A couple of weeks ago, I asked you all to explain to me why the stock market is so excited, even as the dollar is weak, unemployment is high, and national debt soars. Naturally, I got many interesting answers back, with inflation being cited as the chief culprit. Robert Arvanitis, who already provided an information-packed response, hasn’t forgotten that post, and he sent me an interesting update:
To follow-up prior discussions, here’s an excellent exposition at WSJ on inflation. [Note from BW: This article might be behind a paywall. Both Robert and I have accounts, so we can’t tell if it is.]
In short, the Fed is fabricating a trillion dollars a year. Direct inflation is already deadly, but for now is buried at the banks.
Even before we suffer the direct inflation, the monetary failure is already having bad effects.
· The markets no longer give us the right price signals, so vast capital is being misallocated.
· Borrowers, most notably Obama himself, are getting a destructive free ride from low rates. More accurately, I should say Obama is “borrowing 1,000 billion a year.” Too many people don’t realize it’s meaningless for Obama to say “We borrow just one trillion but have cut 10 billion….”
· Meanwhile, any thrift is punished harshly by those low rates. Here the elderly suffer most.
As Glenn Reynolds would say, “But watch the whole thing…”
Bookworm here, with my summary: Big bubbles, big explosions. Or to shift metaphors, the smart ones should be looking to hop off this merry-go-round. It’s about to break down and there’s not going to be anything romantic about it:
Danny Lemieux left a link to this video in the comments. I think it deserves its own post. You might also want to share it with your friends. It’s studiously non-partisan, so one hopes it will make liberals thoughtful, rather than defensive.
Incidentally, if any of your liberal friends think the answer is just to tax the rich, Iowahawk already considered that possibility and concluded — based on actual math — that it can’t be done.
For those who panic when numbers show up, Bill Whittle made a nice video based upon the Iowahawk post: