Where has all inflation gone?

Saying that the Fed has been 'creative' with fiscal policy lately is like saying the ocean is little damp. We've dropped interest rates to practically zero, held them there for over a year, and literally dumped trillions of dollars into the system in just a few months, and Bernanke and company have made it abundantly clear that they intend to drop trillions more at the first sign of economic degradation or deflation.

By traditional reckoning, we should be hip-deep in inflation now. If you flood the world with dollars, they become less valuable, and you need more of them to buy stuff. And yet, it remains subdued.

Wholesale prices in the United States increased only slightly in October, the Labor Department said Tuesday, easing concerns that inflation might soon emerge as a threat to the economic recovery in a period of extraordinarily low interest rates.

...

The Labor Department’s wholesale prices report said that higher food and energy costs contributed to a seasonally adjusted 0.3 percent rise in the producer price index, which measures the cost of goods to companies. That fell short of the 0.5 percent jump economists had forecast.

The index factors in the cost of items like gasoline, food and construction materials to businesses. It is often considered a leading indicator of consumer inflation because it monitors changes in prices before products reach store shelves.

The data showed a 1.6 percent increase in energy prices in October, driven by higher prices for gasoline and electricity. Food prices, particularly fresh and dried vegetables, also increased 1.6 percent.

Excluding food and energy costs, which tend to be volatile, the price of goods to businesses fell 0.6 percent in October.

So prices are actually deflating in many places. Note that there IS significant price inflation in a few places: gold, for instance, continues to trade at all time highs, but overall it absence is striking.

There are a number of theories as to what's happening.

  • China is completely distorting the currency markets by keeping the yuan pegged artificially low to the dollar, in essence absorbing our inflation. This sounds good on the surface, but if true, it would actually be very bad.
  • There is a huge bubble in the Treasury market. Global investors are collectively overpricing the dollar to a massive extent. Again, this would be good in the short term but very bad when the bubble popped.
  • Banks are simply sitting on all that extra money that was created, effectively preventing it from actually entering the larger economy and setting off inflation. Probably less bad than some of the others although it would imply that banks are much, much less healthy than they've been letting on.
  • The monetarists are flat-out wrong, and there's a huge bubble in the gold market. Basically, the global economy has evolved to the point where traditional views about the expansion of the money supply no longer apply. The Fed can create money with no negative side effects, or at least without the ones we're used to seeing. Sweet!

I'm deeply, deeply skeptical about that last one, but I readily admit that I don't what's going on either. Prices are still falling? If near-zero interest rates and trillions of dollars of extra cash doesn't set off inflation, what will?

I would go with number three, although I don't think it's a sign of unhealthiness, it's due to the Fed paying interest to the banks on the funds they hold, thus incenting them to maintain reserves.

I'll go with number 2. What do I get if I win? I'll just go with the idea that since the world economy is in shambles a lot of investors are pegging their hopes on the US recovering first which is artificially propping up the value of the dollar. I hope they're right but if they're not, then we get to see what happens when the bubble pops.

I'm deeply, deeply skeptical about that last one, but I readily admit that I don't what's going on either. Prices are still falling? If near-zero interest rates and trillions of dollars of extra cash doesn't set off inflation, what will?

The problem is that there's a lot of stuff that looks like money and trades like money, but isn't: the derivative markets. And a lot of that completely no-good paper is trying very hard to evaporate, while the Fed busily monetizes it. We're in a tug-of-war between a debt deflation and a monetary inflation.

Add to that the powerful deflationary undertow of the extremely low labor prices in China and India, and wages aren't going anywhere. Yet.

Further, other governments are absorbing many of the dollars the Fed is injecting, by printing their own currency to buy dollars; they are, in essence, importing our inflation. China has incredibly strong domestic inflation, as a direct consequence of this.

