Obama + Bernanke = Inflation

[bush_cheney2004]

The US is going to need to get its debt to GDP ratio down. The only way to do that is to grow or inflate. The US is likely facing a decade of slow growth which leaves inflation as the only option.

Perhaps, but the US had inflation with lower debt to GDP ratio. France and Japan would be facing the USA's "fate" long ago.

[Riverwind]

Perhaps, but the US had inflation with lower debt to GDP ratio. France and Japan would be facing the USA's "fate" long ago.

Things aren't exactly looking rosy for Japan. France levels may be manageable but issue is the Obama is running deficits greater than 10% of GDP which means the US will close the gap with Japan pretty fast.

That said, a little inflation is not the end of the world. If it helps correct the financial imbalances it would be worth it.

Edited April 20, 2009 by Riverwind

[August1991]

Things aren't exactly looking rosy for Japan. France levels may be manageable but issue is the Obama is running deficits greater than 10% of GDP which means the US will close the gap with Japan pretty fast.

That said, a little inflation is not the end of the world. If it helps correct the financial imbalances it would be worth it.

US government debt-to-GDP ratio is around 60% and with the deficits Obama will have, this will possibly rise to 90% or so in the next four years. This is still far from Japan's 190% ratio. IOW, the US government can borrow alot more money

A little inflation - say around 2% - would not pose any problem. The Fed's problem is how to get there. The Fed just used a variety of means to pump a massive amount of cash into the system and for the moment, most people are sitting on it. Excess cash reserves arew large. Presumably, at some point, the Fed will have to soak up that liquidity.

If it soaks it up too quickly, then it will stall the recovery. If it soaks it up too slowly, then it will induce inflationary expectations.

Bernanke is following a textbook solution to this crisis but it poses at least two problems down the road. One problem is how to undo all this new liquidity. Another problem is the moral hazard the Fed and Treasury have introduced into the US banking system. We have had three burst bubbles in the past 20 years and each time, the Fed has bailed out Wall Street.

[Pliny]

The US is going to need to get its debt to GDP ratio down. The only way to do that is to grow or inflate. The US is likely facing a decade of slow growth which leaves inflation as the only option.

How about paying the debt? Never an option?

Paying debts by debasing the currency (inflation) isn't going to make anyone holding American money happy. Foreign countries will soon start to divest themselves of American dollars.

I don't see how you guys can even think in terms of single digit inflation. 2 or 3% inflation is what we have under normal circumstances.

What's holding the American dollar up now?

Obama has everybody on hold scratching their heads and waiting for his next brilliant oratory which oddly enough will still leave them scratching their heads. This guy spent all his time studying politics and social engineering and considered economics on a par with basket weaving, I'm sure. I notice Pelosi is keeping her mouth shout lately. And Hilary must be fuming about Barack in Latin America. But that's for other threads I suppose.

[benny]

More and more we will have to widen the use of the doctrine of odious debt.

http://en.wikipedia.org/wiki/Odious_debt

Edited April 20, 2009 by benny

[Guest MaximilianB]

To all seeming the USA is heading for dissolution. And current global financial crisis together with mass unemployment in this country only stimulates regional separatism there. See for yourself!

At first chiefs of North American Indian tribe Dakota (Sioux people) have announced their decision to rupture agreements, signed over 150 years ago with US government. They declared their independence from the USA last year and called upon other neighboring states (Nebraska, Montana and Wyoming) to join their country Lakota! Then Lakota Indians adopted own Declaration of Independence from the USA, which was supported by the UNO in last September despite the resistance of the USA.

After it Texas has followed the lead of Lakota Indians, promising to withdraw from the USA if Washington would not stop to solve own financial and economic problems for the account of Texas’ citizens.

At last in this February 7 US states adopted Declaration of their National Sovereignty. And now authorities of other 12 states are discussing the same question. It means that at any time these states, among which are such as st. California, st. Man, st. Vermont, st. New Hampshire, st. Utah or st. Louisiana, may secede. Indeed, why should so all-sufficient regions suffer from numerous financial and economic difficulties of present-day USA?

