Hidden Inflation

Because our central bank is pursuing a price stabilization policy, we are not seeing the deflation that we would otherwise. So-called financial experts are saying, "steady as she goes," prices aren't rising, therefore inflation is not a concern. With the current low interest rates and government spending, there is a lot of money flowing into the economy. This is countering the current tendency of people and businesses to be cautious with spending. Lowering price levels is the mechanism by which we get out of a recession. The government is not helping by fighting the flow and intentionally keeping prices fairly level. They are doing this mainly to help the banks, which would continue to lose on real estate if prices fell. (Which would mean more Federal Deposit 'Insurance' payments.)

This is a good example of how government pursues a bad policy to mitigate the results of their past policy of interference. If there were no government deposit insurance, banks would have had to slow down long ago, or else lose deposits. The government could afford to leave them alone if it didn't have to make good the depositor's losses. Now they are just digging a deeper hole. As they say, the first step to getting out of the hole is to stop digging. Loose money leads to business (and local governments) investing in long term capital improvement. That creates the proverbial bridges to nowhere. If the economy can not currently support growth, that investment will not be needed and will be wasted.

The result will probably be a harder landing when we hit bottom. If they shift gears to support the dollar, which they will have to do, interests rates and prices may start to spiral up and BHO and his Fed chief won't be able to do anything about it. If they would have cut taxes and spending a year ago and stuck to it, things would look better by now. At this point, that would still be a good policy. Unfortunately, HBO is still on a spending spree and talking about who to tax to pay for some of it. On top of that, he wants banks to lend more, especially to home buyers. He's like a gambler who wants to keep doubling his bet in the hopes of getting even.

It's time that the Republicans in Congress take every opportunity to say "no more."