So often I try to stay away from the news of the day, but you know, so many straws running along with my camel.
If you wonder why things don’t seem to be improving all around, take a look at what we’ve been doing as a nation lately. Corporations that are failing get bailouts. What that means is a fiscally irresponsible organization gets more money. It remains on the stock exchange, and folks continue investing in it even though it’s proven itself a failure. This is called mal-investment. Good money keeps going to bad works.
And what happens to organizations following the right path? Does extra funding come to them for doing right? Nope. They do however get taxed further, and they get to deal with the declining value of the dollar. See, all this bailout money, raising the debt ceiling, dropping interest rates all do the same thing. They create inflation.
Ah, you say inflation is low? Well, that’s because how it’s now calculated. Have you ever heard of Hedonic Price models? No. Good, you didn’t waste your time in economics classes. I did waste my time in them, and I know a thing or two about all the games that are played with the numbers to show low inflation. Cut it any way you like, the inflation numbers being floated are artificially low due to purposeful manipulation of the numbers. No conspiracy theory here. The EU was very upset about our new inflation calculation methods that we started heavily employing during the 90’s.
So, we’ve got good business out there who find themselves losing money through inflation. We’ve got sloppy corporations out there who get bailed out, thus giving the incentive to keep investing in the bad as they’re too big to fail, and ignoring the good because no bailouts are in their future. Finally we’ve got a government that can print money at will, has no peg for the value of the dollar, and unlike the rest of us, can’t live within it’s own budget. When we fail we go bankrupt, lose everything, and find ourselves having to live modestly. Why do I constantly find myself thinking the pigs are living in the house and that some are more “equal” than others……
In the end, if someone wants to send me a bailout check or raise my debt ceiling I’ll take it. Only because I know that bailing me out would be a drop in the giant pool of inflationary dollars out there.
Oh, just so this isn’t totally dismal (economics is the dismal science you know), here’s a picture for the day. 😉
Solutions? Raise interest rates, stop bailing folks out, and step away from a fiat currency system. Where is Paul Volker when you need him?