[Oleg Bach]

The one and only purpose in installing Obama was to ensure that the privledged rich stayed rich even if they were not fit for the position....He is the master of artifical creation of wealth for a small section of society - called parasites - and to ensure weapons sales and general war supplies he will send BLACKS to die needlessly so some rich white son of a bitch can continue to crap in a gold plated toilet - he is the Ophra of the White House..and he has sold his soul for an Armani suit and a position of glory - he's an A hole just like his predessor.

[bush_cheney2004]

.... Indeed, why should so all-sufficient regions suffer from numerous financial and economic difficulties of present-day USA?

Because the US federal government has a bigger army.

[bush_cheney2004]

and to ensure weapons sales and general war supplies he will send BLACKS to die needlessly so some rich white son of a bitch can continue to crap in a gold plated toilet -

Cute...but I think the "whites", "Hispanics", "Asians", and other demographics serving in the US armed forces wouldn't appreciate your perspective.

[Oleg Bach]

Cute...but I think the "whites", "Hispanics", "Asians", and other demographics serving in the US armed forces wouldn't appreciate your perspective.

YOU of all people now suddenly become politically correct. So you are protecting your interests - just like my old man - during the war he served on any side that he percieved was winning - I guess that is why he survived - and you are a survivor...I suppose. Historically - the poor, marginalized and those that are considered racially and socially inferiour are the first to enlist and the first to die - Look at those crooks the Clintons - they don't mind war because it the filthy blue collar spawns that serve - and they have forgotten their own roots - that they are white trash - any guy that gets a blow job from what is still a female child - is white trash - any woman that allows nasty and dishonourable behaviour to be condoned for political gain is also white trash - and Obama puts Hillary the whore monger on top of the heap - what gives buddy boy?

[benny]

There is a deflation in the US (-0.4% over the last year).

http://globaleconomicanalysis.blogspot.com...one-global.html

[Oleg Bach]

There is a deflation in the US (-0.4% over the last year).

http://globaleconomicanalysis.blogspot.com...one-global.html

Just as I suspected - fiat currency has now been fully understood by the common guy - wealth by decree..and I guess the average person is not buying it - money has no value - and the powers that be will never again instill faith in useless paper- nor will they ever have the loyality of the common mass again - they lied and people may trust a liar once but not twice.

[benny]

Just as I suspected - fiat currency has now been fully understood by the common guy - wealth by decree..and I guess the average person is not buying it - money has no value - and the powers that be will never again instill faith in useless paper- nor will they ever have the loyality of the common mass again - they lied and people may trust a liar once but not twice.

Economic agents are not so myopic anymore it seems.

http://ideas.repec.org/p/cwl/cwldpp/481.html

[August1991]

Allan Meltzer is no fool:

What I doubt is the commitment of the administration and the autonomy of the Federal Reserve. Mr. Volcker was a very independent chairman. But under Mr. Bernanke, the Fed has sacrificed its independence and become the monetary arm of the Treasury: bailing out A.I.G., taking on illiquid securities from Bear Stearns and promising to provide as much as $700 billion of reserves to buy mortgages.

Independent central banks don’t do what this Fed has done. They leave such fiscal action to the legislative branch.

...

Some of my fellow economists, including many at the Fed, say that the big monetary goal is to avoid deflation. They point to the less than 1 percent decline in the consumer price index for the year ending in March as evidence that deflation is a threat. But this statistic is misleading: unstable food and energy prices may lower the price index for a few months, but deflation (or inflation) refers to the sustained rate of change of prices, not the price level. We should look instead at a less volatile price index, the gross domestic product deflator. In this year’s first quarter, it rose 2.9 percent — a sure sign of inflation.

NYT

The greatest loss under Bernanke is the Fed's independance.

Obama is a greater autocrat than Bush Jnr and sadly, Obama's supporters don't know this.

Edited May 5, 2009 by August1991

[benny]

Allan Meltzer is no fool:NYT

The greatest loss under Bernanke is the Fed's independance.

Obama is a greater autocrat than Bush Jnr and sadly, Obama's supporters don't know this.

What use is there for a monetary policy to maintain a reputation of being able to stay committed to fix rules when the real economy of the country has itself lost for ever its good reputation?