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Hold On To Your Hats. Here Comes Inflation. May 7, 2014 9:01 AM | Tagged as Friedman, Recession
WSJ May 7, 2014, page A19: “How the Fed Fuels the Coming Inflation” by Allan H. Meltzer
The warnings are beginning. Meltzer is convinced there is no good way to avoid a ramp up of inflation in the USA.
As Milton Friedman taught, inflation is the result of too much money being pumped into an economy, greater than the GDP growth. We have been recklessly adding money to the banking system since 2008 – an attempt to kick start the economy. Memo to file: It didn’t work. What we got was a bubble in the stock market and very stagnant job growth. The money “printed” by the Fed has been languishing on banks’ balance sheets. It actually never got into the economy. Why? Meltzer argues because prudent borrowers did not want to borrow. It sat in the banks.
Now lending is growing. That is probably good. But it will release funds into the economy and inflation will result. Meltzer notes the projections for food price increase for 2014 is 3.5%, much higher than previous years.
To quote Meltzer, “Most of all the Fed years ago should have recognized that the country's economic problems weren't arising from monetary factors. Instead of keeping interest rates low to finance deficits, the Fed should have explained that costly regulation, increased health-care costs, wasteful spending and repeated threats to raise tax rates were holding back the recovery.”
Meltzer goes on to bemoan Obama’s failed approach to recession recovery was the opposite of Kennedy in the 1960s and Reagan in the 1980s. Instead of cutting taxes and spending, Obama spent more and raised taxes.
Enjoy the ride. The next wave of our economic malaise is on the way. I fear the only way out is a self-induced recession. Raise interest rates, cut taxes, and cut spending. The last time Volker and Reagan did that the recession was short and the recovery led to a quarter-century of prosperity.
[Although opinion is included, The Biz Bucks Blog is primarily written to former students of Biz Bucks training courses to encourage their daily reading of the three opinion pages of the WSJ. This refreshes principles of Biz Bucks courses and improves business acumen on topics not discussed in Biz Bucks training.]
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