If you look at strictly domestic goods, you will typically see significant inflation. Look at your cable bill and your tuition bill and your healthcare bill. Things that are made elsewhere aren't going up that much, but things that are purely domestic have been going up very quickly for a long time. And the numbers the government provides are largely untrustworthy; starting in the Clinton administration, they began a process called 'hedonic adjustment', which most closely translates to 'using math to ignore numbers we don't like'. And in the Bush administration, they stopped even measuring the same basket of goods; now they just pick and choose whatever goods they like, each month.

You can't measure something if you don't use the same yardstick each time.

Doug Noland believes we're going into the Government Finance Bubble; from what I can see, it'll be the last one before total implosion.

By the way, I think all three of the top three explanations apply; it's not just one of them, it's ALL of them.

Look at your expenses, and tell me: have they gone down this year? Mine sure haven't. Most things I buy have gone up.

Also note that the dollar is down very dramatically against most other currencies this year.

Oh, one more note: remember, we just almost had a deflationary crash. We came within inches of one. The US is a gigantic economy and does not react quickly; it takes a good long while for these things to percolate through the system. iTulip thinks inflation will be clearly visible in Q1 2010, which is about a quarter later than I thought. And note that once it takes hold, it's going to be damnably hard to stop, because the Fed can't raise interest rates very far without bankrupting the government, the largest debtor in history.

Apparently into the price of Modern Warfare 2.

Malor wrote:

Further, other governments are absorbing many of the dollars the Fed is injecting, by printing their own currency to buy dollars; they are, in essence, importing our inflation. China has incredibly strong domestic inflation, as a direct consequence of this.

It's interesting timing reading that right now. We have inflation in the 6-8% band at the moment, and have for a while now. Out Reserve Bank has just announced that they are holding huge dollar reserves, but are intending to diversify these reserves to aid inflation targeting. They aim at 3-6% as the inflation band, mostly by using interest rates, but high interest rates are the enemy of growth.

I would say it's a mixture of 1 and 3, with more emphasis on 3 (I've heard conflicting reports, but reserves have gone from around $3B aggregate to well into the hundreds of billions), as well as a couple of other factors: (1) Consumers are still cutting back, at a rate of 0.7%; and (2) most (possibly all) business earnings growth has come from cutting costs and marginalizing employees, as opposed to increased sales that can drive greater employment.

That being said, I think it's inevitable that it will happen eventually, it's just a matter of one or two of these factors re-adjusting.

I believe we'll see rising prices in commodities because our currency is falling in value. A bunch of the extra cash looks to have been pushed into asset markets by the bankers/financial types rather than into the real economy. So it's non-existent money propping up asset prices, which the Fed and Treasury like because it means that our banks can pretend not to be insolvent. (Bonuses all around!)

We could see some wage inflation down the road as some critical workers demand higher wages to account for higher commodity prices. Despite what economists say, I think you can have wage inflation even at 10%-15% unemployment. In fact, since economists tend to say "that can't happen" I'm inclined it's almost certain to happen. Every time over the past 10 years an economist has said on TV that something "can't happen- it's never happened" a year or two later, guess what happens?

The reason is simple. Unemployment up - Inflation down.

Less people making income means less money in the system.

The asset bubble already burst. It was the housing one.

About the Fed printing money.

There are only 2 places that money goes.

1. The banks.
2. The federal government.

The banks are not loaning that money because of their recent history of the housing bubble. Their capital ratios are crap now.

The federal government is actually trying to minimize the spending with all the watchdogs and talk of deficits.

So with the lack of money being put in the real economy, inflation is very low.

Give it time. It'll hit.

Malor wrote:

Oh, one more note: remember, we just almost had a deflationary crash. We came within inches of one. The US is a gigantic economy and does not react quickly; it takes a good long while for these things to percolate through the system. iTulip thinks inflation will be clearly visible in Q1 2010, which is about a quarter later than I thought. And note that once it takes hold, it's going to be damnably hard to stop, because the Fed can't raise interest rates very far without bankrupting the government, the largest debtor in history.

