| | Ed:
I recently realized my analysis of inflation was missing the 800 lb gorilla in the room.
Follow along with QE1 and QE2($2T in treasury bonds purchased by the FED.)
1] Secretary at Treasury prints 12 zeros on a piece of paper.
2] Treasury walks up to FED window, who agrees to buy paper bond backed by promise to overtax future private economies.
3] FED creates $2T in brand new spendable current accounts/cash and assigns it to Treasury, who will spend it in DC's usual crony based chutes and ladders fashion.
So far: total new value in current economies: secretary printed 12 0's on a piece of paper.
4] Gov't goes out into private economies with their freshly manufactured from thin air value-proxies and demands $2T in actual value from those who create value. In exchange, they are handed IOUs.
5] The selective benefactors of that commerce take those $2T in IOUs, go out into the private economies, and compete for thier share of the new value created in the economies--which is, a secretary printed 12 0's on a piece of paper.
6] Not finding any actual value, but also finding high unemployment supressing wages and prices, this $2T in funny money finds its way to the stock market, where inflation shows up as vastly over-priced(ie, constant valued)stock prices. That is where the inflation has erupted.
7] The gov't points to the inflation in the stock market and touts 'stock market at record highs!' -- as if this was representative of good news(which it would be, if it was the consequence of economic activity/increased value. Instead, it is the result of de-valued value-proxies. Bad news.)
8] Folks on Main Street, far from DC, look at all the 'For Sale' and 'For Lease' and 'Going out of Business' signs, then look at 'Wall Street at Record Highs' and scratch their heads, not able to make sense out of the 'jobless' recovery and high unemployment and soaring stock market and apparent lack of inflation...and yet, it is all the same thing, caused exactly by the government fatfingering the economies.
In our Brave New World, the soaring Stock Market going nowhere is the inflation...pushed there by the high unemployment which supresses both wages and prices elsewhere.
No stimulus. But now, that extra $2T in bond needs to be paid back...via exra taxation on the economies. These were supposed to be 'stimulated' economies at this point, to support the extra required taxation.
So...what does this mean, if sputering economies must now be over-taxed to payback those bonds?
Uh-oh.
An irony; the same economies that had $2T in value expropriated from it (handed worthless IOUs in exchamge for real value) will now by punished by being asked to pay for that value, plus interest, via taxation.
Imagine it this way; suppose the gov't was one person, and the privae economies was one person. GMan shows up with funny money and demands $2T worth of stuff that PMan makes. PMan got nowhere to go with the cash because it represents nothing made by anyone. Puts it into a drawer. Then later, GMan shows up and demands that PMan hand over $2T, plus interest.
And, this is supposed to 'stimulate' PMan? HOW?
So far, the only new net value in the economies is ... a secretary printed 12 zeros on a piece of paper.
It is not simple $2T in and $2T plus interest out, a near net wash. (Made worse by the fact that the FED hands that interest back to treasury to spend -- to go out into the economies and demand yet MORE value to be paid for twice by the private economies-- once when they create the value and hand it over in exchange for worthless IOUs(backed only by a secretary printing 12 zeros on paper), and once again when that same government comes back and taxes the same private economies to pay back the bond.
The reason this dynamic is not symmetric is, only the gov't has the power, via the point of its guns, to manufacture IOUs of that nature. It is pure taxation both in and out. It does not broady stimulate the economies, it only selectively stimulates connected crony entities close to the tsumani of manufactured cash/OPM waterfall, via the inefficient system of government chutes and ladders.
The most amazing aspect of this scheme is that anyone, anywhere, actually believes it could work to be net stimulative. But moot-- the evidence is clear.
Given the enormity of this economic blunder-- the visible public failure of these theories -- the perps have either been slithering away ... Paulson, Geitner, and now Baranke...or else, the remaining perps(Congress/White House) have no way out of the mess they made other than continually double down.
Epic Hindenberg. Will the outcome be the end of Big Government, finally? Or will the weasels, clinging to the gig until their fingers bleed, manage to convince enough of us(for example, by pointing to the inflation they've created in stock prices)that 'Capitalism did it--need Bigger Government?'
regards,
Fred
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