned, unexpected, and unbudgeted action means a $3,000 tax bill. Said another hapless taxpayer,