The government will not go bankrupt if the interest rates go up. There has been so much debt already available to the government at a very very low interest rate. The government obligation to pay is peanuts compared to

Remember, the government does not need to pay the principle, just the interest.

If inflation goes up, it means the economy is getting better. Which means that the government does not need to finance stimulus. Which mean less government debt.

goman wrote:

The government will not go bankrupt if the interest rates go up. There has been so much debt already available to the government at a very very low interest rate. The government obligation to pay is peanuts compared to

Remember, the government does not need to pay the principle, just the interest.

The problem with this is that government debt has been trending to the short end, rather than the long end. That means that large amounts of it have to be rolled over every few months. If interest rates go up, the interest payments we have to make are going to ramp very quickly. We pay $500 billion in interest alone every year now - if interest rates go back up, that number can easily grow to beyond our capability to the pay just the interest, let alone the principal. The only alternatives at that point are to massively inflate or default, neither one of which is economically survivable. By doing what we've been doing, especially over the past nine years, we are essentially ensuring that this is the scenario that is going to occur.

If inflation goes up, it means the economy is getting better. Which means that the government does not need to finance stimulus. Which mean less government debt.

Was the economy getting better in the 70's and 80's during stagflation? Inflation does not always coincide with the economy getting better, and indeed is very unlikely to given our current debt situation and inability to raise interest rates in an attempt to control inflation. Our existing debt is more than enough to sink us if interest rates go up even slightly. We've essentially locked ourselves into a set of outcomes bounded by two extremes - an inflationary spiral as we try to pay off with direct monetization (economic collapse), or a government debt default and subsequent reduction of the Federal budget to about 25% of its current level (governmental collapse). The best thing that can happen to us right now is a deflationary collapse, fueled by debt clearing - that we can survive, but of course that's also the one thing that the government is intent on preventing. We can only hope that it will happen anyway.

goman wrote:

The banks are not loaning that money because of their recent history of the housing bubble. Their capital ratios are crap now.

Small point, but the top 10 national banks are all pretty well capitalized. most are above 10%, well above minimum reccomendations.

They're not lending as much as people might want because small businesses are worse than home owners with upside down mortgages at paying that money back, homeowners with upside down mortgages are worse than credit card defaults at paying money back, and the government just chucked new rules concerning credit card fees and warned banks about overdraft/NSF fees, prompting many banks to change OD/NSF policy, effectively removing a lot of the padding we had previously.

That and they like being well capitalized.

Seth wrote:

That and they like being well capitalized. :)

So do I, which is why I find it frustrating that my tax money went toward capitalizing them. I understand the logic behind the move and for as bad as things are, they haven't totally collapsed. It's still a bit offensive to my personal sense of justice.

Remember, the government does not need to pay the principle, just the interest.

Scarily wrongheaded. We end up paying real wealth forever in exchange for nothing. It's like carrying a credit card balance forever, just woefully stupid unless the money that you'd use to pay off the debt is generating more return than your interest. And even then, it may be stupid, because it's a shackle around your ankles, limiting your ability to respond to emergencies, which is one of the core functions of government.

Malor wrote:
Remember, the government does not need to pay the principle, just the interest.

Scarily wrongheaded. We end up paying real wealth forever in exchange for nothing. It's like carrying a credit card balance forever, just woefully stupid unless the money that you'd use to pay off the debt is generating more return than your interest. And even then, it may be stupid, because it's a shackle around your ankles, limiting your ability to respond to emergencies, which is one of the core functions of government.

If we want the government to go on forever, it is not wrongheaded at all. The US government is not mortal.

Every dollar we send banks because we haven't paid off our loans is a dollar we can't use for something else. That's schools we can't open, investments we can't make, research we can't do.

In general, it is extremely stupid to carry debt when it's not necessary.

I continue to hope and pray for a fiscally-responsible political group to gain clout in the national government. Sadly, I suspect that I will be doing the same thing 20 years from now.

