Name Calling: Part Two

The argument by the Keynesians that deficits don't matter and that money printing is not harmful hinges on the fact that we have been running deficits until now and printed money yet borrowing costs are low as is inflation. The problem is that at some point we will cross a threshold where that is no longer the case. The way markets work is that once that point is reached it will be too late. There is no turning back for the Greeks as two years ago everything seemed fine there as well.

One could have said a few years ago that the housing bubble was not harmful, as many did, because as of yet it did not cause any harm. The same could have been said for the tech bubble before the burst. If we wait for markets to tell us that the deficits and money printing have gone too far it will be too late.

2 comments:

nicasurfer said...

nice, more debt more money. Do i hear hyperinflation depression?

Anonymous said...

You can't compare the Greeks to the US or Britain. The Greeks can't print money, the US and Britain can. Now yes, it is possible a panic might ensue someday. Hell, we had a panic meltdown in march 2009 and near panic meltup since in the stock market. Markets are always prone to panic. If people truly panic above US government debt, then they will tend to trade paper dollars for hard assets. If the only hard asset they buy is gold, nothing much happens other than gold bubble. But if they buy stocks and real-estate, that will start the recovery, since the deflation in real-estate is our biggest problem now. If the inflation gets out of control, the solution is the same simple solution as always. Some of the moneyt hat was "printed" during the recession must be "unprinted" during the recovery. This is done by running a budget surplus. Higher taxes and lower spending. Part of the higher taxes will come from economic recovery (more income taxes, more capital gains taxes), part will involve raising rates. Part of the lower spending will also come naturally, from reduced unemployment. Monetary policy also will continue to have plenty of traction, given that the private sector is still heavily leveraged.

Now obviously, if the powers-that-be want inflation, then the Fed and Congress will indeed fail to act to control inflation. But if the powers-that-be want inflation, why all the pissing and moaning about the danger inflation everywhere you turn in the media? Doesn't add up. If the PTB want to stop inflation, then the Fed and Congress will indeed act.

You are making things complicated. If you were a politician trying to confuse the voters or a lobbyist for the retirees and bond-holders, I would call you a liar. But since you are an investor, writing on a fairly obscure blog, and thus presumably speaking sincerely, I'm afraid I'll have to call you stupid. I can't fade you, because you are self-contradictory rather than just wrong. You blame the government for running up debt, which implies you are worried about inflation, and then you are bearish on stocks at the same time, which implies you are worried about deflation. But I can certainly use your stupidity as a leading indicator. If you are stuck on stupid, then so must be everyone else, which means the whole society is stuck on stupid. Same situation as prevailed and continues to prevail in Japan. Which means we are going the way of Japan. Huge increases in government debt, ZIRP and yet deflation rather than inflation.