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Posts Tagged ‘Inflation’

I’ve written a couple of serious posts about the death panels at the VA’s government-run health facilities.

I think it’s particularly important to understand that the problem has nothing to do with funding levels. Instead, it’s about the chronic inefficiency of government.

But sometimes mockery is more effective than analysis, and this Remy video, produced by Reason TV, is definitely worth sharing.

Enjoy.

By the way, if you like the Remy videos from Reason TV, here’s one about Sandra Fluke and the birth control mandate, one about the TSA Hokey Pokey, and two more Christmas-themed songs about the TSA (here and here).

But I want to spend the rest of today’s column celebrating the fact that America is not Venezuela. No matter how much we complain about the inefficiency, waste, and corruption in Washington, things could be worse.

Much worse.

Here are three stories to give you an idea what total statism produces.

First, I’ve written about how government intervention is causing toilet paper shortages and food shortages in Venezuela (also in Cuba). Well, there’s also a shortage of water, as reported by Bloomberg.

The rationing of tap water amid a drought and a shortage of bottles because of currency controls are forcing people to form long lines at grocery stores and bottle shops as soon as deliveries are made. …a government-mandated water rationing plan in Caracas and hot weather are fueling demand as supply shrinks. “I haven’t been able to find 5-liter bottles of water in the supermarket for the past two weeks, and there haven’t been half-liter bottles this week,” Maria Hernandez, a 36-year-old secretary, said in an interview in Caracas today. “I have four at home, but I’m afraid that they’ll run out and that I won’t be able to find more. They ration water at my house on Wednesdays.”

Though maybe water rationing is a good thing. At least when you live in a nation where the water that does (sporadically) materialize is contaminated.

Some areas of the city receive water service only three days a week, with most neighborhoods going without water at least one day a week. When water does flow, few residents dare to drink it because of contamination.

So why is there a problem? Because the government doesn’t let the market operate.

Regulated prices for bottled water have not been raised since November 2011, industry association Anber said in a May 19 statement. Since then, consumer prices have risen 110 percent, according to central bank data, while the bolivar has lost 87 percent of its value on the black market, according to dolartoday.com, a website that tracks the value on the Colombian border.

Our second story also comes from Bloomberg. It’s about the one thriving sector of the Venezuelan economy.

The arrival of a Liberian-flagged freighter with Ukrainian, Arab and Filipino sailors spells one thing for Elena — dollars. And greenbacks are king in Venezuela, the 32-year-old prostitute says. …Prostitutes more than double their earnings by moonlighting as currency traders in Puerto Cabello. They are the foreign exchange counter for sailors in a country where buying and selling dollars in the streets is a crime — and prostitution isn’t. Greenbacks in the black market are worth 11 times more than the official rate as dollars become more scarce.

Indeed, some women may be turning to prostitution because the government is doing so much damage to the economy.

Prostitution has become the only boom industry in Venezuela’s biggest port. …“Before I was working to support my kid and my mom; now I support my entire family,” said Paola, a prostitute who like Elena comes from Zulia and declines to give her real name. “Dollars are the only way to get by. The bolivar wages of my uncles and cousins barely mean anything now.” …“We can make more in two hours here than working in a shop in a month,” said a prostitute who calls herself Giselle. …For women like Giselle, Elena and Paola, prostitution for dollars has become a lifeline keeping them from poverty. “We haven’t studied, we have no education. What would we do now if we stopped?” said Giselle. “Work for a minimum wage that doesn’t even pay for food? If we wouldn’t be here working the scene, we would be living on the streets.”

Amazing. Venezuelan women are famous for their beauty, but the economy is such a mess that they earn twice as much money by trading currency. Way to go, big government!

Last but not least, our third story shows that government intervention is even making death more difficult. Here are some excerpts from a report in the UK-based Guardian.

…even in death, Venezuelans are afflicted by shortages. Coffin production has dropped between 20% and 30% this year for lack of materials, forcing funeral and burial delays… Pedro Navarro, former president of Venezuela’s funeral parlor association, has blamed lagging production at the state-run foundry Sidor. …Demand for coffins has grown in recent years. Venezuela has one of the world’s highest murder rates. People have been coping with shortages since 2006, long before the death from cancer last year of the pro-socialist president, Hugo Chávez.

The moral of the story is that government interventions such as price controls and government policy mistakes such as inflation have very negative consequences for ordinary people. It’s not just shortages of water and a prostitution-encouraging desire to escape the local currency.

