And, Here's The Inflation

Well, I guess the rate can't be cut much lower than 0.5%, so what's left to do? Fire up the printing presses! Make some of that 'money' out of thin air! From CNNMoney:

...the Fed will likely continue to use its new favorite tool, quantitative easing, "Fed-speak" for pouring new money into the economy.

In addition to lowering rates, the Fed has increased its lending to financial institutions and foreign central banks throughout the year to ease the credit crunch. But when the financial markets exploded into crisis-mode in mid-September, the Fed's reserve of Treasurys to support its lending began to run low. As a result, the central bank began firing up the printing presses, financing drastically increased lending to banks, purchases of corporate debt and bailouts of troubled institutions like AIG.

So, I hope you did invest in gold, or some other commodity that can hold its' value. Your currency isn't going to be worth anything.

"The end result of all of this could be the next major problem: the crisis of confidence in the dollar," said Baumohl. "At some point, foreign investors are not going to come to the table to buy U.S. debt, leading to a dollar decline."

I'm more worried about by purchasing power, although to hear the disciples of FDR, a body blow to my purchasing power is a blessing.

I can't wait to watch the left struggle to explain itself. How is it that the Clinton era was so prosperous under the anti-inflationary eye of Alan Greenspan, and we are to return to prosperity with Obama under an inflationary course?

I get to thinking about my favorite stories of Weimar Germany, hoping it never reaches us. From a nice, short history via PBS:

Pianos, wrote the British historian Adam Fergusson, were bought even by unmusical families. Sellers held back because the Mark was worth less every day. As prices went up, the amounts of currency demanded were greater, and the German Central Bank responded to the demands. Yet the ruling authorities did not see anything wrong. A leading financial newspaper said that the amounts of money in circulation were not excessively high. Dr. Rudolf Havenstein, the president of the Reichsbank (equivalent to the Federal Reserve) told an economics professor that he needed a new suit but wasn't going to buy one until prices came down.

Why did the German government not act to halt the inflation? It was a shaky, fragile government, especially after the assassination. The vengeful French sent their army into the Ruhr to enforce their demands for reparations, and the Germans were powerless to resist. More than inflation, the Germans feared unemployment. In 1919 Communists had tried to take over, and severe unemployment might give the Communists another chance. The great German industrial combines -- Krupp, Thyssen, Farben, Stinnes -- condoned the inflation and survived it well. A cheaper Mark, they reasoned, would make German goods cheap and easy to export, and they needed the export earnings to buy raw materials abroad. Inflation kept everyone working.

So the printing presses ran, and once they began to run, they were hard to stop. The price increases began to be dizzying. Menus in cafes could not be revised quickly enough. A student at Freiburg University ordered a cup of coffee at a cafe. The price on the menu was 5,000 Marks. He had two cups. When the bill came, it was for 14,000 Marks. "If you want to save money," he was told, "and you want two cups of coffee, you should order them both at the same time."

and

The flight from currency that had begun with the buying of diamonds, gold, country houses, and antiques now extended to minor and almost useless items -- bric-a-brac, soap, hairpins. The law-abiding country crumbled into petty thievery. Copper pipes and brass armatures weren't safe. Gasoline was siphoned from cars. People bought things they didn't need and used them to barter -- a pair of shoes for a shirt, some crockery for coffee. Berlin had a "witches' Sabbath" atmosphere. Prostitutes of both sexes roamed the streets. Cocaine was the fashionable drug. In the cabarets the newly rich and their foreign friends could dance and spend money. Other reports noted that not all the young people had a bad time. Their parents had taught them to work and save, and that was clearly wrong, so they could spend money, enjoy themselves, and flout the old.

The publisher Leopold Ullstein wrote: "People just didn't understand what was happening. All the economic theory they had been taught didn't provide for the phenomenon. There was a feeling of utter dependence on anonymous powers -- almost as a primitive people believed in magic -- that somebody must be in the know, and that this small group of 'somebodies' must be a conspiracy."

When the 1,000-billion Mark note came out, few bothered to collect the change when they spent it. By November 1923, with one dollar equal to one trillion Marks, the breakdown was complete. The currency had lost meaning.

I hope it never comes to this. Perhaps we will only go as far as revisiting the 1970s economy. This crisis has all the markings of history repeating itself, though, by way of willful ignorance of economics, and a mindless scoffing at sound money as 'mere ideology'.

Best be prepared.

Recession Economics

When times are tight and money isn't a-flowing from your wallet, would you prefer that your dollar had greater purchasing power, or weaker? Would you prefer that your cost of living increased, or decreased?

With the economic in the tank, government intervention is seen by many as the best way to revive it. One person held as a hero to many for economic turnaround is FDR. One of the tools FDR used to try to revive the economy was inflation. One of the hallmarks of the prosperity of the 1990's under the Clinton Administration and Alan Greenspan's Fed was the very low rate of inflation.

These endless bailouts are going to generate inflation, whether that is the design or not, because the money being doled out doesn't exist. It has to be printed or borrowed, and with our borrowing capacity nearly tapped, it's going to have to be printed- created out of thin air.

Obama is in favor of the bailouts, so by extension, he is in favor of inflation.

Here's an interesting bit of propaganda from 1933, extolling the virtues of inflation, i.e.: the weakening of your purchasing power and the raising of your cost of living.



(h/t: Chris Spangle)

Unsolicited Advice For Ron Paul

I'm glad I never had to endure a primary election as a candidate, where you battle with those within your party, splitting hairs while making the case for yourself, often with negativity coming through in the process of showing difference.

But I'm a Libertarian, and the differences between one LP candidate and another generally comes down to nuance. Not so in the Republican primary. Ron Paul is vastly different from the rest of the field, which does only separate by nuance.

I'm not just talking the war. Paul stands alone as one who would shrink the size, scope, and cost of government. Huckabee and Romney have raised taxes as governors. Thompson and McCain have voted for outrageous spending.

So, Dr. Paul, I have some unsolicited advice for you: Promote your ecomonic points first and foremost, even to the near exclusion of everything else.

Why? First off, you have to win the GOP nomination. It's just too much to ask of the Republican base, the people who are voting delegates, to go from supporting George Bush through this misguided war to taking the opposite position. If the war remains your #1 issue, you cannot win the nomination. Yes, you've been invoking Bush's campaign stances on foreign relations circa 2000, but it scarcely makes the 6+ years since 9/11/2001 vanish.

Give these folks a chance to save face. If you make the Republican base remember the fiscal conservatism of their increasingly distant past, you could well win the darned thing. None of the other Republicans sounds even remotely like a fiscal conservative, and when comparing their records to yours, most of them look like Karl Marx. You are making great points about the need for sound money. Americans who hate facts and study scoff at the gold standard and discussions of anti-inflationary monetary policy, but it's hard for anyone to deny being worried about the fact that the US dollar is weaker than the Canadian dollar.

That point alone sets you up for winning the election post-nomination. There isn't a single other candidate who has been talking about sound money, and it is becoming evident to absolutely everybody that our economy is beginning to ring the bowl. Every candidate who has voted for massive spending and borrowing- which is to say, everyone else- is guilty of causing the problem. They are guilty of making the US dollar weaker than the Euro, and weaker than the Canadian dollar.

You will not alienate your supporters by talking up fiscal policy. Indeed, that's why many of us support you, and give you these increasingly worthless greenbacks.

You have to win the nomination. Iraq is a losing issue strategically, at least right now. Go with your suprior fiscal policies.