The Case for Depression, Part 4: Dollar Collapse

The history of the dollar is one marked by a dominance unrivaled in history. Following the Bretton Woods Agreement of 1944, which established the dollar as the global reserve currency, Americans have enjoyed an era of unprecedented wealth and prominence.

The impressive growth in America could not have occurred without a stable dollar. Stable currencies are the unheralded but undeniable foundation of any vibrant economy. Stable currencies allow for longer term transactions and help instill confidence in the public, which is critical, since the value of any fiat currency is ultimately a function of public confidence.

That being said, there are several factors that lead me to believe the dollar is headed for a precipitous decline, and that this decline will exacerbate what I perceive currently as a Depression in our country.

The value of a currency is determined by a number of variables. In this article, I will focus on the dynamics of demand, supply, current account deficits, and aggregate government debt.

Demand for Dollars

The dollar has enjoyed a boost in demand and an exchange rate premium due to its privileged role as the world's reserve currency. As a function of this status, world trade is, for the most part, transacted in dollars. However, recent developments on the periphery have slowly undermined the dollar's dominant position in global trade.

World trade in dollars has been declining since the start of the decade. Recent currency swap agreements between countries, mostly involving China, have been used to bypass the dollar in global trade. Arrangements such as these threaten the dollar's role as global reserve currency, removing any support to the dollar's value such an arrangement provided. This decreased demand is clearly reflected by a falling percentage of foreign reserves held in dollars.

Further, in a low interest rate environment, the dollar has become the carry trade currency of choice. Investors have long been waiting for a powerful countertrend rally in the dollar, but as the example in the yen shows, prolonged weakness in carry trade currencies can and do occur. Also keep in mind that alternative assets, such as gold, become much more attractive in an environment where yields are essentially 0%.

Massive Supply

It's been well-documented that the Fed has embarked on a campaign of massive monetary stimulus. Unfortunately, it's hard to quantify the extent of money supply growth, since the government has stopped reporting M3 money supply figures.

The real problem brewing under the surface are accumulating bank reserves, which can be thought of as a proxy for risk aversion. Once these reserves are deployed, expect inflation to increase significantly. Sooner or later, banks will have to focus on their core business, which is lending to consumers. Here is a chart of the quickly accumulating bank reserves. Is there any question there will eventually be a flood of dollars hitting the system?

Current Account Deficits

Current account deficits are the quantifiable measure of a country's profligacy and overconsumption. Current account deficits are historically a short-term solution to a nation's underproductivity, which must eventually be settled through the balancing of capital and current accounts. As a nation continually funds consumption via debt, its currency naturally becomes less and less valuable as a medium of exchange.

Current account deficits as a percent of GDP in the U.S. have exploded to troubling levels, especially since President Nixon removed the last vestiges of our link to gold in 1971. Over the long run, the value of a currency is inversely correlated to the level of current account deficits. Persistent imbalances in current account deficits will weaken a currency without exception. The downward trend over the last decade in the dollar evidences the detrimental effect of long-term current account deficits. Notice how gold, as an alternative to the dollar, has risen in response to rising current account deficits.

U.S. Government Debt and the Treasury Market

Moving forward, the Treasury market will inordinately dictate major moves in the dollar. But before I explain why, I want to briefly overview the relationship between treasury debt, inflation, and the value of the dollar under the Maestro, Alan Greenspan.

The "great moderation" in the Greenspan years was facilitated by the recycling of dollars into our capital accounts- such as stocks, treasury debt, and agency debt. This meant that inflation was temporarily stifled as dollars were sterilized in debt instruments, while asset prices received a jolt from the attendant low interest rates. Furthermore, the tremendous demand for U.S. capital products proved to be supportive of the dollar. If there ever were a period of getting "something for nothing" in America, it was during this era of massively inflated asset prices, and moderate consumer price inflation.

Now what happens when our debt grows to a level that forces the government to become a major player in the bond market? Foreign actors will start unloading their treasury debt, especially on the long end of the yield curve, to an increasingly overburdened government. As demand for Treasuries falls, yields will rise, which makes the burdens of servicing debt greater.

Due to collapsing tax receipts and excessive stimulus measures to stave off the effects of this crisis, our budget deficit has exploded in 2009. This phenomenon is what forces our government to "monetize" debt.