Debt is just as bad for governments as it is for individuals. Sometimes, it can be useful for specific goals (buying a house, fighting off an invading army), but it is a bad idea to be forever owing money.

Even "fiscally responsible" doesn't mean what it used to anymore. Ever see a Republican who votes against the farm subsidies? You'd think fiscal responsibility means things like both sides sitting down and going over programs to see what is no longer needed and what can be done more efficiently, but in practice it means "eliminate programs I don't agree with and shovel the cash to the ones I like". Without a bipartisan approach, fiscal responsibility in it's current guise will simply mean the will to eviscerate the opposing party's programs.

Screw Bipartisan, both parties are fundamentally going the same way, one just drives a pinto and the other a mustang. Ultimately they are both headed to the same place, its just a matter of how long we take to get there. We need to take a detour.

Nosferatu wrote:

Screw Bipartisan, both parties are fundamentally going the same way, one just drives a pinto and the other a mustang. Ultimately they are both headed to the same place, its just a matter of how long we take to get there. We need to take a detour.

We're more on a rocket sled, hurtling down a mountain to our doom. Getting off the ride is going to hurt like a motherf*cker, but it'll hurt less than staying on.

Malor wrote:

Every dollar we send banks because we haven't paid off our loans is a dollar we can't use for something else. That's schools we can't open, investments we can't make, research we can't do.

In general, it is extremely stupid to carry debt when it's not necessary.

Exactly.. That is why we should just print the money for public goods. But then the investors would not get their share out of it. (Whoever we are paying the debt to.) The reason for Treasuries is because of the demand from investors. Not because the government has to do it. (IE, It is part of our cultural construct to do it. There is no hard and fast economic rule that demands it.)

goman wrote:

Exactly.. That is why we should just print the money for public goods.

Of course. Massive inflation is exactly what we need.

But then the investors would not get their share out of it. (Whoever we are paying the debt to.) The reason for Treasuries is because of the demand from investors.

I'm not quite sure what to make of that. The reason we have to sell Treasuries is because the government has been running a deficit for decades and we are unable and unwilling contain our spending. Are you suggesting that the investors are forcing the government to spend beyond its means?

Not because the government has to do it. (IE, It is part of our cultural construct to do it. There is no hard and fast economic rule that demands it.)

The reason we putatively borrow money instead of printing it is because printing money generates inflation. That's why what the Fed has been doing over the last 12 months is catastrophically bad - they are essentially directly monetizing Treasuries - printing money. Print too much of it or do it for long enough that people lose confidence, and you end up like Weimar Germany or Zimbabwe.

Doug Noland over at the Prudent Bear had a good column this week. I boldfaced some bits I thought were extra-important.

Doug Noland at the Prudent Bear[/url]]Reflation Issues Heat Up:

The Bernanke Fed held tightly to its “extended period” language in their November 4th communication. Global markets took this as a signal that the Fed would not be shifting away from its ultra-loose stance until sometime later in 2010 - at the earliest. Then there were captivating comments this week from St. Louis Federal Reserve Bank President James Bullard: “Policy rates are near zero in the U.S. and the rest of G-7 countries, something not seen in postwar economic history. The FOMC did not begin policy rate increases until 2-1/2-3 years after the end of each of the past two recessions.” Markets were quick to ponder the possibility that rates might be on hold all the way into 2012. The Fed should discourage such thinking.

In fairness to Mr. Bullard, he did note that the Fed will be mindful of criticism that it has in the past maintained low interest rates for too long. Interestingly, the world seems to have suddenly woken up to some of the risks posed by prolonged near zero short-term U.S. rates. Throughout Asia, attention has shifted from crisis management to the formidable challenge of dealing with unrelenting “hot money” inflows and associated Bubble risks. Increasingly, there are fears of an extended period of Monetary Disorder.

