Monday, June 20, 2011

Wall Street Journal : The Great Depression of 1930 to 1940 was solved by injecting a massive amount of inflation into the U.S. economy. From 1940 through 1948, the consumer-price index rocketed 70%. Inflation cures a debt hangover. It may be the only known cure.

.
Brett Arends of The Wall Street Journal says that the solution to America's Economic Problems is a massive injection of money and good inflation of 5% plus. - "Inflation of 7% a year for five years would reduce the real value of our national debt by nearly one-third".



Wall Street Journal
What This Country Needs Is a Good 5% CPI

JUNE 19, 2011


By BRETT ARENDS
Brett Arends is an American financial journalist. He writes a column for the Wall Street Journal. He has written a book about personal finance, Storm Proof Your Money, and a book about sports gambling, Spread Betting: A Football Fan's Guide.

Arends writes a column of personal financial advice that appears twice a week online at the Wall Street Journal and a column for MarketWatch. He also writes a financial news column once a week for MarketWatch.

Before joining the Wall Street Journal, Arends wrote a financial news column for the Boston Herald and TheStreet.com, the financial website chaired by Jim Cramer. Arends received a Best in Business award from The Society of American Business Editors and Writers in 2007 for his columns at TheStreet.com


What This Country Needs Is a Good 5% CPI


Some excerpts :

The reason? The value of the debt stays the same in dollars, but there are more and more dollars to go around and pay the debt off.

Naturally, each dollar is worth less. It is a default by stealth.

It has to be general inflation. You need wages and asset values to rise, not just consumer prices.
..................

Deflation is what happened to the U.S. in the Great Depression. It's what has happened in Japan over the past two decades.

Between 1929 and 1933, consumer prices in the U.S. plummeted by 27%. People didn't wander around stores marveling at all the cheap deals. They didn't regale their grandkids for decades to come about what a great time it was to go shopping. This wasn't a golden age for Main Street.

The Great Depression lasted so long because the economy was stuck in deflation throughout the 1930s. Wages, prices and asset values were stagnant or falling, while the size of the debt outstanding stayed the same.

The World War II generation didn't set the stage for the great post-war boom until they had effectively repudiated the debt hangover from the 1920s through inflation.

Rising wages give people more ability to pay down their debts. Rising asset values give them more ability to pay off their debts by selling assets.
...................

Meanwhile, those who really understand the economy are watching the real indicators, and right now they aren't cheering. Home prices are falling. Wages are falling in real terms. Household debt is falling too slowly. Real unemployment remains disastrously high.

The best news? Surging inflation in China, including very high wage inflation. London-based hedge-fund manager Crispin Odey, one of the world's most successful investors, says the U.S. economy won't really pick up until we see that cross the Pacific.
.

No comments:

Post a Comment