The monumental and ever-increasing level of debt the government has directly taken on through its program of quantitative easing is troubling. The reason is simple: in an inflationary environment, the Fed will be inhibited from containing inflation by selling bonds in the open market, and thereby, soaking liquidity from the system. Due to the sheer size of our program of monetization, any move to sell treasury instruments will likely be met with panic from foreign investors. This is something to keep in mind moving forward.

Total Debt Including Unfunded Liabilities

And now we come to the elephant in the room: aggregate government debt, including unfunded liabilities. Decades of kicking the debt can down the road in Ponzi scheme entitlement programs, like Social Security, has created a behemoth of debt that is quite literally unpayable. Absent a growth miracle, and a bigger miracle of fiscal austerity by our government, there is no way we can fund these accruing liabilities through our dwindling tax base.

According to the Dallas Fed, current unfunded liabilities are about $100 trillion dollars. While a restructuring of entitlement programs is absolutely necessary, it is not politically viable. If recent government actions are any indication, our government will attempt to mask insolvency through the printing press.

Conclusion: Implications of a Weaker Dollar

A weaker dollar poses tremendous complications for Americans. For one, it makes imports more expensive, which is effectively inflation. Ultimately, this means a standard of living lower than what we have come to expect. If confidence in the dollar totally erodes, then things will really get ugly.

While we could possibly stave off an inflationary spiral if we enacted the correct policy right now, the reappointment of "Helicopter" Ben Bernanke all but destroyed any hopes of a stable currency. The inflationary spiral of the late '70s and early '80s was brought to a halt through the politically unpopular actions of Paul Volcker. It's counterintuitive, but central bankers that are denigrated politically are doing their job correctly. Celebrated central bankers like Ben Bernanke are succumbing to political pressure, making decisions based on expedience rather than prudence. The inherent deficiencies in our system virtually guarantee that long-term implications of massive debt will be ignored. Unfortunately, the "long-term" may finally be upon us, and a dollar collapse of shocking proportions is increasingly likely. This Depression is just getting started.

Comments

[DormRoom]

The U.S, China, and the EU are applying a policy of 'graceful degradation' towards the USD.

The U.S.-China trade imbalance is unsustainable, and permitted U.S consumers to accumulate more debt than they otherwise would have, if the USD wasn't the reserve currency of the world [see Triffin dilemma]

en.wikipedia.org/wiki/...

Moreover, 75% of the US economy is consumer based, while China is largely export based. Another unsustainable situation, which will be rectified with a graceful degradation policy. So we're likely in a period where the Fed will gracefully depreciate the USD, allowing the manufacturing sector to compete more competively, and grow in terms of the % of GDP.

I'm assuming China will attempt to boost domestic demand. And the EU--well it'll have to wait it out.

And what could the arrangement be so everyone toes their line? Maybe Bernanke and Geitner agreed that the USD shall no longer be the world reserve currency in a decade, favoring SDRs, if China and the EU followed the proposal.

But the point is that the situation must degrade gracefully.

And yes I'm wearing a tin foil hat as I write this.

2009 Nov 25 07:59 AM

[User 353732]

The stable dollar was not the cause of America's growth and ascent to global hyperpower status. It was a consequence.
It was the manifestation of American exceptionalism based in liberty and a profound sense of mission...the mission of global inclusiveness into the blessings of freedom so abundantly bestowed on America. Free markets, free elections, free speech, free thought and the freedom to experiment and innovate and the freedom to succeed and fail.
A deeply Middle Class nation, America embodied traditional middle class virtues and values and the dollar was the projection of these virtues and values.

The dollar was a symbol of honor because during its great ascent America was an honorable Nation that believed in getting by giving, in working and producing, saving and investing. The dollar was sound because the middle class was strong and America was sound.
Now the middle class is enervated and weakening by the day. The occupation Regime that now rules the USA has contempt for American traditions and legacy values; it dishonors America's history and mocks its Constitution; it despises the productive middle class.

The dollar is now horribly disfigured and debased because America itself has been degraded by the Regime. As the middle class falls, so America falls. The dollar reflects this descent. The dollar is no longer sound because occupied America is no longer sound. The economic calamity that is impending and is prefigured by the dollar's descent into shame is the logical consequence of the moral and intellectual calamities that are already being inflicted on America.

When America is re-liberated and the occupation ends, then there will be a new America, a renewed and expanded middle class and a new dollar that will again be an honorable store of value and medium of exchange.

