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Reality-based economics bites

December 17, 2013 - Harry Eagar
A fundamental belief of Tea Party and similar economic radicals is that inflation is inevitable if government deficits are large. The market does not think so.

I dunno what a market worshiper does when the market refuses to behave in an ideologically pure fashion. Rethink basic premises? Fuhgeddabahtit!

RtO, on the other hand, drawing on the real experience of the Great Depression has warned since its beginning that deflation is the worst thing that can befall an economic system, because no one knows how to control or reverse it. The Republicans forced deflation on us, and the Democrats and the technocrats at the Federal Reserve don't know how to reverse it.

Heaven knows they've tried:

"Bond investors are signaling they expect the Federal Reserve to lose its battle against disinflation, even after inundating the U.S. economy with more than $3 trillion in the past five years."

Reality was a long time in getting the market's attention. Gold went up crazily from 2009, just as it was supposed to do according to radical theory if deficits were large and growing. For reasons unclear to RtO, around six months ago, the whole world decided that was a mistake; and gold has crashed.

This coincided with the slowdown (but not reversal) of the rate of growth in US fiscal deficits, but that hardly seems adequate to explain it.

In percentage terms, its fall has been only somewhat less than the stock market's collapse in 2008-9.

This week was time for legislators to discuss spending. I saw no evidence that any of them -- certainly not the radical right -- was aware of what is going on.

You might suppose, in the abstract, that people who elevate the purported wisdom of the market above all merely human understanding would listen when the market speaks. You would be wrong.


Article Comments



Jan-07-14 8:28 PM

I'm curious if deficits don't cause inflation then why don't we go ahead and increase the budget to $10 trillion next year, or $30 trillion? Why not just go for $100 trillion?

If printing money creates wealth, why is there still poverty in the world? Every central bank on Earth prints money and yet we still have poverty. How do you explain that phenomenon? If printing money creates wealth, we should praise counterfeit producers of wealth! In fact, we should encourage everyone to print their own money at home using their own printers. Surely this will increase everyone's wealth, right?

Sorry, but when your arguments don't stand up to simple tests of logic then they need to be re-evaluated.


Dec-18-13 9:10 PM

You guys cannot have it both ways. You've been moaning about skyrocketing deficits, demanding that the government quit doing anything, and holding up the bogeyman of inflation. Whip Inflation Now!

It's whipped. You were wrong. The markets tell me so.


Dec-17-13 8:51 PM

johngault had it right. oneaikea is ignorant. I enjoy laughing at him to a point.


Dec-17-13 5:47 PM

Harry there you go again spinning out of control. "Forced", "Radicals" "Tea Party" all left buzz words to keep the liberals & Democrates polilically correct and inline with the leadership power brokers who want to remain so. At all costs? Watch the money markets, bond markets for movement with downward trends. Last week even the Fed's hinted in slowing down printing money which feeds the markets. The markets are jittery and cautious. These actions is not susstainable. $17+ Tillion in debt and climbing. One day the bubble will burst and reality will set in. When that happens the American people will lose faith in the government and the slide downwards will be steeper. Sound familiar? Lets hope the idiots we elect can take us off the cliff gradually and not over it. Its still going to hurt but thats payment for paying Peter to pay Paul......did I just bring religion in to the conversation? God help us.


Dec-17-13 3:43 PM

Hey dude, you finally have said it right. You simply "dunno". As usual your facts are skewedl and you make an absolutely ignorant argument about inflation and markets.

Party on dude, but stay healthy.


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