Friday, June 12, 2009

Follow Up to Interest Rates, Inflation, and the Coming Poverty

By Mr. Quarter

A short followup to my howling at the moon the other day in the post entitled Interest Rates, Inflation and the Coming Poverty. First, read this editorial in the online version of The Economist. An excellent treatment of the current state of affairs with regard to exploding public debt - not only in the US but around the world. One key point made in the editorial is the the only way to address massively exploding debt is to CUT SPENDING and NOT RAISE TAXES. Hell, I'm no economist, but it makes sense to me.

As for the danger of uncontrolled inflation that is on our horizon, you can refer to this article in the online edition of Forbes. One key point of made is as follows:

"The core cause of the credit crunch was the management--some would say mismanagement--of money supply by governments in an attempt by regulators to manage liquidity in the economies of the world over the so called "economic cycle." Bubbles come from too much money chasing not enough stuff and too much money comes as a result of government policy.

The economic result of the various global stimulus packages are not only bound to be huge, but also unpredictable and hard to control. In order to save the world from economic meltdown this time around, government money supply management across the globe has been attempted on a colossal and historic scale. The exact outcome is almost impossible to predict, but the odd-on favorite is inflation.

As the actions to end the credit crunch have been reflationary, any error is highly likely to be inflationary and potentially massively so. The outcome of an inflationary misstep already built into the economies of the world will result in an eventual sharp tightening and this tightening, when it comes, will toss the markets back into the dumpster for a period."

Again, Mr. Quarter does not pretend to be an economist, but I do stand by my predictions of hard times coming. Save your pennies and hunker down!

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