The entire economy is a mess.

Empty shelves in shops and long queues have become a fixture of the daily hunt for staples such as milk, cooking oil and flour. Pharmaceuticals and medical supplies are also scarce. The anti-government street protests that began in February by an emboldened opposition have grown with the shortages.

So when someone tells you that big government is good for people, ask them for an example of successful statism.

And if they’re open to rational evidence, show them this chart. It shows that Venezuela used to be twice as prosperous as Chile.

But Venezuela has stagnated because of statism and Chile has boomed because of free markets. Kind of hard to argue with these facts (though Chile’s current crop of politicians apparently don’t like success and are seeking to expand the burden of government).

Let’s close with some very accurate humor. This poster nicely summarizes the difference between capitalism and statism.

Or the parable of the two cows also does the job.

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This is an easy question for me to answer. To be honest, I have no idea.

If I knew such things, I could time the market and I’d be rich beyond my wildest dreams and relaxing on the beach in the Cayman Islands instead of sitting in my kitchen in chilly Virginia.

Heck, I don’t even know whether the Fed’s policy is wrong or just worrisome. It’s possible, after all, that the central bank has provided appropriate liquidity and it will soak it up at the right time.

I don’t think that’s the case. I fear Bernanke is in over his head and that the Fed is engaging in the monetary version of Keynesian economics.

And if that’s true, something bad will happen at some point. If there’s too much liquidity out there, it presumably will show up at some point as either rising prices or an asset bubble.

Then again, we know banks are keeping more than $1 trillion of excess reserves parked at the Fed and maybe it will stay that way forever. In which case the private sector is inadvertently protecting us from bad monetary policy. Thomas Sowell has suggested that something like this is happening.

I can say for sure is that we wouldn’t have to worry if we were in a libertarian fantasy world and the private sector was responsible for money.

You may think that sounds crazy, but that’s the way it used to be, as explained in this short video.

John Stossel has made the same point about competing market-based currencies.

And if you want to see how well money has maintained its value since the Federal Reserve took over, this link has an excellent video.

P.S. I often get asked about the gold standard. It’s good in theory, but the real issue is whether governments can be trusted to operate it prudently and honestly.

P.P.S. Since Christmas is just two days away, we can all wonder whether we will get this present from Ben Bernanke. And if you still have some last-minute shopping to do, here’s a Bernanke t-shirt for your liberal friends.

P.P.P.S. For some laughs, check out Ben Bernanke’s Facebook page.

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To put it mildly, the Federal Reserve has a dismal track record. It bears significant responsibility for almost every major economic upheaval of the past 100 years, including the Great Depression, the 1970s stagflation, and the recent financial crisis. Perhaps the most damning statistic is that the dollar has lost 95 percent of its value since the central bank was created.

Notwithstanding its poor performance, the Federal Reserve seems to get more power over time. But rather than rewarding the central bank for debasing the currency and causing instability, perhaps it’s time to contemplate alternatives. This new video from the Center for Freedom and Prosperity dives into that issue, exposing the Fed’s poor track record, explaining how central banking evolved, and mentioning possible alternatives.

This video is the first installment of a multi-part series on monetary policy. Subsequent videos will examine possible alternatives to monopoly central banks, including a gold standard, free banking, and monetary rules to limit the Fed’s discretion.

One of the challenges in this field is that opponents of the Fed often are portrayed as cranks. Defenders of the status quo may not have a good defense of the Fed, but they are rather effect in marginalizing critics. Congressman Ron Paul and others are either summarily dismissed or completely ignored.

The implicit assumption in monetary circles is that there is no alternative to central banking and fiat money. Anybody who criticizes the current system therefore is a know-nothing who wants to create some sort of libertarian dystopia featuring banking panics and economic chaos.

To be fair, it certainly might be possible to create a monetary regime that is worse than the Fed. That is why the next videos in this series will offer a careful look at the costs and benefits of possible alternatives.

As they say, stay tuned.

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Fed Chairman Ben Bernanke is at it again, giving an interview that combines all of the worst features of Keynesian economics. I have an excerpt below from a New York Times report, which features an amazing amount of mistakes in a very short amount of space. Here are three that demand correction.

1. The economy needs less government intervention, not more “government help.” Bernanke doesn’t understand that job creation and entrepreneurship are hurting because politicians are doing too much, yet he wants more interference from Washington.