“Asian policy makers are studying capital controls to limit ‘hot money’ inflows that may stoke asset bubbles and force their currencies to appreciate,’ according to a Bloomberg story (Shamim Adam) that ran this morning. The article noted that policymakers from South Korea, India, and Indonesia are expressing concerns regarding international flows fueling asset inflation. Central bankers in Indonesia are studying placing limits on foreign investment in short-term debt instruments. This follows last week’s move by the Taiwanese to restrict international investments in bank term deposits. The Bloomberg article also included an apt comment from the Chief Executive of the Hong Kong Monetary Authority: “These economies could of course raise interest rates to contain inflation and increases in asset prices. But the fear is that once interest rates are raised the carry trade will become even more active, attracting even more fund inflows. Asian economies are therefore facing a dilemma.”

Here at home, there is the consensus view that the weak dollar, “hot money” flows, and the reemergence of Asian and global asset Bubbles are predominantly the problem of Asia and the rest of the non-U.S. world. From Bill Gross’s latest: “Raise interest rates with 15 million jobless and 25 million part-time working Americans? All because gold is above $1,100? You must be joking or smoking – something.”

With a clear head I can argue seriously that U.S. rates were cut much too low and that leaving them at near zero for a prolonged period is another major policy blunder. It is a case of the costs of such a policy greatly outweighing potential benefits.

As my designated “analytical nemeses” for approaching a decade now, I take special interest in the commentaries coming out of Pimco. In my parlance, Messrs. Gross and McCulley are “inflationists.” I would have expected inflationism dogma to have been discredited by now. Silly me, as the inflationists remain firmly in control of the Federal Reserve and Treasury - and continue to enjoy renown and riches as our era’s “captains of industry.” And they stick unbowed with their policy ideologies – government-directed monetary and fiscal stimulus – but in increasingly massive quantities and for longer durations.

The inflationists argued passionately for extraordinary “Keynesian” stimulus after the bursting of the technology Bubble. The “market” demanded and the Fed delivered. Of course, the Fed collapsed rates after the 2000 tech wreck. Rates remained at 1.0% until June 2004 and didn’t make it above 3% until mid-2005. At the time, the inflationists argued that some real estate excesses were a small price to pay to protect the system from the scourge of deflation. Their analysis of risk was flawed.

Household mortgage debt expanded 10.6% in 2001, 13.4% in 2002, 14.3% in 2002, 13.6% in 2004 and 13.2% in 2005. Evidence of a Bubble was right there in Fed data. From my perspective, rates were inarguably set inappropriately low for much too long, and higher borrowing costs would have been constructive for a more sound and stable financial and economic system. Would we be better off today had the Fed raised rates earlier and more aggressively?

The inflationists are always keen to downplay (ignore) Bubble risks, while disparaging any analysis suggesting that government market intervention can go too far. I could only chuckle recently when CNBC’s Rick Santelli and Steve Liesman were going another round at each other. After criticizing Federal Reserve, Mr. Liesman needled Mr. Santelli’s for how he’d set policy if he were leading the Fed. Santelli responded, “I’d start by raising rates to 1.0%.” Liesman immediately snapped back, “You’re a liquidationist!”

In Mr. Gross’s latest, he refers to “mini bubbles.” The problem is that the concept of anything “mini” hasn’t applied to Bubble analysis for years - and it doesn’t apply to the current backdrop either. It is the nature of Credit Bubbles that they tend toward expansion. If accommodated, they will not remain “mini” for long. Considering the unprecedented scope of synchronized global monetary and fiscal stimulus, it should be no surprise that Bubble dynamics have emerged so quickly.

To be sure, the Fed has been accommodating Bubbles for many years now. And with each bursting Bubble came policy reflation and only larger Bubbles. The bursting of bigger Bubbles provoked only more aggressive reflations and Bubbles of historic dimensions. The inflationists fatefully disregarded Bubble dynamics earlier this decade when their aggressive post-tech Bubble policy course fomented a much more dangerous Wall Street/mortgage finance Bubble. They are content these days to make a similar mistake.

