I UNDERSTAND IT BANISHES FAT!
Did you ever think that Inflation could be just dandy for what ails the
planet? Imagine that today we owe Three trillion. Funny you should mention
that figure. That's what a ZIMBABWE waiter put on the table last week as
change for a man who ordered fish and chips. Such is inflation in Zimbabwe!!
That kind of inflation has happened a lot lately,
where three trillion is
just enough for a fish dinner. Happened to Germany
while my grandfather
lived there, they had to bring wheelbarrows of
money to buy bread. It happened
in Bolivia, very recently. The LOAN ARRANGERS
gave them 10,000%
inflation a decade back. People hate it as their
life savings which are in the bank
or in stocks suddenly are worth less than dinner
out. But GOVERNMENTS love it dearly.
They just print more Zeros on bills that are
a tad larger to accomodate
zeros and guess what? Governments can pay off
all the billions they owe ...
like we owe CHINA, right now, 632 billion. What
if that sum could just
about buy dinner out for you and the wife? So
then the government forgoes
fish and chips for one meal and we send the LENDER
NATION the
billions instead. That actually works. Who can
tell you 632 billion is no
longer 632 billion. Let them DARE! In My grandpa
's day back in Germany,
an American would come with 200$ U.S. Cy, turn
it into Marks and buy
a 3 story mansion! Of course this phenomenon
is the basis of successful trade,
IMPORT/
EXPORT BUSINESSES can make you a billionaire if you
know which country to carry your 200 bucks to
and what to buy. Say you
buy hand spun wool fisherman's sweaters. A few
hundred. Then you tote
the sweaters back to a country with stable, fat
EUROS, sell the stuff, you
suddenly have 20,000 bucks! Now go back to the
third world, buy 20 grand
worth of fisherman's sweaters, come back to the
BIG CITY and you made two
million dollars.
So let's get this concept in your head, wisdom
seeker. They call this
phenomenon "Banker Co-ordinated inflation" and
it's a good thing. It could
actually bail us all out! Unless you have no
job and you need to buy a
filet of seabass. I Know. My grandpa in Germany
used to have to bring a
million marks to the deli to get white fish for
lunch back in the 20's.
http://www.masterjules.net/inflation.htm
BANKER COORDINATED INFLATION By Tim Leunig, Financial Times, 15 Feb 2009
Recessions are not unusual, but the extent to which the origins of the
current crisis are financial is. We must therefore consider whether
unusual
financial solutions are required. The global economy would benefit
from a
pre-announced, temporary, globally co-ordinated bout of moderate inflation.
Since it takes about two years for central-bank policy fully to influence
inflation, a sensible policy would be to target 4 per cent inflation
for
the five years from 2011, followed by 2 per cent thereafter. In Britain,
the government would simply redefine the Bank of England's inflation
target. At central banks with theoretically greater independence –
the US
Federal Reserve and the European Central Bank – Ben Bernanke's term
as Fed
chairman is up for renewal in 2010 and Jean-Claude Trichet's term as
ECB
president ends in 2011. Global co-ordination between the central banks
should, therefore, be possible, limiting the impact on exchange rates
from
a decision to take unilateral action. An increase in inflation by an
extra
2 percentage points for a period of five years would have many benefits
–
for governments, companies, households and the banking system.
It would help government finances by inflating away 10 per cent of total
government debt. This lowers the interest burden for future taxpayers.
Since taxes are levied primarily on income, this has both equity and
efficiency benefits. It is (more) equitable as the cost of recession
will
be borne by wealth holders as well as income generators, and it is
(more)
efficient in that it reduces the extent of incentive-reducing tax rises
on
income in the future.
Companies will benefit in two ways. First, a portion of their debt will
disappear, with the benefit being the largest for those companies that
have
debts with fixed interest, such as corporate bonds.
Second, while real wages seem to be downwardly flexible, nominal wages
are
less so. Higher inflation allows more companies and workers to agree
to
real wage cuts than would otherwise be the case. This is both useful
for
those firms that are currently uncompetitive, and preferable for society,
because wage cuts are more equitable than unemployment.
A rise in inflation also means that declines in real house prices translate
into less negative equity, freeing up the housing market. This is
beneficial for labour mobility and helpful to the real economy because
additional house sales spur economic activity.
Banks would gain in three ways. Inflation reduces future bad debts by
making debt servicing easier. It makes defaults less costly because
real
collateral is more likely to exceed nominal debt. Finally, it makes
existing bad debts less onerous on the balance sheet. This reduces
the need
for government recapitalisations and "bad banks" and increases the
ability
of governments to sell recently acquired banks. This, in turn, reduces
the
debt burden on future taxpayers.
An extra 2 points of inflation for five years is not a "get out of jail
free card". Bank shareholders, rightly, will still lose greatly from
their
managers' decisions. Future taxpayers will, inevitably, still bear
most of
the cost of counter-cyclical government spending.
It is not costless. Regrettably, prudent savers will see their assets
reduced. That might be the price society has to pay to keep the banking
system afloat without crippling future taxpayers.
Nor is it riskless. In the past, inflation has been hard to reduce without
a recession. But central banks have far more credibility now than in
the
past. Furthermore, this inflation would be pre-announced: no-one would
have
been tricked, and inflationary expectations would remain anchored to
the
inflationary target. Finally, reducing inflation from 4 per cent to
2 per
cent is much easier than from, say, 10 per cent. Inflation credibility
has
many benefits and the ability to pursue mildly heterodox policy when
necessary may prove an important one.
Suggesting inflation in a recession is not to hark back to the Phillips
curve, which depicts an inverse relation between unemployment and inflation
rates. That worked only when inflation expectations were constant,
and
people were "tricked" by higher inflation. In contrast, the proposal
is for
pre-announced inflation. It has nothing to do with trying to increase
employment by cutting real wages in the hope that people will not notice.
The policy aims to improve the health of the banking system so growth
can
resume, while dividing the cost of paying for the mistakes of the past
more
equitably.
We can go too far. Inflation much above 4 per cent risks starting an
inflationary spiral. Higher inflation for too long risks creating
permanently higher expectations and stoking future booms. In addition,
savers should not pay a disproportionate share of the cost of this
recession. Advocating a policy that cannot be guaranteed to work, and
that
is neither costless nor riskless, is not usually sensible. It is a
measure
of the unusualnessness of this recession that such an idea is worth
considering.
Copyright The Financial Times Limited.
THE ANSWER MY FRIEND IS BLOWING IN THE WIND> Put your life
savings into FOOD PRODUCING LAND. See how at the
NEW FARMERS'
ARCHIVE
The URL where I found original text.
http://money.ninemsn.com.au/article.aspx?id=752474&rss=yes&print=true
The writer of article above ^ is a Reader in economic history at the London School of Economics
The writer of these URLS BELOW \/ is a Hollywood astrologer who
sees a Recession in our stars.
Anita Sands Hernandez contributes the beginners' lesson on the DEBT
CRISIS below.
http://www.masterjules.net/usdebt.htm
http://www.masterjules.net/USDEBT2.htm
http://www.masterjules.net/recession.htm
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