Posted by Michael A. Kamperman on November 28, 2009
Dubai dropped a debt bomb on unsuspecting speculators and this will set off another round of dominoes falling into each other one by one. The Islamic bonds Dubai wants relief from were trading at a 10% premium to face value and were of course were highly rated by Standard & Poor’s when Dubai said it needed more time to pay. Now those same bonds are priced at 50 cents on the dollar. Everyone apparently assumed Dubai’s oil rich neighbor Abu Dhabi would bail it out even though it had no contractual or implied arrangement to do so. Without a bail out it was obvious Dubai couldn’t pay its debts. The city-state borrowed heavily to build a beautiful city by the sea. The problem is the buildings are mostly empty and neither buyers nor renters can be found at almost any price. Property values officially fell in half before the debt bomb was dropped. As construction crashes to halt in Dubai for the foreseeable future it will further detract global GDP. And, it will decrease the demand for steel and cement and engineering firms and construction workers in an industry already massively oversupplied. Furthermore, it will tighten credit markets making it more difficult to start a new venture. If Dubai were an isolated incident all of this could be absorbed and would amount to a hiccup. But the Dubai story is both common and global.
Dubai shares it currency the dirham with the other city-states of the United Arab Emirates and doesn’t directly control the United Arab Emirates Central Bank. Hence, Dubai cannot print away its problem. Consider that the countries that share the euro have the same problem as Dubai; they cannot print away collapsing real estate bubbles. Also consider that some of the same investors in Dubai bonds that assumed Abu Dhabi would step in are some of the same investors in Irish, Spanish, Italian, and Greek bonds who are assuming some form of support will be coming from France and Germany in a pinch even though there is no contractual or implied reason to think so. Dubai’s default also raises questions about implied guarantees from various agencies of a multitude of nations when no contractual arrangement to step in exists. The Dubai debt bomb has ended a wink and a nod lending.
The longer shadow cast by Dubai’s default will not be the questions surrounding assumptions of what governments will and won’t step in to resolve a crisis not of their own making. The real shadow is unsustainable and imprudent overbuilding when there is no reason to believe demand exists for the new infrastructure. The Dubai economic miracle was a mirage just like the U.S. housing bubble fueled by AAA rated subprime mortgage-backed securities was a mirage. But the biggest economic mirage in the world soaking up huge amounts of commodities is China. Like Dubai, China has massively overbuilt its real estate markets far beyond actual demand and it keeps building. In inner-Mongolia China has built the beautiful modern city of Ordos for the one million residents of the old city of Ordos. But the new city is so expensive none of the residents can afford to live there and the city literally sits empty and no one lives in it. Non-economic projects continue to sprout all over China. All mirages eventually vanish. It is only a matter of time before China drops its own bomb on the global economy and deflation hits commodities like it is hitting real estate, consumer goods, and wages.
Posted by Michael A. Kamperman on November 24, 2009
I wish I could say we reached the bottom of the decline in home prices. But wishful thinking is no substitute for a hard look at the latest data. In the third quarter 14.4% of all mortgages are somewhere between 30 days past due to being already in the foreclosure process. The WSJ just reported that 23% of all homeowners with mortgages were underwater. Almost 12% of homeowners have mortgages that are more than 20% higher than the value of their home. In October new home starts dropped almost 10% while existing home sales rose almost 10%. That discrepancy is due entirely to the November 30 expiration of the first time homebuyers’ tax credit, which has now been extended. Purchase mortgage applications for homes plunged in November without the aid of the tax credit mirroring the October new home starts. Despite the report from Case/Shiller that home prices rose in the second and third quarter of 2009, a stunning 11% of 2009 home buyers are already underwater on their mortgages. So we enter the fourth quarter of 2009 with one in four mortgages underwater, one in seven mortgages 30 days or more delinquent, and one in ten mortgages to purchase a home in 2009 already underwater. Meanwhile, GDP for the third quarter has been revised down to an annualized growth rate of 2.8%. More significantly the inflation component of GDP was revised down to .5% from .8%. And one in six Americans are unemployed or underemployed and that number continues to rise. Additionally, tightening credit standards by FHA and other key mortgage lenders are further decreasing the pool of potential buyers. Against this backdrop home prices will continue to fall as desperate sellers continue to out number potential buyers. Home prices will not stabilize until supply and demand is balanced.