2009 Nov 25 08:05 AM

[Leftfield]

What could they be thinking? Washington's priority is to add enormous new burdens to the economy. The opportunity to speak with Churchillian directness to the American people about our crisis was frittered away by the new Administration on a mind-boggling course of business as usual.
Perhaps Washington is betting it is enough of an 800-pound gorilla, internationally as it is domestically, that it can impose a continuation of the current unreality that benefits now only the winners in the present status quo because change will be wrenching and difficult.
Perhaps their idea is that if we fake it until we make it with mark to magic accounting, this entitled insider's system will somehow pan out, for at least some years.
Since it has brought record indebtedness during the last "recovery" and each depends more on suspension of disbelief, for the rest of us, another "recovery" of the system with present insiders in place will not even look like a recovery. The entitled, the rent-seekers who benefit, are betting they can impose their whims on us and the world, no matter how far-fetched and utterly corrupt they've become. Clearly, interest rates will rise, and this unreformed, unrepentant house of cards of the entitled cannot withstand that shock.

2009 Nov 25 08:24 AM

[t_avatarici]

Ouch

2009 Nov 25 08:26 AM

[SW Richmond]

The past twenty years of America's economy have been supported not by production but by 'financial instruments' that enabled a constantly-increasing leverage. We love to talk about CDS, but principle among these instruments are of course the always-overlooked Interest Rate Swaps, or IRS, which can and are being used to manage relative currency valuations and which are the Achilles Heel of the current global dollar system.

Traditionally, nations use manufacturing / exports to earn foreign exchange. As American manufacturing declined (was murdered?) the need arose to maintain dollar hegemony so that the new American welfare/warfare global empire could continue to grow.

In other words, the need to use IRS to manage the value of the USD arose concurrently with the decline in American manufacturing. IRS were the weapon of choice; they now total some $200 Trillion. Now, many will come and tell you that IRS are 'neutral' and that they net to zero and so they're they financial equivalent of cute puppies. Even the IMF claims that global IRS net to zero, so they make no effort to acount for them in their global financial report. See www.imf.org/External/P..., page 63, and I quote the report here directly:

'Caveats to the Application of Estimated Security Loss Rates to Bank Holdings

Our approach for estimating mark-to-market losses on securities includes only cash instruments, and thus does not account for potential leveraged exposures. As in other iterations, we assumed that derivatives exposures net out to zero for the system as a whole. We did not account for concentrations of counterparty risk.'

Nothing to see here, move along.

The simple truth is that derivatives enable leverage through the mechanism of lying about ratings (while simultaneously earning cash flow to those who suborn the lies). And of course the counterparty risk is concentrated, among the five major banks in the US Treasury's OCC derivative report. Why else could they be 'too big to fail'?

So Greenspan's 'Great Moderation' was a lie, nothing more than smoke-and-mirrors manipulation of currency valuations. Maestro my aching butt; more like a criminal traitor.

User 353732: I agree, we are occupied by an oligarchy, and nothing will get better until that is remedied. The truth shall set us free.

2009 Nov 25 08:48 AM

[tripleblack]

Bravo! You are quite right, sir.

Cause and effect is so important, and so easily reversed by the Regime...

They use this trick constantly.


On Nov 25 08:05 AM User 353732 wrote:

> The stable dollar was not the cause of America's growth and ascent
> to global hyperpower status. It was a consequence.
> It was the manifestation of American exceptionalism based in liberty
> and a profound sense of mission...the mission of global inclusiveness
> into the blessings of freedom so abundantly bestowed on America.
> Free markets, free elections, free speech, free thought and the freedom
> to experiment and innovate and the freedom to succeed and fail.
>
> A deeply Middle Class nation, America embodied traditional middle
> class virtues and values and the dollar was the projection of these
> virtues and values.
>
> The dollar was a symbol of honor because during its great ascent
> America was an honorable Nation that believed in getting by giving,
> in working and producing, saving and investing. The dollar was sound
> because the middle class was strong and America was sound.
> Now the middle class is enervated and weakening by the day. The occupation
> Regime that now rules the USA has contempt for American traditions
> and legacy values; it dishonors America's history and mocks its Constitution;
> it despises the productive middle class.
>
> The dollar is now horribly disfigured and debased because America
> itself has been degraded by the Regime. As the middle class falls,
> so America falls. The dollar reflects this descent. The dollar is
> no longer sound because occupied America is no longer sound. The
> economic calamity that is impending and is prefigured by the dollar's
> descent into shame is the logical consequence of the moral and intellectual
> calamities that are already being inflicted on America.
>
> When America is re-liberated and the occupation ends, then there
> will be a new America, a renewed and expanded middle class and a
> new dollar that will again be an honorable store of value and medium
> of exchange.

