It is now becoming acutely embarrassing even to read the words of Alan Greenspan and other central bankers from one week to the next as they painfully try to make sense of what is going on. They really do not know whether we are on the verge of inflation or deflation. All Greenspan can think of is to try and keep consumers spending and hope that somehow they will keep at it long enough, month after month, year after year, until manufacturers get back into full production again (still shy by 25%) *and* pay off their debts *and* replace the money lost from their pensions schemes *and* hope that at the end of it gthat their customers have somehow paid off their own credit card debts *and* are still game to increase their spending significantly so that everything in the garden is wonderful again.
What sort of madness is afflicting the (so-called) monetary authorities? Perhaps they will start to give money away. Perhaps they will start to fill helicopters with money and scatter it over our large cities -- as Milton Friedman facetiously suggested a few months ago. It's not such a stupid suggestion as all that because the car-makers are now doing something similar already. Here are the first three paragraphs of a two-part series in the FT starting today:
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Barely 20 minutes' drive from Alan Greenspan's office at the US Federal Reserve, the reality of doing business in an era of cheap money is beginning to take its toil on corporate America.
Customers at Koons Chevrolet, an ordinary car dealership in the prosperous Washington DC suburb of Tyson's Corner, are discovering that the Fed's relentless loosening of monetary policy results in companies being increasingly desperate to unload their stock, regardless of profitability.
Washington car buyers stroll in to the Koons showroom with nothing more than a clean credit history and drive out in a top-of-the-range sports utility vehicle with $3,000 in cash in their back pocket. Not a single cent of interest will accumulate in their six-year $36,000 car loan.
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At the end of the article, Dan Roberts writes:
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Mr Greenspan may wish to check out the deals at his local showroom before deciding whether to cut rates any further.
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I think Mr Greenspan should think a lot deeper than that. He should think about just what a ridiculous situation the 'authorities' have got themselves into. Furthermore, what is the nature of this 'money' which the 'authorities' have been issuing for most of the last century and are now attempting to control? Already in the past century, the 'authorities' have consented to 20 years of deflation, 20 years of rampant inflation in which the value of money declined 30-fold, and we're now probably due another 20 years of deflation -- Japan having already led the way for the past ten years.
The 'authorities' might try allowing *real* money with *real* value to emerge one day. Perhaps they will, when the present madness persists for long enough.
Keith Hudson
Keith Hudson, 6 Upper Camden Place, Bath, England
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