Most of us interpret stories easier than we interpret statistics. My wife told me a PHD student has moved back to Waco from Seattle to finish her dissertation. She said the job market was so bad in Seattle that a waitress position she applied for had one hundred applicants, mostly from people with Masters Degrees, and only one person received an interview. The 99 people who did not find a job will not be buying a home and some will default on the mortgage they already hold. And really, just what type of home can a waitress buy in Seattle anyway?
Washington will need to provide much more help to the housing market than it has so far. The early rumor is the Federal Reserve is considering extending its quantitative easing program by continuing to purchase agency mortgages in order to keep interest rates low. This would be a positive for housing as will be the recently extended first time homebuyers’ tax credit, which now includes a $6,500 tax credit for those that just sold a home. But low interest rates don’t help those with mortgages underwater refinance and tax credits don’t help unemployed or part-time workers buy a home. A simple solution would be for the federal government to allow everyone who is current on their mortgage to refinance at 4% without a credit report, appraisal, or new title policy. Since the federal government already is on the hook for over 80% of all mortgages this would not significantly increase potential losses to taxpayers. Additionally, lowering payments will lower the number of defaults and the enhanced cash flow in consumers pockets will increase consumer spending. Fewer foreclosures and more jobs will lower the burden on taxpayers, not increase it.
Posted by Michael A. Kamperman on November 20, 2009
Yesterday I took some time off from my day job and attended the Texas at the Table Hunger Summit. The room was filled with good hearted people interested in helping their fellow citizens who are less fortunate than they are. Speakers included deputy commissioners of the USDA and the Texas Agricultural Commissioner. There lofty goal is to virtually end hunger in America by 2015. The latest update from the USDA is that 36 million people are participating in the Supplemental Nutrition Assistance Program, which we all know as food stamps. Up to 49 million people reported trouble buying food at some point in the last year. Shockingly, one in two infants born in Texas qualifies for the WIC program. Unfortunately, the debt-induced deflationary depression the country and the world have fallen into means there will probably be more hunger issues in the near term, not less. What’s worse is the resources to help the hungry are shrinking just when the needs are increasing.
The Texas Agricultural Commissioner said tax revenues keep falling and he anticipates state agencies will be asked to reduce spending below budgeted levels after the first of the year to compensate for an unanticipated multi-billion dollar gap. All of the other large states and most local governments are facing the same pressures. In Waco, our local food bank Caritas has 200 new families it has never seen before looking for assistance at a time when charitable donations are down. Since between now and January an additional one million people are expected to run out of all unemployment benefits it is a safe bet the number of Americans facing potential hunger is going to keep growing.
When President Obama talks about reducing the deficit he is talking about cutting funding for hunger programs at a time when all other funding sources are shrinking and the needs are growing. And, he is talking about cutting the number of people directly employed by the federal government at the same time the states and local governments are making job cuts. Effectively, when the President talks about deficit reduction in the middle of a deflationary depression he is talking about increasing the hunger pains of the American people. President Obama needs to reverse course and say deficit reduction will not be a priority of his administration unless and until the unemployment rate falls back below 7.6%, which is the rate he inherited. He should stake his Presidency on creating jobs and let the deficit be damned. The President should put forward a budget that not only meets the growing needs of the hungry and the unemployed, but also a budget that provides more aid to the states so they can close their funding gaps without further budget cuts. Most of the people concerned about the deficit are really concerned their taxes are about to go way up. The President can alleviate these fears by calling on the Fed to fulfill their mandate for full employment and to up their program of quantitative easing to a level that not only fully covers the budget deficit, but also actually reduces the national debt. He should demand they not end quantitative easing until the unemployment rate falls back below a rate of 7.6%. Mr. President, it is time for you to morph from Herbert Hoover to FDR.
Posted by Michael A. Kamperman on November 19, 2009
One of the
One of the interesting developments to come out of President Obama’s trip to Asia is the declining momentum internationally for climate change legislation. The Asian countries refused to agree to an 80% reduction in carbon emissions by 2050. Instead they supported a 50% reduction and stated they were not ready to sign any agreements in Copenhagen next month, which was initially touted as a potential replacement to the never implemented Kyoto Treaty. In the U.S. it looks like cap-and-trade/global warming/climate change legislation has fallen off the rails and it is doubtful anything meaningful will be passed by Congress between now and the mid-term Congressional elections in November of 2010. The political difficulties in addressing health-care legislation have pushed back all other significant initiatives in Congress. The President has already stated the new politically driven focus for the Whitehouse based on recent exit polls will be both deficit reduction and job creation. To me the Whitehouse is beginning to look like a deer in the headlights shocked by the rise in unemployment and their inability to get things passed in Congress despite huge majorities in both houses in Congress. I believe we should rethink cap-and-trade and start over on a new long term energy independence bill. Cap-and-trade had three big problems. First it introduced a bunch of new taxes and costs on the economy in the middle of a depression. Second, the people living near the worst polluting coal plants would see their electric bills go up, yet they would still get the pollution. Finally, the bill is being sold around global warming which is politically divisive. We need to attack the problem from a different angle that creates a buy-in by a vast majority of the America people. A new initiative to create long term energy independence should be focused on the economic benefits, the geo-political security benefits, and on reducing pollution for all Americans.