2009 Nov 25 09:14 AM

[Mad Hedge Fund Trader]

iij I know what keeps Obama awake at night. Let’s say we spend our $2 trillion in stimulus and get a couple of quarters of weak growth. Then once the effects of the stimulus wear off, we slip back into a deep recession, setting up a classic “W.” Unemployment never does stop climbing. This happened to Roosevelt in the thirties. So congress passes another $2 trillion reflationary budget. Everybody gets wonderful new mass transit upgrades, alternative energy infrastructure, and bridges to nowhere. But with $4 trillion in spending packed into two years, inflation really takes off. The bond market collapses, the dollar tanks big time, gold goes ballistic to $5,000, and silver explodes to $50. Ben Bernanke has no choice but to engineer an interest rate spike, taking the Fed funds rate up to a Volkeresque 18%. Housing, having never recovered, drops by half again. This all happens in the 2012 election year. Obama is burned in effigy, a Mormon is elected president, and the Republicans, reinvigorated by new leadership, retake both houses of congress. We invade Iran. Crude hits $500. This is not exactly a low probability scenario. Remember Jimmy Carter? This is why junk bond yields are still stubbornly high at 12.5%, and credit default swaps live at lofty levels. Are the equity markets pricing in this possibility? No chance. The risk of Armageddon is still out there. Personally, I give it a one in three chance. Pass the Xanax.

2009 Nov 25 10:39 AM

[Mr. Big]

Firstly, let's get one thing out of the way. Those unfunded liabilities are pretty much a write-off. $100 trillion dollars? Are you kidding me? Our government can barely afford the current $12 trillion debt load with the current workforce..... and over the next 30 to 40 years, our workforce will be dwindling.

I don't think the general public appreciates, yet, the enormity of the situation. $100 trillion dollars is equivalent to over a quarter of a million dollars of debt for every man woman and child. For an average family of four, that is more than a million dollars of debt per household....present value!!! And for every year we run a deficit, we add an equal amount to the unfunded liabilities.

Needless to say, a reduction in the standard and quality of living is an understatement. Bottom line is, our sick and elderly loved ones are going to die prematurely..... and that's simply unacceptable.

The destruction in our standard of living will ultimately manifest itself in the form of significantly higher taxes and the addition of a multitude of user fees. At current debt levels (including the unfunded), you can consider this new reality to be permanent. This change will likely put the US at the top of the list of the highest taxed nations in the world. The sad part is, most of the current high-taxed nations have a decent health care system. We will be at the top of the list with a crippled health care system.

Has anyone ever considered that there will be a mass exodus of our mosted talented and highly contributing pool of workers (and businesses)? This will be especially true if Obama continues to push his socialist agenda.

I gotta say, Canada is starting to look mighty sweet right now... I don't care how bad their hockey teams are...

2009 Nov 25 10:42 AM

[Whoa Nelly]

Black Swan - cliche? Maybe, but that is what will bring the current system the KO blow it just keeps asking for.

Like that bruised boxer with both eyes swollen shut and blood gushing from his head, he keeps motioning for more - keeps refusing to go down, and the ref is being paid quite nicely to not end the fight under any circumstance.

It looks valiant, and maybe just maybe he can make it to the last bell and get the judges to crown him the winner.

Its not going to happen that way, and maybe it takes his lungs to collapse or the light to fall from the scaffold and strike him dead, but in the end he's dead man walking and the longer the ref lets the fight go on, the less chance he has to survive and fight another day.

2009 Nov 25 11:02 AM

[Boxed Merlot]

On Nov 25 07:59 AM DormRoom wrote:

> The U.S, China, and the EU are applying a policy of 'graceful degradation'
> towards the USD.
> And what could the arrangement be so everyone toes their line? Maybe
> Bernanke and Geitner agreed that the USD shall no longer be the world
> reserve currency in a decade, favoring SDRs, if China and the EU
> followed the proposal.
>
> But the point is that the situation must degrade gracefully.
>
> And yes I'm wearing a tin foil hat as I write this.


