The Wonders of Inflation
December 17th, 2008 5 comments link to (permalink) posted by david
If there is one thing that’s worse than inflation, its deflation. It grinds the economy to a standstill because you wait to buy and can’t pay off debts (which increase regardless of interest rates). This often results in political extremism or revolution, like the Chartist rebellion of the 1840s, in England.
Only a few months after catastrophic inflationary fears because of oil prices tripling, we now have the threat of deflation. With an economy that is is recession and no more interest to cut, there are no more monetary weapons available except to print money and stimulate inflation.
The euphemism for this is ‘quantitative easing’. What it means is: print money but do it very carefully, in case you end up getting runaway inflation. In which case, to put it plainly, you are fucked.
When this film was made, inflation wasn’t such a dirty word that expressions such as quantitative easing were needed and it actually extols the virtues of diluting the value of money. Because of this frankness, its worth watching now.
America came off OK in the 30s, Germany did not. Germany ended up with hyper-inflation and it created political extremism. In the United States government sponsored home building and mortgages created a home ownership democracy that stalled the emergence of communism. This time, it is the home ownership democracy that was the root cause of failure.
When I watch this film, a nasty though comes to mind. What if the oil spike returned as the economy eased, and we were still printing money?
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5 responses so far »
Dan Westlake : Dec 17, 2008 at 2:58 pm
“America came off OK in the 30s, Germany did not. Germany ended up with hyper-inflation and it created political extremism. In the United States government sponsored home building and mortgages, created a home ownership democracy that stalled the emergence of communism. This time, it is the home ownership democracy that was the root cause of failure”
interesting analysis.
Dan Westlake
admin : Dec 17, 2008 at 3:23 pm
To be fair, the bit about America as a home ownership democracy is not really my analysis, but a paraphrased version of Niall Ferguson in this week’s episode of ‘The Ascent of Money’. If I can find it, I’ll post.
Lloyd : Dec 20, 2008 at 12:25 pm
Quibble:
Germany had hyperinflation in the twenties. Hoover saw the hyperinflation in Weimar Germany and over-reacted by tightening the money supply in the US. Thus the US’ depression was deflationary. This obviously made FDR think printing more $s would turn things around. Didn’t worth so smooth.
Economic developments in 30s Germany were roughly parallel to those going on in the US at the same time: Lots of gov’t spending, big public works/jobs programs. For what it’s worth, Hitler also promoted affordable housing, cheap automobiles (Volkswagens), even affordable vacations for working class folk.
admin : Dec 21, 2008 at 3:25 am
Thanks Lloyd. A much better description than mine.
Lloyd : Dec 21, 2008 at 11:59 am
Then Hitler got the idea that his foreign creditors couldn’t collect if he beat them in a war. For some reason, seeing Zbigniew Brzezinski whispering in Obama’s ear makes me worry.
I like your blogz, btw.
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