We’re Not Threatened by Inflation but by Depression
So, central bankers are beginning to wonder if the US can pull off "another Volcker." Even Paul Volcker himself, who is still alive, doubts it. Today, too many people owe too much money and too many political favors. Put up rates to 18% today? Unthinkable. Cut 10% off government spending? Impossible.
But don't worry about it. Now, we're not threatened by inflation...but by depression!
It's fighting the depression that makes people worry. Smart investors and shrewd central bankers are afraid the depression-fighters will go too far...that they don't really know what they're doing.
Ben Bernanke is up for re-appointment. "Bernanke fights for 2nd term," says The Wall Street Journal. Does he know what he is doing? Well, no. He was wrong about the biggest single event in recent financial history. He thought the 2004-2007 super bubble was actually a period of "great moderation" brought about by his own superior monetary policies! He was still patting himself on the back when it blew up in his face.
And now, he still thinks the way to solve a problem caused by too much debt is to offer more debt. Of course, it didn't work for the Japanese. It won't work for us. But what we don't know is HOW it won't work.
That is big question. Will the feds simply retard a real recovery...with their bailouts and boondoggles...causing a long, slow motion depression, a la Japan? (In this case, gold may not be the one- way bet the smart money thinks.) Or will they tip the world into a hyperinflationary catastrophe, like the Weimar Republic in the '20s or Argentina in the '80s?
We don't know. No one knows. We wait to find out...
Bill Bonner
for The Daily Reckoning Australia
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Related Articles:
- Volcker, the Last Central Banker in America to Have Any Real Integrity
- Bank’s Inflation Projections Will Not Return to the 2 Per Cent Target Figure Until Early 2010
- Two Ways to Deleverage an Economy
- Does Gold Do Anything But Rise?
- Depression: A Time of Falling Prices
About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by JPM Investment Group on 7 December 2009:
Hi,
Australia is heading for the next credit crisis in 2010 with $50 billion of commercial lending coming up for maturity. The European markets have $350 billion in commercial lending coming up for maturity and the US as another round of mortgage resets of over $225 billion this credit crisis is far from over. Check out http://www.jpminvestmentgroup.com.au for more information.
JPM Investment Group
Comment by paul on 8 December 2009:
Hello Bill...as usual you hit the nail right on the head...."It won't work for us. But what we don't know is HOW it won't work."...very funny and very true, about the entire crisis really