Thursday, February 19, 2009

Don't Panic, Inflation will Save Us

It is strange how many people I have heard say: "we should inflate as much as possible, worry about it later". Remember the poor Ukrainian peasants in 1918, saying 'what could be worse than the Czar?' Things can always get worse. As if the problems caused by an inflationary spiral are not bad. Clearly, it would solve the indebtedness issue. Yet, the inflationary decades are hardly ones of great economic times, and end with a nasty recessions.

M1 Growth 13 months after onset of last 8 recessions:

Recession StartM1 Growth
Apr-602.4%
Dec-696.6%
Nov-73 4.9%
Jan-80 8.6%
Jul-81 7.0%
Jul-90 7.4%
Mar-01 7.1%
Dec-07 15.4%


So, Bernanke is trying. Unfortunately, its not working yet. But, when I was a freshman and we would drink grain alcohol until we felt it, that never ended well.

5 comments:

shittingalpha said...

Eric,

Do you think he's trying hard enough? I know M1 growth has been rapid, and front rates are as low as they can go, and fiscal stimulus, etc. but all this comes in the face of many trillions in destroyed wealth from asset price deflation, and the only way any of that stimulus can counteract that force is through the multiplier. But what multiplier do we have if banks aren't lending (and I don't think they should be if it's not profitable, they need negative rates...)?

Anonymous said...

So what's a better investment, TIPS or financials?

Anonymous said...

In a credit crisis with possible asset deflation, the velocity of money changes.

Without knowing how the velocity of money is changing, the money supply #s ARE USELESS!!!

In fact, we are in a credit crisis. People and businesses are having trouble getting loans to buy things, WHICH IS THE OPPOSITE OF EASY MONEY.

Anonymous said...

MONEY SUPPLY #S ARE USELESS USELESS USELESS IN A BANKING CRISIS!!!

YOU SHOULD KNOW BETTER!!!

WHY WASTE OUR TIME WITH THIS POST?

shawfactor said...

Anonymous,

I think eric realises that the slowing velocity has counteracted the growth in money.

Bbut when the banking crisis over the loose money will begin sloshing around and we will have inflation.

Pete

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