OK, and what’s so hard about seeing the “carbon credit” being the New International Trade Unit? It’s precisely what’s being promoted as a “logical” solution that will unite oil / energy consumption with currency / monetary usage (think old fashioned oil / gold meet GS proprietary trading software), and will be administered in an ether environment. This isn’t being done in some backroom, but is openly advocated in our government funded educational / indoctrination facilities and has always been on the agenda of these bankers without borders. They won’t even need to bother with pesky cellulose / silk / ink instruments. What will be required, (in addition to the destruction of the freedom loving, albeit aging, US sovereign citizenry), however will be heat guns, sniffers and willing accomplices to assure no human being releases more than the predetermined calculated allotment of emissions these authorities deem acceptable.

> And yes I'm wearing a tin foil hat as I write this.

2009 Nov 25 11:17 AM

[EUARTE]

If the US$ goes bye bye. so do most other currencies.

It is more likely that another world meeting, like 1944, will have to meet.

2009 Nov 25 11:29 AM

[Gregman2]

It's time for a global basket with all the majors participating.

2009 Nov 25 12:58 PM

[conceptwizard]

Future overall taxes on the American taxpayer would have to be 67% according to the GAO, to pay for the programs in their current form.

That leaves 33% for homes, cars, bars and everything else.

People have no concept of the complete ramifications of our predicament.

Now we are adding another 1 trillion dollar health reform bill.

The absolute, astounding, blind direction the US is heading is profound.

Its like a deafening wave coming to shore that no one wants to hear, see or smell.

The fact that our "YES WE CAN " man is blind and utterly ignorant to this concept speaks volumes. I was all on board with the mainstream "lets change America" at the beginning. Now its plain it was a marketing "crock" of more of the same.

WHAT HAS CHANGED? WHAT IS ON THE HORIZON TO CHANGE?

This is serious folks.

2009 Nov 25 01:16 PM

[Socialism cannot compete!]

User 353732 for President, 2012!!! Dude (dudess?) gets it! Understands the basis for human freedom and prosperity is personal character! Understands limited government, to *serve* the people, not subjugate them. PLEASE run. Although...that would require revealing yourself. ;) We are curious to know more about who you are. You're more than just a number to us, ya know! (Can you hear the line in Ben Hur: "row well, 353732, and live!")


On Nov 25 08:05 AM User 353732 wrote:

> The stable dollar was not the cause of America's growth and ascent
> to global hyperpower status. It was a consequence.
> It was the manifestation of American exceptionalism based in liberty
> and a profound sense of mission...the mission of global inclusiveness
> into the blessings of freedom so abundantly bestowed on America.
> Free markets, free elections, free speech, free thought and the freedom
> to experiment and innovate and the freedom to succeed and fail.
>
> A deeply Middle Class nation, America embodied traditional middle
> class virtues and values and the dollar was the projection of these
> virtues and values.
>
> The dollar was a symbol of honor because during its great ascent
> America was an honorable Nation that believed in getting by giving,
> in working and producing, saving and investing. The dollar was sound
> because the middle class was strong and America was sound.
> Now the middle class is enervated and weakening by the day. The occupation
> Regime that now rules the USA has contempt for American traditions
> and legacy values; it dishonors America's history and mocks its Constitution;
> it despises the productive middle class.
>
> The dollar is now horribly disfigured and debased because America
> itself has been degraded by the Regime. As the middle class falls,
> so America falls. The dollar reflects this descent. The dollar is
> no longer sound because occupied America is no longer sound. The
> economic calamity that is impending and is prefigured by the dollar's
> descent into shame is the logical consequence of the moral and intellectual
> calamities that are already being inflicted on America.
>
> When America is re-liberated and the occupation ends, then there
> will be a new America, a renewed and expanded middle class and a
> new dollar that will again be an honorable store of value and medium
> of exchange.

2009 Nov 25 01:40 PM

[Jimbo]

One commenter (mad hedge fund?) predicts that the Republicans return to power in DC. I have been a registered Republican since 1954 and I am totally disgusted with those bums. They are as much responsible for this dire set of circumstances as the Democrats. The Washington area must be a magical force field, a political Bermuda Triangle. People get elected and soon are corrupted and become self serving thieves and liars. The ONLY way we can recover the republic we once had is to enact a constitutional amendment to limit terms in Congress and make it a FELONY for former members to lobby after office.

2009 Nov 25 02:35 PM

[Carlos Lam]

"For one, it makes imports more expensive, which is effectively inflation. Ultimately, this means a standard of living lower than what we have come to expect. If confidence in the dollar totally erodes, then things will really get ugly."

