Tuesday, May 26, 2009

Inflation Good for Us, Economists Say. Need more.

Crossposted from Jr. Deputy Accountant;

So I'm pretty sure we have descended into the realm of total economic insanity. In fairness, it isn't simply economics which are dosed hard on the LSD, it's everything. Politics have always been insane but now? WTF! The Fed has always been out of its mind but now? OMG!

I have no explanations left at this point. Seriously. I really wish I did, and trust me, I'm a pretty clever girl so I'd love to be able to explain this but... I'm just out of analysis. If someone knows where the exit is that will take me back to Planet Earth, can you please point me in that direction?

So, having defined that we are collectively tripping our balls off as we wander aimlessly through Bizarro World, let's look at some truly brilliant suggestions for getting ourselves out of this mess. Like a painful bout of inflation.

Yup, what we need is inflation. Now that makes a whole shitload of sense. How I missed this article on the 19th we may never know but it's just too good to pass up.


May 19 (Bloomberg) -- What the U.S. economy may need is a dose of good old-fashioned inflation.

So say economists including Gregory Mankiw, former White House adviser, and Kenneth Rogoff, who was chief economist at the International Monetary Fund. They argue that a looser rein on inflation would make it easier for debt-strapped consumers and governments to meet their obligations. It might also help the economy by encouraging Americans to spend now rather than later when prices go up.

“I’m advocating 6 percent inflation for at least a couple of years,” says Rogoff, 56, who’s now a professor at Harvard University. “It would ameliorate the debt bomb and help us work through the deleveraging process.”

Such a strategy would be risky. An outlook for higher prices could spook foreign investors and send the dollar careening lower. The challenge would be to prevent inflation from returning to the above-10-percent levels that prevailed in the 1970s and took almost a decade and a recession to cure.

“Anybody who has been a central banker wouldn’t want to see inflation expectations become unhinged,” says Marvin Goodfriend, a former official at the Federal Reserve Bank of Richmond. “The Fed would have to create a recession to get its credibility back,” adds Goodfriend, now a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh.

I fucking love this. "The Fed would have to create a recession to get its credibility back." HUH?!

I have read some of Goodfriend's work since he hails from my all-time favorite regional Fed bank (if a noted Fedbasher can have a favorite Fed bank, that is - I love you, Jeffrey Lacker, and I mean that...) and frankly I find this suggestion fascinating.

By fascinating I mean I am completely fucking confused.

The funny part about this suggestion is that 6% inflation moving forward will be a miracle from God himself at this point. 6%? Yeah right, more like 15 - 20% and that is the best case scenario. Have you not noticed what China and Russia are up to? The IMF is more than happy to encourage a mass global unloading of US dollars and we have our own Tim Geithner (who, I remind you, dear reader, is an IMF governor "representing the United States' best interests") egging them on. But that should be no surprise.

6%? Really?

The Bureau of Lies and Statistics might have fudged its numbers enough to make things appear a little rosier than they are but that too should come as no surprise.

At this point, I have pretty much accepted that everyone is smoking the green shoots and will no longer look to any of the "experts" for anything more than entertainment.

Except Jeffrey Lacker. But even his thoughts must be dissected through the bullshit filter. You know, just in case. The Kool-aid is being distributed on a mass scale here, kids, just got to make sure they don't get to clever ole JL.

Fuck inflation, right Zimbabwe Ben? Who needs it!

For the moment, the Fed’s focus is on preventing deflation -- a potentially debilitating drop in prices and wages that makes debts harder to repay and encourages the postponement of purchases. The Labor Department reported May 15 that consumer prices were unchanged in April from the previous month and were down 0.7 percent from a year earlier.

“We are currently being very aggressive because we are trying to avoid” deflation, Fed Chairman Ben S. Bernanke told an Atlanta Fed conference on May 11.

The central bank has cut short-term interest rates effectively to zero and engaged in what Bernanke calls “credit easing” to spur lending to consumers, small businesses and homebuyers.

Bernanke, 55, said the risk of deflation was receding and that the Fed was ready to reverse course when needed to maintain stable prices and prevent an outbreak of undesired inflation. The Fed has implicitly defined price stability as annual inflation of 1.5 percent to 2 percent, as measured by a price index based on personal consumption expenditures.

Of course. Because printing bazillions of dollars couldn't possibly lead to inflation. Sure, I buy that.

What. in. the. fuck. is going on here?

Click on title above to see article, "9 out of 10 Economists Say Inflation is Needed."

No comments:

Post a Comment