A couple of years ago I was in a brainstorming session and was asked where I thought the best long term opportunities were for investments in emerging economies. My answer was Brazil because it will be self sufficient in both agriculture and energy. The U.S. is already self sufficient in agriculture. To become self sufficient in energy we will need to wean ourselves off of oil. The single biggest reason we run huge trade deficits is not the strength of the dollar, it is our voracious appetite for oil. We will not be able to replace all of our oil usage in the near term. But we can significantly reduce it. The easiest thing would be to switch our trucks and buses to run on natural gas rather than on diesel. There is already a bill in Congress to do this and it would create jobs. But we need even bigger and bolder ideas.
We should change the building code starting in 2011 and require all new construction of homes and commercial buildings to be equipped with the most advanced forms of insulation and with a renewable energy source such as wind, solar, or geothermal energy that is connected to the grid. This will create a competitive market for alternative energy products without tax credits. It will also move us toward energy independence and leave us with a cleaner planet. The second thing we should do is not waste out time and money trying to weatherize old dilapidated houses. We should knock those houses down to rebalance the supply and demand for housing. This will help to stabilize the prices of homes. It will also create a greater demand for new homes that will have to be built up to the specs of the new building code. President Obama wants to create jobs on the cheap. This idea will not end the depression, but it will soften its impact.
Posted by Michael A. Kamperman on November 17, 2009
The mantra that is being repeated over and over again amongst the political intelligentsia is the U.S. economy consumes too much, imports too much, doesn’t produce enough, and exports too little. The Whitehouse shares this view. President Obama would like to see Americans consume less, save more, and export more. He is in the middle of a trip to Asia telling China, Japan, and others that they can no longer rely on the U.S. consumer and that trade needs to needs to be rebalanced. The reception he has received can best be described as a cold shoulder. The President and his collection of academic advisers seem oblivious to the real world reality that these nations are not going to shutter their own factories and let go their own workers go just to buy more goods made by U.S. workers. Exports will not revive our economy because the overseas consumer markets are not large enough to absorb all of the products they can make, no less the products we can make.
The U.S. is currently only using about 70% of its industrial capacity because of a lack of demand, both internal and external. Normally a country needs to use over 80% of its industrial capacity before it begins to invest in more production capacity. The U.S. doesn’t have a production problem. We have the capacity to produce a lot more than we are currently producing. What the U.S. has is a demand problem. We do not have enough demand from consumers in our country, or in other countries, to buy all of the goods and services we can produce. For example, while we can produce over 16 million cars a year and we are currently selling a little over 10 million cars a year. We used to sell over 16 million cars a year when our consumers could easily access affordable credit, even if they didn’t have a prime credit rating. What we need to weigh as a nation is the cost of losses from subprime lending versus the benefits of employing millions of people to make more trains, planes, and automobiles.
President Obama’s economic philosophy of restrained consumption, exports, savings, and responsible lending is boxing him into an untenable position. He cannot create the 10 million jobs the economy has lost unless U.S. consumers resume spending. The Asian nations just rudely told him don’t look to us to bail you out of your problems. The only way consumers can spend more is to borrow more. The President will have to choose between a country that continues to borrow and spend or a country that continues to have double digit employment and huge fiscal deficits for as far as the eye can see. The jobs situation is so bleak that Teach for America has created a waiting list for qualified applicants because they are not sure they will have as many teaching positions available as they have in the past. The coalition the President put together to win included enthusiastic young voters. He will not have these voters with him in 2012 unless he finds them jobs. And he will not find them jobs unless he fixes the broken credit markets allowing small businesses and consumers to borrow and spend again.