Importantly, the unfolding global government finance Bubble is the largest and most precarious Bubble yet. Such a statement may today seem ridiculous to U.S.-centric analysts - but its becoming less so to those following developments in and around China. The unfolding backdrop is particularly dangerous because the Fed is poised to aggressively accommodate global Bubble dynamics for an extended period. Ultra-aggressive U.S. policy stimulus ensures ongoing dollar debasement, which feeds already massive financial flows to “undollar” assets and markets. Only aggressive policy tightening would contain Bubble excesses in China, Asia and the emerging markets. There appears no stomach for such an approach anywhere - and this is no mini predicament.

From Mr. Gross’s perspective, the Fed will not back away from its aggressive stimulus until “your cash has recapitalized and revitalized corporate America and homeowners…” And this seems an accurate enough assessment of the Fed’s point of view. But Gross then follows with a key sentence: “To date that transition is incomplete, mainly because mortgage refinancing and the purchase of new homes is being thwarted by significant changes in down payment requirements.” If I had to speculate, I’d say Mr. Gross struggled with that sentence – and may even wish he could have it back.

It is fundamental to Credit Bubble analysis to appreciate that the unfolding reflation is going to be altogether different than previous reflations. As I’ve repeatedly tried to explain, the epicenter of reflationary forces have shifted from the Core (U.S.) to the Periphery (China, Asia, and the “emerging” markets). The dollar and sophisticated Wall Street Credit instruments have been supplanted by non-dollar assets and markets as the inflationary asset class of choice. The underlying U.S. economic structure evolved during - and for – a Credit cycle era comprised of massive ongoing U.S. mortgage Credit expansion, resulting asset inflation, over-consumption and mal-investment. Accordingly, the U.S. economy is today especially poorly positioned for the new global reflationary backdrop.

“Down payment requirements” have essentially nothing to do with the lagging U.S. economy. A historic financial Bubble fueled a housing mania. The Bubble collapsed and the mania won’t be reappearing anytime soon. As a reminder of the nature of manias, Nasdaq traded above 5,000 in March 2000 and sits at less than half that level almost a decade later. Japan’s Nikkei traded to 38,957 on December 29, 1989 and closed today at 9,498. Reflations may create new manias, but they don’t rejuvenate the disCredited ones.

Years of steady home price inflation had convinced us that the more we borrowed to buy the biggest house - the wealthier we’d become. And the more we all accumulated debt (and Wall Street piled on leverage) the more home prices and our net worth inflated - and the more mad money we found to spend so freely. Not atypically, this mania was built upon Ponzi Credit and speculative excesses. Today, no amount of cheap mortgage Credit – and Fannie, Freddie, FHA and Treasury largess – is going to bring the housing boom back. Market psychology changed radically and the mania was crushed. The powerful inflationary bias percolating for years throughout U.S. housing and households was squelched. Spending patterns were significantly altered.

It is my thesis that there is no alternative than a major transformation of the underlying structure of the U.S. economy. In simplest terms, we must produce much more, consume much less and do it with a lot less Credit creation. The objective of current policymaking, however, is to quickly rejuvenate housing and asset prices with the intention of sustaining the legacy economic structure. Zero interest-rate policy is key to this strategy. The objective is to push savers out to the risk asset markets, as well as to transfer returns on savings from the savers to be used instead to recapitalize the banking/financial system. If this reflation is unsuccessful, the household sector will find itself with only greater exposure to risky assets.

No only is the current course of policymaking unjust, I believe it is flawed. The nation’s housing markets will remain rather impervious to low rates, while the household sector is punished with near zero returns on its savings. At the same time, monetary policy will continue to play a major role in dollar devaluation and higher consumer prices for energy and imports. Financial sector profits have already bounced back strongly, but there is little market incentive to direct new finance in a manner that would fund any semblance of economic transformation. The focus remains on financing the old structure. Indeed, I would argue that the current course of policymaking and market interventions only work to delay the unavoidable economic adjustment process.

