Yes, it’s always possible to reinflate prices.

Now ask yourself what increasing prices do when working against a work force that’s not going to see an increase in wages. That’s right….inflating prices without inflating wages will cause the economy to implode (much like high gas prices did…).

Near as I can tell, PhDs are so disconnected from the work force that they are completely unaware of current globalization wage pressures. It didn’t even rank a bullet in the baseline scenario, when it’s undoubtly the major force behind the current “restructuring” of the world economy.

We are led by the sheltered and the disconnected.
That’s why we (they?) going to crater the economy.

Interesting post. Understand that our systemic inflation is a government and federal reserve creation, not a force of nature we should assume to always be true. Banks have always profited from inflating through their fractional lending, but the fear of a run and failure used to be a check on that. Now we’ve got the mirage of safety by the FDIC and our “lender of last resort”, so the system has been stripped bare of it’s natural protections.

Prices SHOULD be falling as our ability to produce goods more efficiently (or import them) drives down costs and competition pushes down the prices. This is the basic dynamic of the entire technology industry, which has seen productivity and innovation lead to continually falling prices and yet broad industry expansion. It is the quintessential example of how productivity-driven deflation is good for everyone. Deflation is the friend of the working/middle class that improves purchasing power and encourages/rewards savings.

But instead our political “leadership” in both parties, through their supreme cowardice and lack of principles, has been turning to the printing press and the payola of special-interest pay-offs for decades. And in doing so, they’ve robbed the middle class of their savings. Notice that Healthcare, Education, food and housing are all areas of enormous government subsidy and regulation. This isn’t a coincidence, this is how inflation works.

What the government doesn’t borrow, the fed prints up in new money, then buys treasury bonds to fund the state’s massive deficit spending. That spending through these areas via the entitlements, drives up prices through inflationary demand, while the enormous price controls in medicare simply push the inflation out to private insurance holders. Education lacks any effect competitive framework or inherent accountability in the public system. College subsidies drive up the prices for higher education.

Food is obviously, immorally subsidized by all of us so that the crucial electoral states like Iowa can be paid off. Meanwhile, a working family endure a $5 loaf of bread. Housing is obviously rife with government incentives and institutions that have truly run wild this past decade, starting with the changes made under Clinton in the 1990s.

All the while the collusive nature of our central banking system has caused finance to consolidate into a cartel-like global network whose fragility has now been fully revealed, despite it being the most regulated industry this side of medicine.

Meanwhile, the areas of unsubsidized, unregulated industry and innovation have been deflationary. All of our economy could be like computing, driving up real wages and strengthening savings, if government would stop the immoral inflationary spending and let innovation and productivity do their job at expanding REAL wealth.

It’s as if our political class WANTS to bankrupt working people. The incentive is certainly there. If you’re on the dole, you become a slave to their wishes and your incentives better align with their career goals.

Inevitably, the point is reached when it becomes mathematically impossible to work enough hours to pay one’s bills. Not all of people’s debts are due to consumer spending (billions of dollars a year is to program us to consume from the time we are infants onwards, or hadn’t you noticed?), however. Much of it is due to the cost of certain necessities such as health care, housing and education that have risen in multiples of inflationary rate for decades.

Since “no one saw this coming,” I’m sure it’s just a coincidence that creditors managed in 2005 to change the bankruptcy laws for individuals. It’s something of a return to indebted servitude for the flesh and blood citizens that no longer have the equal rights to bankruptcy protection as corporate citizens enjoy.

Anyhow, concurrent to all of this was the “race to the bottom” for wages, the fraudulent snake oil of globalization, and the trifecta of Ponzi schemes: the stock market, deregulation and the “federal” reserve system.

A solid middle class that is the foundation of any economically sound society is based has been bled dry; we’ve been running on borrowed money for too long. We cannot work any more than we already do, nor can we borrow any more than we have.

Thus, collapse.

(And with it the opportunity for those at the top of the pyramid to consolidate their power.)

I’ve been shaking my head for the last twenty years now because the math just didn’t add up (the joys of being gifted), wondering how the fuck can this go on and why the hell does no one else care. Well, it’s here now and the sheeple known as Jane and Joe Sixpack are finally waking up to the theft and the misdirections of political red herrings.

Will Madame Guillotine to make a return to the world’s stage? We are a nation born of revolutionaries, and our duty is clearly stated by Thomas Jefferson in the Declaration of Independence. As he wrote elsewhere:

“God forbid we should ever be twenty years without such a rebellion. The people cannot be all, and always, well informed. The part which is wrong will be discontented, in proportion to the importance of the facts they misconceive. If they remain quiet under such misconceptions, it is lethargy, the forerunner of death to the public liberty. …And what country can preserve its liberties, if it’s rulers are not warned from time to time, that this people preserve the spirit of resistance? Let them take arms. The remedy is to set them right as to the facts, pardon and pacify them. What signify a few lives lost in a century or two? The tree of liberty must be refreshed from time to time, with the blood of patriots and tyrants. It is its natural manure.”

It’s my firm belief that our real opportunity as a country right now, if we had the right courageous leadership, would be to strip away our central banking system. Popular belief in the Fed Chairman as some otherworldly god is finally waking up to reality. Plus, the dollar’s reserve status world-wide seems to still be holding, which I think suggests a chance to have the world follow us back to the future of hard money.

The change would be painful, but we’re certainly better off doing that now than after the government dumps another trillion into unproductive assets that may spark another bubble (probably a “green energy” bubble).

It seems pretty clear that all this talk of Lord Keynes and “getting the stimulus out quick, even if it’s messy” is built on a complete ignorance of basic ideas that date back to Adam Smith and The Wealth of Nations. Productivity driving greater prosperity is the key lesson. Spending is enabled by the buying power that productivity provides. Today’s computer is cheaper than yesterday’s thanks to productivity. That savings enables spending. Productivity-driven deflation raising real wages and living standards for everyone.

Seems pretty simple, and yet it gets lost in the collusive echo-chamber of inflationary monetary and fiscal policy that has been the status quo for, well, a century. Keynes isn’t “back”. He never left. But he’s still just as wrong as ever. Welcome back, stagflation.

= Norman

It would seem that a free banking system would allow the information inherently derived from occasional bank failure to keep the entire system healthy and prudent. Failure is very instructive to the health of an industry, as we’ve seen in technology. The idea that we must simply live with “too big to fail” or “too much systemic risk to fail” and therefore construct massive regulatory structures to prevent oligarchic rule by the banks seems to be an assumption driven by a lack of imagination.

Maybe my Austrian bias is showing (obviously), but when I encounter great sites like this, I’m continually struck by the tunnel vision regarding the core elements of our system. We can abolish the central bank. Smarter, more courageous, more principled American leaders have done so before. It’s not crazy talk.

Thoughts?