2. The economy needs less government spending, not Keynesian nonsense about big deficits to boost consumer spending. Bernanke seems to think so-called stimulus schemes for more wasteful spending help the economy, even though those policies failed for Hoover, Roosevelt, Bush, and Obama.

3. The economy needs a strong and stable dollar, not inflationary quantitative easing. Bernanke wants us to believe that low interest rates are the key to growth, but apparently oblivious to the fact that interest rates are very low now (and have been very low in Japan during that country’s 20-year stagnation. Memo to Ben: People don’t invest when they expect to lose money, regardless of interest rates.

Here’s the excerpt about Helicopter Ben’s thinking:

Federal Reserve Chairman Ben Bernanke is stepping up his defense of the Fed’s $600 billion Treasury bond-purchase plan, saying the economy is still struggling to become “self-sustaining” without government help. In a taped interview with CBS’ “60 Minutes” that aired Sunday night, Bernanke also argued that Congress shouldn’t cut spending or boost taxes given how fragile the economy remains. The Fed chairman said he thinks another recession is unlikely. But he warned that the economy could suffer a slowdown if persistently high unemployment dampens consumer spending. The interview is part of a broad counteroffensive Bernanke has been waging against critics of the bond purchase plan the Fed announced Nov. 3. The purchases are intended to lower long-term interest rates, lift stock prices and encourage more spending to boost the economy.

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I have a column in today’s New York Post, where I pull no punches as I comment on how the rest of the world is increasingly worried about Obama’s policies of easy money and deficit spending. I note that other nations often are guilty of the same mistakes, but that’s no excuse for America sinking to that level.

Along with countries such as Germany, Brazil and South Africa, China’s worried that President Obama and Bernanke will destabilize the global economy by dumping too much money into the system. This distorts trade, creates bubbles and may prompt other nations to engage in similar devaluations. The fact that China is probably guilty of the same thing doesn’t change the fact that America is on the wrong path. …The monetary move is isn’t the only Obama policy causing unease around the globe. Having seen the destructive impact of too much deficit spending in nations such as Greece, Ireland and Spain, policymakers worldwide increasingly recognize that countries need to reduce the burden of government spending to prevent a spread of sovereign-debt crises. Nations such as Germany and the United Kingdom haven’t approached this issue in the best way. Too often, they’re using the fiscal crisis as an excuse to raise taxes rather than make long-overdue reductions in bloated budgets. But at least they recognize that the time has come to back away from the abyss of too much red ink. The United States, by contrast, is on a spending binge of historic proportions. …Some of these fears are overblown. Yes, the Bush-Obama years have dramatically boosted the burden of government, and one obvious symptom of this fiscal excess is a much bigger national debt. But America’s red ink, as a share of GDP, is lower than the comparable levels in many European nations, as well as Japan. But that’s hardly an excuse. We all tell our kids that their friends’ misbehavior is no excuse for them to the wrong thing as well. This is a good rule for the global economy. If China is keeping its currency artificially weak, that doesn’t mean we should do the same thing. If European nations have bigger governments and more debt, that doesn’t mean we should copy their mistakes.

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One of my first blog posts (and the first one to get any attention) highlighted the amusing/embarrassing irony of having Chinese students laugh at Treasury Secretary Geithner when he claimed the United States had a strong-dollar policy.

I suspect that even Tim “Turbotax” Geithner would be smart enough to avoid such a claim today, not after the Fed’s announcement (with the full support of the White House and Treasury) that it would flood the economy with $600 billion of hot money.

As I noted in an earlier post, monetary policy is not nearly as cut and dried as other issues, so I’m reluctant to make sweeping and definitive statements. That being said, I’m fairly sure that the Fed is on the wrong path. Here’s what my colleague Alan Reynolds wrote in the Wall Street Journal about Bernanke’s policy.

Mr. Bernanke…believes (contrary to our past experience with stagflation) that inflation is no danger thanks to economic slack (high unemployment). He reasons that if people can nonetheless be persuaded to expect higher inflation, regardless of the slack, that means interest rates will appear even lower in real terms. If that worked as planned, lower real interest rates would supposedly fix our hangover from the last Fed-financed borrowing binge by encouraging more borrowing. This whole scheme raises nagging questions. Why would domestic investors accept a lower yield on bonds if they expect higher inflation? And why would foreign investors accept a lower yield on U.S. bonds if they expect exchange rate losses on dollar-denominated securities? Why wouldn’t intelligent people shift their investments toward commodities or related stocks (such as mining and related machinery) and either shun, or sell short, long-term Treasurys? And if they did that, how could it possibly help the economy?