I believe the unfolding risks to the U.S. and global economy are enormous. Most seem rather oblivious to the risks, believing both that our asset markets are not overvalued and that economic recovery is only a matter of time. But we are taking an economy that had become dependent on massive mortgage Credit and housing inflation and making it equally addicted to zero interest rates, massive federal deficits, and tenuous global reflationary dynamics. Or let’s look at it from a different angle. From the perspective of stock market valuation - massive Credit growth, the resulting flow of finance, and the course of policymaking basically created no additional wealth over the past ten years. We now appear determined to repeat this dismal performance over the next decade. Repeating what I wrote above, I believe the costs associated with prolonged zero rates are much greater than the benefits.

And with each bursting Bubble came policy reflation and only larger Bubbles.

Interesting that you'd cite that. You argued long and vigorously against my position that policy choices led to the bubbles. I even pointed out statements from Nolan's column to that effect, which I recall you disagreed with, in favor of the theory that the entire *system* was at fault. (Not a dig, not a joke, just an observation.)

Also note how countries are trying so hard to protect themselves from 'hot flows' -- that's another way of saying "there's too much damn money in the world, and it getting all dumped on us will wreck us via inflation and then collapse."

What irks me is the issue of what banks are doing with the money created by the Fed. Government stimulus checks pump money into wages and can add infrastructure, but what if Goldman takes the cash and then invests the money in trading activities? What if the best investments for the cash are seen as emerging market securities? Do we really know where the money goes?

We must have misunderstood each other. My belief has always been (well, for the last eight or ten years, anyway) that the Fed is absolutely central to the bubbles, and that's what Noland is saying here, that the aggressive policy responses was what caused the bubbles. The banks and financial system were the method by which the inflationary stimulus was transmitted. They developed many new ways to profit from and magnify it, but without the stimulus, none of it would have been possible. And given that stimulus, SOME method of transference and profit-taking was inevitable.

"Policy reflation" means "monetary injection by the Fed", by the way. Treasury and Congress do have some impact on this through their issuance of debt, and, more recently, the bailouts, but it's fairly limited. Easing the Glass-Steagall act did create a huge conduit for transmission of inflationary impulses to housing prices, but it wasn't the true source, just a transmission medium and amplification device for the underlying disorder. Something would have transmitted it, perhaps into a different area; that's just what actually did.

At its core, it's a money problem; if we fixed the money problem, the other issues wouldn't have arisen.

Aetius wrote:
goman wrote:

Exactly.. That is why we should just print the money for public goods.

Of course. Massive inflation is exactly what we need.

But then the investors would not get their share out of it. (Whoever we are paying the debt to.) The reason for Treasuries is because of the demand from investors.

I'm not quite sure what to make of that. The reason we have to sell Treasuries is because the government has been running a deficit for decades and we are unable and unwilling contain our spending. Are you suggesting that the investors are forcing the government to spend beyond its means?

Not because the government has to do it. (IE, It is part of our cultural construct to do it. There is no hard and fast economic rule that demands it.)

The reason we putatively borrow money instead of printing it is because printing money generates inflation. That's why what the Fed has been doing over the last 12 months is catastrophically bad - they are essentially directly monetizing Treasuries - printing money. Print too much of it or do it for long enough that people lose confidence, and you end up like Weimar Germany or Zimbabwe.

You never thought about the opposite side of the Debt coin? It is an accounting practice. For every debtor you have a creditor.

Also the savings rate has gone up during the "Great Recession". Doesn't hyperinflation go hand in hand with hyper-consumerism. Don't want to be the last one holding the money.

Also the savings rate has gone up during the "Great Recession".

Of course it has. That's what happens in recessions. Inflation isn't terribly visible... all the price increases have been in assets like housing, and services like health care, rather than goods at Walmart... so why wouldn't they?