ken hanly wrote: > Isn't there a problem with government attempts to > solve the liquidity crisis and stimulate the economy. > Aren't they liable to cause inflation especially when > combined with high oil prices and agricultural > production shortages that are driving up prices. > Converting agricultural to biofuel production doesn't > help either. Couldn't we end up with RECession and > inFLATION?
That's right. the Fed faces a classic dilemma stimulate and face greater inflation -- or fight inflation and let Wall Street melt and Main Street slump. The good news is that these days the bases of a classic price/wage spiral are weak: unions have been flattened in the private sector and US businesses have less price-setting power than they did in the Golden Age of stagflation (the 1970s). So it's possible that any inflation that results from the Wall Street/Main Street save can be reversed relatively easily. The main thing preventing such saves will be (I would guess) the persistence of financial fragility. That fragility might be solved via bail-outs (use of taxpayer $$) and increased regulation, but it's hard to predict what will happen there. The bad news is that unions have been flattened... Another problem with the save is the falling US$, which directly encourages inflation by making US imports more expensive and reduces competition for US exporters. It also reduces the real value of the financial wealth of folks here in the USA (or rather, the wealth of people who have it). Worse, US$ depreciation reduces the income and/or wealth of those who sell oil (and the like) denominated in dollars and/or who own assets valued in dollars. The problem of oil being priced in US$ has been exaggerated, but it's true that the falling purchasing power encourages companies and countries selling oil to hike that US$ price. So we might see a exchange-rate/price spiral. That can be ended by stabilizing the dollar, which seems difficult at this point. The US press seems to be ignoring this issue. If I were smart, I would have shorted the US$ when Bush was selected and (in 2004) when his selection was ratified by voters. I did shift my 401k funds more toward non-US assets... -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
