Posted by
Bill Crawford on Tuesday, June 02, 2009 10:08:35 PM
Here is something Paul Krugman has right: inflation is not upon us, and may not be for a while. So, while the alleged piles of printed money the Fed Reserve is holding to bail out the banking system are waiting to turn us into a hyper inflation hole that would make the late 1970's look like heaven, it ain't happening right now.
Why is that? The biggest reason is that the financial system here is in such fear (rightfully so) that all this money, if spent, would create a classic inflationary cycle. So, oddly enough, the guarantees serve to dampen the economy that Obama is trying to inject life into. Until we truly do turn into Europe, the notion in America is still that the economy is driven first by the private sector. The private sector turned the economy in the 1940's, working for the war effort. The private sector took off like a rocket when the government worked to get out of it's way after the JFK and Reagan tax cuts.
Inflation requires the printed money to get into people's hands through looser credit and chase after something. That is not happening right now.
If a government forces a tax cut without corresponding spending cuts, as it did in 1981 and 2002, you get deficit spending that may be a secondary factor to the new, freer money in the private sector. If you deficit spend just by raising spending, as we are trying to do now, the new money enters te economy only through means of governments choice- not the private investor. This is how Europe works now- the fastest and most consistent growth is in the government itself.
So, look at the European record after WWII, and see what the Obama future is. Decades of economic sludge, constant double digit unemployment, and college grads holding public sector jobs as employment of choice.
Is that what we want?