The central economic calamity of the next five years may not be the current depression, high unemployment or economic contraction. It may, instead, be inflation coming in 2011 and 2012, which will be high in the double digits, caused by the massive increase in the money supply caused both by the stimulus package and the Troubled Asset Relief Program (TARP) bailouts.
By so vastly increasing the government debt, we are going to create a situation in which too much money will chase too few goods once the confidence crisis has lifted, triggering huge inflation. Democrats are historically willing to tolerate some inflation to lower unemployment, while Republicans have the opposite priority. But the spending binge now going on exceeds all bounds of reason and will lead to a catastrophe in the years ahead.
Once double-digit inflation appears, it will stay for a stubbornly long time. It will only be chased away by a Volker-like recession, induced by government raising interest rates to 15-18 percent. This second dipping of depression will dishearten the nation.
And the only reason we need to go through this is not to stop the depression. The stimulus package will have only a marginal impact on the restoration of confidence that is key to that. It is to mitigate the pain of the contraction.
To save the public pain now, we are causing massive pain in the coming years. A politician’s bargain if ever there was one.
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Dick. You are so right. I have been having this discussion with my liberal co-workers and friends. They just do not understand this point. They have bought into this Obama massage that only big government can fix this problem. They see this stimulus package and forget that in addition to this Pork Laden Bill we also have the bailout money, TARP money and now Bailout II of the same banks we bailed out before. !.2 Trillion on this stimulus package is all they see. They have forgotten the others. Printing money does not save us. Creating wealth does. Soon we are going to have double digit inflation and double digit unemployment and a return to high gas prices. Not pretty!!!!