|
During the past five months, the money supply in the United
States has almost tripled, increasing by 271 percent, according
to the Federal Reserve Board.
Have car sales tripled? Home purchases? Consumer spending?
Corporate investment? Not only have they not tripled, but they
have all declined more sharply than they have since at least the
recession of 1981-82, and perhaps since the Great Depression.
So where is the money? If it isn't being spent, where is it?
It is being parked, squirreled away. Consumers are using it
to pay down their credit-card balances, pay off their mortgages,
reduce their student loans, make the payments on the car sitting
in the driveway — not the one in the dealer's lot.
Businesspeople are buying T-bills, investing the money and
saving it. They aren't spending, either.
But one day, this recession, despite Obama's best efforts,
will end and things will begin to look up again. Then we can
expect all of this money to come out of its parking space and
get back on the highway of commerce. All at once. The inevitable
result will be double-digit hyperinflation.
Since the spending and borrowing splurge is not confined to
Washington but is being mimicked all over the world, the
inflation will not strike just one country but will be global in
scope.
The first global inflation in our history (except, perhaps,
right after World Wars I and II), it will confront our
policymakers with yet another unprecedented challenge and send
them back, once more, to their economics texts. There, they will
find that the only remedy for global inflation is global
recession, a la Paul Volker.
Having just emerged from a ruinous depression, nobody will be
in the mood for more unemployment, but that is just what will
have to happen to cool off the inflation and break the
inflationary psychology that is likely to set in.
The point of this gloom and doom is that all this pain is
entirely preventable. It will be caused by Obama's excessive
spending and trillion-dollar-plus deficits. This spending, of
questionable utility in overcoming this recession/depression, is
so far out of line with what the economy can handle that it will
do more harm than good when the inflation hits.
Proof that Obama spending will have little impact on the
depression is the vast increase in money supply with no
commensurate improvement in the economy. Providing money, via
spending hikes or tax cuts, does not guarantee that the money
will be spent. Tax cuts can be saved and spending increases,
while surely spent once (on the initial project), can lose their
multiplier effect rapidly as wage-earners on the government
payroll bank their money just like those who get tax cuts will
do.
Getting out of this economic mess depends on consumer and
business confidence, a faith that Obama is eroding with his
looming tax increases as rapidly as he tries to kindle it with
his excessive spending.
None of this should come as any news to Obama. He probably
knows all this. But he is determined to pass his agenda of
bigger government, nationalized healthcare and vastly greater
spending even at the price of inflation and subsequent
recession. He puts ideology first and the economy a distant
second.
The stock market has figured out his priorities and is
responding accordingly. One can only hope that voters also
eventually realize what is going on.
© 2009 Dick Morris & Eileen McGann
|