Dear Friends,
It seems to me that a doctor, who prescribed only pain killers and did nothing to remedy (set) a broken leg, would be guilty of malpractice. That malpractice would be compounded if that doctor then told the patient with the broken leg to go jogging. The patient, or victim, would soon succumb to blood clots. The relatively minor broken bone would manifest into a truly life threatening condition due to the doctor’s negligence. Today in the sphere of macro economics we have “doctors” who prescribe painkillers in the form of Quantitative Easing Three (QE3) or ramp up the rate of inflation for a few years to 4% to whittle away at the deficit. Along with many other painkillers that will continue to compound the problem. We are all effected by this economic malpractice in our retirement accounts, job prospects and general well being. But our kids are really going to take it on the chin.
The pernicious effects of inflating away the deficit are many, I’ll just describe one, to save space. High inflation raises interest rates. The real rate of interest is simply interest paid, subtract the rate of inflation. If an interest rate paid is 5% and the rate of inflation is 4% the real interest rate paid is 1%. Now remember, that most if not all of the long term bonds sold by the US government recently, are paid at a rate of less than 4%. Coincidentally this will give every person or entity, that purchased them, a real negative interest rate. People will sell them at a loss to get out of them. This will cause fears to not only remain high but exacerbate them with evidence! This will lead to a slowing of the already anemic economy.
Quantitative Easing or QE as it is called, is nothing more then the Fed printing money and buying bonds with it. QE3 may involve some new and exciting play on the old theme but it will diminish every dollar you and I hold, as much as the value is printed. To put it simply, If we had a total money supply of 10 Gluknards, and we printed 10 more, the value of the original 10 Gluknards, would be halved. As the Fed prints money the value of your money diminishes. That is Quantitative Easing, easing money from your pocket to theirs.
The thing these schemes have in common is that they ease the pain and relieve politicians of the need to act. A thing loathed by politicians even more than a lipo appointment. Pain that the economy is supposed to feel to heal. The economy needs to heal from the impact of the housing collapse, the banking fiasco, and the Obama administration (Obamacare). These pain killers will only exacerbate the economic problems we have. The best historical example is Weimar Germany.
The real underlying source of economic friction is the level of regulation in the US at present. There is an example of a Walmart taking over 20 years and a Supreme Court decision to be built. Is this an environment that is conducive to business or not? One of the biggest tasks of a new businessman or woman is to learn the regulatory hurdle’s. The ignorant may jump right in and the diligent and tenacious will succeed, but then, they must also succeed in business…
The housing market has been supported by government mechanisms so it wouldn’t fall to the actual bottom. We see the effect it has had, home sales have slipped, and housing prices are being driven ever lower by the incessant foreclosure rate. Even that has been slowed by government intrusion. Government, in a misguided belief that slowing the rate of foreclosures would help some homeowners, has demanded perfection in paperwork and has caused a chock in the ability of the market to clear the delinquent loans. In doing so, government has kept the home equity problem going, and has even exacerbated it.
But our doctor says that clots are merely headwinds and that we should take more morphine and walk it off. There is no real problem that a few pills can’t fix. A few QE 80’s ground up and snorted and the economy will be running like a kid to a candy store! If that doesn’t work we’ll just find a vein and shoot up some inflation… Oooh that feels sooo good! Numb all over. Yea, walking will be no problem now, oh my, is it supposed to bend backwards like that?