Well said. While we can do without the newest iPhone, HD-TV, or Honda, there are commodities that we have to compete with other nations to buy, nations with sounder currencies:

* Petroleum
* Grain
* Coal
* Copper

If there is a run on the dollar, and I personally believe that such a run WILL occur, the above commodities and their byproducts will become much more expensive.

2009 Nov 25 02:48 PM

[user396040]

The Great Depression was caused by deflation, not inflation. When there is inflation, people buy things like crazy because the price is going to go up tomorrow. The economy tends to get overheated - there is a tendency for employment to be high because workers don't realize that wage increases are illusory and therefore the real hourly wage declines encourage employers to use more and more less expensive labor as they can raise prices faster than wages increase. I am not advocating inflation and I feel that today it is about as serious a problem as large scale horse manure pollution due the the abandonment of automobiles and the resumption of horse drawn carriage transportation. But, even if inflation does recur (which I think is very, very unlikely in the near term) it would not create a depression

2009 Nov 25 05:40 PM

[Old Trader]

Carlos,

You can take coal and grain off the list, as the US is doing ok with those....of course, not so much with oil and copper.


On Nov 25 02:48 PM Carlos Lam wrote:

> "For one, it makes imports more expensive, which is effectively inflation.
> Ultimately, this means a standard of living lower than what we have
> come to expect. If confidence in the dollar totally erodes, then
> things will really get ugly."
>
> Well said. While we can do without the newest iPhone, HD-TV, or Honda,
> there are commodities that we have to compete with other nations
> to buy, nations with sounder currencies:
>
> * Petroleum
> * Grain
> * Coal
> * Copper
>
> If there is a run on the dollar, and I personally believe that such
> a run WILL occur, the above commodities and their byproducts will
> become much more expensive.

2009 Nov 25 06:39 PM

[auto44]

I hope you have a lot of money. They won't take you without it.


On Nov 25 10:42 AM Mr. Big wrote:

> Firstly, let's get one thing out of the way. Those unfunded liabilities
> are pretty much a write-off. $100 trillion dollars? Are you kidding
> me? Our government can barely afford the current $12 trillion debt
> load with the current workforce..... and over the next 30 to 40 years,
> our workforce will be dwindling.
>
> I don't think the general public appreciates, yet, the enormity of
> the situation. $100 trillion dollars is equivalent to over a quarter
> of a million dollars of debt for every man woman and child. For an
> average family of four, that is more than a million dollars of debt
> per household....present value!!! And for every year we run a deficit,
> we add an equal amount to the unfunded liabilities.
>
> Needless to say, a reduction in the standard and quality of living
> is an understatement. Bottom line is, our sick and elderly loved
> ones are going to die prematurely..... and that's simply unacceptable.
>
>
> The destruction in our standard of living will ultimately manifest
> itself in the form of significantly higher taxes and the addition
> of a multitude of user fees. At current debt levels (including the
> unfunded), you can consider this new reality to be permanent. This
> change will likely put the US at the top of the list of the highest
> taxed nations in the world. The sad part is, most of the current
> high-taxed nations have a decent health care system. We will be at
> the top of the list with a crippled health care system.
>
> Has anyone ever considered that there will be a mass exodus of our
> mosted talented and highly contributing pool of workers (and businesses)?
> This will be especially true if Obama continues to push his socialist
> agenda.
>
> I gotta say, Canada is starting to look mighty sweet right now...
> I don't care how bad their hockey teams are...

2009 Nov 25 11:00 PM

[auto44]

inflation is to many dollars chasing to few goods


On Nov 25 05:40 PM user396040 wrote:

> The Great Depression was caused by deflation, not inflation. When
> there is inflation, people buy things like crazy because the price
> is going to go up tomorrow. The economy tends to get overheated -
> there is a tendency for employment to be high because workers don't
> realize that wage increases are illusory and therefore the real hourly
> wage declines encourage employers to use more and more less expensive
> labor as they can raise prices faster than wages increase. I am not
> advocating inflation and I feel that today it is about as serious
> a problem as large scale horse manure pollution due the the abandonment
> of automobiles and the resumption of horse drawn carriage transportation.
> But, even if inflation does recur (which I think is very, very unlikely
> in the near term) it would not create a depression

2009 Nov 25 11:01 PM