Posted by Michael A. Kamperman on November 14, 2009
The President has already decided that he is only interested in small and minimalist ideas to create jobs. He does not want to consider programs that will cost a lot of political capital or a lot more of the Treasuries dollars. He and his band of Hoover Liquidationist political and economic advisers are more interested in bringing down the deficit than in putting America back to work. The word is his budget directors are asking his Cabinet Secretaries to prepare two budgets, one for zero growth and one for a 5% across the board reduction in spending for the next fiscal year. They are more interested in making things and selling than to foreigners than to other Americans. He and his liquidationists are crazy if they think the Chinese and the Japanese are going to accept selling a lot less to us and buying a lot more from us. In effect, President Obama is in favor of the American standard of living going down. Therefore, his jobs summit is dead on arrival and will prove to be nothing more than a big show so he can say he tried.
Paul Krugman just said “But these aren’t normal times….so it’s time to try something different.” Yes it is time to try something different. But it is not time to buy into the idea that Washington has already stretched itself to the max and can’t do much more because of the debt and the deficit. President Obama and his economic team are looking for creative ideas to create 10 million jobs on the cheap. There are no magic tricks to turn around the economy. There is only the reality that we will not solve the economic crisis without significant leadership from Washington. President Obama needs to be willing to not only try something different, but something big.
We need to create 10 million new jobs. Assuming each job costs employers an average of $50,000, then it will cost the nation $500 billion a year to add these jobs. The private sector cannot do it right now because the credit markets remain broken and it remains very difficult for many consumers and small businesses to borrow money. Yet one of the ideas to reduce the deficit is to use $200 billion in TARP funds to repay debt and lower the current deficit. Wouldn’t this money be better spent bolstering the community banks that are vital to the small business job creation engine? Yes the New Deal helped during the Great Depression, but the unemployment rate was still over 15% at the end of the 1930’s. It was only the massive fiscal spending to fight World War II that truly ended the Great Depression. A comparable stimulus program today would amount to 8 trillion dollars a year for 4 consecutive years. While that may be over-kill, it emphasizes there is no way to end the economic crisis on the cheap just by tinkering at the edges. Two years ago almost everyone would have agreed that if we entered a deflationary depression there are three things we should avoid doing at all cost. First, the federal government should not cut spending. Next, the federal government should not raise taxes. And finally the federal government should not sanction Zombie banks that only pretend to lend. Amazingly, the Obama administration is hell bent on doing the three things it shouldn’t. What’s worse they want the average American to accept the pain of change.
Posted by Michael A. Kamperman on November 10, 2009
Next Next week President Obama is scheduled to travel to Asia. He will go to China and the early word is he intends to confront Chinese leaders about their manipulation of their currency the yuan. It does not float freely against the major currencies of the world like the dollar, yen, pound, and euro. Instead the yuan is fixed to the dollar at an exchange rate that is too low and it gives China a competitive advantage in competing for exports against almost every other nation in the world. It also makes imports in China expensive thereby encouraging domestic production. President Obama and most world leaders would like to solve their economic problem of creating jobs by expanding exports to other countries. China’s cheap yuan is an obstacle to achieving this goal. If the global economic pie were expanding then China’s cheap yuan would be an annoyance. But because the pie is shrinking other nations are jealously eying China and looking for ways to either gain some of China’s export jobs or get some of the jobs they shipped to China back. Also, most nations not only want a bigger share of China’s export market, they want a bigger share of China’s domestic market. The concept of rebalancing global trade is a good thing as long as it is about having China buy a lot more from us, not sell less to us. It is a good thing as long as it is focused on expanding the global economic pie and not focused on getting a bigger share of a shrinking pie. China has had to pivot its economy to focus more on the domestic market in order to maintain its economic growth targets because global trade has shrunk by almost 20% in the last year.
President Obama risks a global trade war if his focus is on cutting China’s share of global trade rather than on having China open its markets to outside competition more quickly. The value of the yuan is not main the problem. It is merely one of the tools China uses in its strategy of shipping as much as it can in finished goods to everyone else and buying as few finshed goods as it can from everyone else. The President needs to emphasize that trade with the U.S. and other developed nations is on a quid pro quo basis. China never should have been allowed to manipulate its currency. But because China is actually the world’s second biggest economy, then any abrupt change in yuan policy could cause unintended consequences. It is best to slowly position the yuan to float over time and in the short run to focus on having China quickly open its domestic markets to world exports.
