Friday, December 23, 2011

Delayed reaction to over-stimulating our economy…

Some folks, including myself, are wondering why our economy isn’t yet experiencing run-away inflation, given all the billions of dollars created to stimulate ourselves out of our economic malaise.

One reader correctly reminded me that the government thrives on inflation, but cannot accomplish everything it sets out to do, as much as it tries to stimulate us back into inflation through its persistent draconian measures.

I suggest that there are unanticipated delayed reactions that result from government intervention and “tweaking.”  Stimulus is provided in the form of very low interest rates and pumping several hundred billion into the money supply.  No response.  Interest rates are lowered again, this time to near zero and additional hundreds of billions are pumped into our money supply.  Still no response.  But an unseen tension is building in the economic system and in our psyches until ***POW*** all the built up fiscal tension finally takes hold and swerves our economy into places never anticipated (by government) and never intended to go creating never intended cataclysmic consequences.

This “over-steering” of our economy by an overly-paternalistic and impatient federal government reminds me of over-steering a semi-trailer truck on an icy highway at high speed.  The driver is the hyper-involved federal government.  The truck is our economy.  The motorists on the near side of the median are the rest of us.  Take a look at what the unintended consequence of over-meddling can be…

Oh, and the motorists delayed expletives will be ours as well.

The driver of the speeding, careening, out-of-control truck is our government, the truck is our economy, and the traffic is the rest of us.


jim said...

The government is not over stimulating the economy.

The private sector has been over stimulating the economy by excess borrowing for 70 years. The private sector credit expansion has now collapsed just like it did in 1930. The result of that would be massive debt deflation from falling private sector debt.

It is going to look just like the 1930's with 10%/year deflation when the govt ends the stimulus.

Gerardo Moochie said...

I would be interested in learning the basis of your opinion. Reference to an economist, blogger, financial advisor, book or website. The comstock pdf site didn't provide the info I need to adequately understand your reasoning.

Did we have a fraction of the financial manipulation of the Federal government in the late 20's and 30's as we have today? Did we have the bailouts and the printing of dollars anywhere near the proportions of today's economy? Did we have anywhere near our proportion of national debt compared to GDP?

Gerardo Moochie said...

Santa brought me Harry Dent's book The Great Crash Ahead. Its premise is that due to declining spending and increased savings by boomers and as a result of demographics shifts away from the spender cohort, almost no amount of federal stimulus will correct for that. Consequently we are in for a significant deflationary period. This is a contrarian view distinct from the great inflationary period ahead that many "experts" predict.

Whichever way we go, we are in uncharted waters with regard to the extent of extreme government manipulation of the money supply and interest rates. Most of us have no idea what fiscal/economic gyrations will be created by that degree of governmental twitching of the fiscal steering wheel. The extreme Keynsian Paul Krugman types suggest that government is not doing nearly enough, but could and should. Dent believes there is no amount of government intervention/stimulus that will avoid deflation at this point.