The rest of the world seems to share these concerns. The Germans are not big fans of America’s binge of borrowing and easy money. Here’s what Finance Minister Wolfgang Schäuble had to say in a recent interview.

The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. …I seriously doubt that it makes sense to pump unlimited amounts of money into the markets. There is no lack of liquidity in the US economy, which is why I don’t recognize the economic argument behind this measure. …The Fed’s decisions bring more uncertainty to the global economy. …It’s inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money.

The comment about borrowed money has a bit of hypocrisy since German government debt is not much lower than it is in the United States, but the Finance Minister surely is correct about monetary policy. And speaking of China, we now have the odd situation of a Chinese rating agency downgrading U.S. government debt.

The United States has lost its double-A credit rating with Dagong Global Credit Rating Co., Ltd., the first domestic rating agency in China, due to its new round of quantitative easing policy. Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the US by one level to A+ from previous AA with “negative” outlook.

This development shold be taken with a giant grain of salt, as explained by a Wall Street Journal blogger. Nonetheless, the fact that the China-based agency thought this was a smart tactic must say something about how the rest of the world is beginning to perceive America.

Simply stated, Obama is following Jimmy Carter-style economic policy, so nobody shoud be surprised if the result is 1970s-style stagflation.

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Chairman Ben Bernanke has announced that the Federal Reserve will buy about $600 billion of government bonds as part of what is being called QE2 (because this is the second big stage of “quantitative easing”).

This actually isn’t printing money, but it has the same effect in that it creates more liquidity by putting more money into the financial system. The theory is that all this extra money will drive down interest rates, and that lower interest rates will encourage people to take on more debt to finance additional spending.

There are several reasons why this is a bad idea and one potential argument why it is a good idea.

* It is a bad idea because rising prices are the inevitable result when there is more money chasing the same amount of goods.

* It is a bad idea because it assumes that the economy is weak because of high low interest rates. That is nonsense. Interest rates already are very low. Trying to drive them lower in hopes of stimulating borrowing is like pushing on a string.

* It is a bad idea because you don’t solve bad fiscal and regulatory policy with bad monetary policy. The economy is weak in considerable part because of too much spending, new health care interventions, and the threat of higher taxes. You don’t solve those problems by printing money, just like you don’t make rotting fish taste good with ketchup.

* It is a bad idea because the easy-money policy of artificially low interest rates helped create the housing bubble and financial crisis, and “hair of the dog” is not the right approach.

* It is a bad idea because no nation becomes economically strong with a weak currency.

* It is a bad idea because it may lead to “competitive devaluation,” as other nations copy the Fed’s misguided policy in hopes of keeping their exports affordable.

So what about arguments in favor of the Fed’s policy? There’s only one possible reason to support Bernanke’s policy, and at least one monetarist friend has offered this as justification for what is happening. I hope he’s right.

* The only legitimate argument for quantitative easing is if more money needs to be put in the system to counteract deflation. In other words, if the Fed focuses on its one appropriate responsibility – price stability, and if there is a legitimate concern of falling prices in the future, then an “easy-money” policy today could offset that future deflation.

By the way, some people say that the stock market’s recent performance is a sign that Bernanke’s policy is good for the economy. This is wrong because it confuses portfolio shifting with long-term economic performance. When the Fed creates liquidity, that drives down interest rates. What does that mean for investors? Well, it means that putting money into bonds will yield a lower return, so the only other major option is stocks. That is why Fed policy often leads (seemingly inexplicably) to short-term results that are at odds with the long-term consequences.

Here are some excerpts from a Bloomberg report.

Federal Reserve Chairman Ben S. Bernanke said the central bank must focus on the U.S. rather than overseas economies when trying to spur the recovery by purchasing an additional $600 billion in Treasuries. …Bernanke came under fire yesterday from officials in Germany, China, and Brazil, who said his plan to pump cash into the banking system may jar other economies and fail to fuel U.S. growth. Critics including Michael Burry, the former hedge-fund manager who predicted the housing market’s plunge, have said Fed policy is encouraging investors to take on too much risk and threatens to undermine the dollar. …“We are showing insufficient stimulus,” Bernanke said yesterday in his remarks, mostly in response to questions. Asset purchases have “the goal of reducing interest rates, providing more stimulus to the economy and, we hope, creating a faster recovery and an inflation rate consistent with long-run stability,” Bernanke said to students.

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