President Obama will not be able to solve the America’s economic woes simply by focusing on exports. The U.S. economy is currently around $14 trillion and global trade ex-U.S. is currently around $11 trillion. Of this amount about 40% is regionally based between neighbors, similar to our inter-state commerce. Additionally, approximately 20% of global trade is energy related. This leaves about $5 trillion worth of ocean-crossing tradable goods and services above and beyond the $1 trillion we already have. Other nation’s are not going to willingly turn their share over to us. If ocean-crossable global trade expanded by 50% and we captured 50% of the increase, it would still represent less than 10% of the U.S. economy. Never mind the question of how will the world grow 50% if the U.S. consumer is forced to sit on their wallets? What President Obama should tell China is to open up their markets or we will shut ours. Then, he should come home and work on fixing the broken credit markets and creating jobs for Americans whereby they make and sell things to the world’s number one consumer, namely other Americans.
Posted by Michael A. Kamperman on November 7, 2009
Consumer credit fell $14.8 billion in September from the previous month and contracted at an annualized rate of 7.3%. This is the eighth month in a row of falling credit levels and sets the record for consecutive monthly drops going back to 1943 when they first started counting on a monthly basis. Basically this is the worst it has been for consumer credit since the Great Depression. Within a few months it also will be the worst it has been since the Great Depression for unemployment. The two are intricately linked. Because 70% of the U.S. economy is tied to consumer spending, then any cutback in demand by consumers leads to more unemployment. The job losses will not end until the consumers increase their spending levels, which cannot happen unless the banks begin to open up their wallets and lend more money. However, the banks do not need consumer lending to make money in the current environment. Because short term interest rates are near zero percent the banks can borrow at extremely low rates and turn around and purchase risk free U.S. Treasuries earning a return above 2% on a laddered portfolio. There is no incentive for Zombie banks with existing loan losses swept under the rugs to take new risks when they can make money risk free. Whatever lending they are doing for consumers is being done at much higher interest rates. So consumers and small business owners are not seeing readily available credit at low interest rates despite Fed Fund rates near zero. This is why the Fed needs to up their program of quantitative easing. They need to take away the risk free money machine from the banks and force them out on the lending risk curve to make money.
The biggest obstacle to fixing the broken consumer credit markets is the Obama administration wants to transform our economy from a consumer driven model to a production and export driven model. They basically want us to look more like Germany and China where we produce, ship, and save. The only problem is common sense seems to be absent in the Whitehouse’s economic war room. China’s dominance in exports is due to currency manipulation. The Treasury Department seems content with letting the dollar slide to ramp up exports. The only problem is the American standard of living would have to vanish for us to become cost competitive with China. And does the Obama administration understand Germany sits in the middle of Europe and is surrounded by other European Union countries? Just because a bakery in Germany can deliver goods 20 miles away in France doesn’t mean that bakery is ready to be competitive with trans-Atlantic shipments. And have they considered the best market in the world for exports is the U.S. and that we cannot export to ourselves? And even assuming they could successfully transform the American economy to this new model have they considered how many decades it might take to get there?
The solution to restoring the economy back to health is not that complicated and it starts with fixing the still broken credit markets so that consumers and businesses can once again borrow money on reasonable terms. But this requires a belief in a consumer driven economy, which basically means it requires a belief in the American standard of living. It also requires a belief in subprime lending (which is distinctive from AAA rated fraud). Unfortunately, the Obama economic team does not share these beliefs and is on some Don Quito ivory tower quest to transform us into something we are not. If only we could re-label interstate commerce as exports, then we could trick Obama’s team of economic geniuses into believing that a bakery in Missouri that sells a loaf of bread to a store in Kansas is just as valuable as a local German border bakery selling a loaf of bread to a local French border store.
Posted by Michael A. Kamperman on November 6, 2009
This October the official unemployment rate rose to 10.2% and the true U-6 unemployment rate that includes discouraged workers and those forced to work part-time rose to 17.5%. Anyone that is still in denial that we are in a New Great Depression is like an Ostrich with their head in the sand. In October the teen retailers reported much worse than expected sales numbers. The conventional wisdom explanation is that because Halloween fell on Saturday the teens didn’t shop at the end of the month. I guess it was a who-knew surprise to retail analysts that Halloween fell on Saturday. The real reason the teens cut back on shopping is because they and their parents are unemployed. Many adults have been forced to take the traditional part-time jobs normally held by kids. These are the people now counted in the U-6 number. Despite the stimulus bill focused on state and local governments there were zero government jobs created in the last month. Importantly hours worked again remained unchanged at the very low level of 33 hours. The mantra that many keep repeating is that unemployment is a lagging indicator. While unemployment was a lagging indicator in the last two milder recessions, it did not lag the recovery after the deep recessions of the mid 1970’s and early 1980’s. The current economic decline is already deeper than those two recessions.
These numbers are shocking and were not predicted by the econometric forecasting models relied on by Wall Street and Washington. Don’t forget the worst case assumption used by the federal government to stress test the banks assumed unemployment would peak at 10.3% by the end of 2010. Can there be any doubt that the worst case is going to be a lot worse than that? If these leaders would drive back and forth from New York to Washington rather than snooze on the express train or the plane they would have to drive through New Jersey. New Jersey, like the rest of America, is hurting and the reason Governor Corzine lost his re-election bid is directly attributable to the lack of available jobs.
What the rising unemployment rate is telling us is credit remains extremely tight for both small businesses and consumers. Without access to credit the small business jobs engine is sputtering. Without access to credit the consumer spending so many businesses rely on is still retrenching. Hopefully this unemployment number will serve as a wake-up call to the Whitehouse and the Congress that the economy needs a lot more help from Washington. President Obama wants to solve the jobs crisis on the fiscal and political cheap. He is looking for ideas to create jobs that won’t raise the deficit. One plan touted by the Whitehouse is to get those businesses that export to only one country to increase exports by exporting to two countries. Have these Harvard geniuses not figured out most businesses exporting to only one country are located on either the northern or southern border and trade with either Canada or Mexico? President Obama, the time has come for you to put forward a real trillion dollar plus jobs plan and to put all of your remaining political capital on the line to defend it. Otherwise come 2012 you also will wind up being tossed out of office.
Posted by Michael A. Kamperman on November 3, 2009
The economic recovery is totally dependent upon massive Washington stimulus, both fiscal and monetary. The Federal Reserve is meeting today and needs to expand its quantitative easing program, not end it. Similarly, the Congress needs to come forward with another massive stimulus bill focused on job creation. Credit remains very tight for both consumers and small businesses. For example, recent quarterly data shows credit card solicitation mailers fell from 2 billion a couple of years ago to 350 million. Both small businesses and consumers rely heavily on credit cards to maintain current spending levels. The mildly positive third quarter reading for the economy was the result of zero interest rates, cash for clunkers, the first time home buyers tax credit, and the stimulus bill. Without these measures from Washington the economy would have been decidedly negative. Yet the twin hawks, inflation and deficit, will worsen the depression if their point of view wins out. The inflation hawks are clamoring loudly for the Federal Reserve to detail an exit strategy from its current accommodative policy. The Fed will probably cave and throw these hawks a bone. Well I’m clamoring as loudly as I can for them to print more money and buy more U.S. Treasuries. They should keep on printing until the unemployment rate goes back under 8%.
The Congress should also keep coming forward with massive job bills until the unemployment rate falls below 8%. But neither the President nor the Congress have the political will to do something significant. The reason is the liberals are too defensive about their own policies and want to defend the failed stimulus plan as adequate. You can count President Obama amongst them. The conservatives are too distrustful of government and too anxious to see President Obama fail. That leaves the moderates, most of whom are deficit hawks. In fact Senator Bayh wants to establish a bipartisan commission to balance the budget. This commission made up of republicans and democrats would annually recommend both tax increases and federal spending cuts to tame the deficit. I cannot think of any economic policy scarier than raising taxes and cutting federal spending in the middle of a depression. Yet amazingly that is the glide path Washington is on at the moment.
The inflation hawks and the deficit hawks both have their world view shaped by an antiquated concept of money based on the worship of gold. In the ancient world gold was the best form of bartering for goods and services. Yet its supply was limited. In the modern world paper and paperless money (fiat) backed by the full faith and credit of strong governments is the best form of bartering. Yet unlike gold, printed money is not limited by physical supply. It is flexible and can be expanded or contracted by the government that issues it. In times of an over-heated inflationary economy the government needs to contract the money supply. The inflation hawks agree with this. Yet in times of a debt-induced deflationary depression the government needs to expand the money supply. The inflation hawks fear this because of a misunderstanding of the events surrounding the hyper-inflation experienced by Weimar Germany. The deficit hawks likewise see paper money and government debt as fixed, just like gold. They can’t seem to grasp that the federal government is not bound by the same rules as everyone else because they have the power to print more money. Why is it that the deficit hawks are obsessed with debt that we can print and pay-off at anytime? This depression could end in an instant and your loved ones could have jobs if the federal government would simply start printing money and spending money until the unemployment rate fell below 8% and the private sector economy could then take over. Instead you’re stuck with your jobless college grad kids’ moving back in so they can be protected from the mythical ravishes of future inflation and future federal debt. C’est la vie.
