Monday, November 14, 2011

Why a recession?

Above blog post has a good explaination of why there is a recession.

People want too much money for what they do. They don't understand that the value of money has increased. People are pulling their money from investments, and buying gold, a practically worthless commodity with high liquidity costs.

So the work that their money does leads to no production. Why do it? Because we don't trust the government's fiat money. We expect the government to respond with inflation. The government can create money from nothing, and increases in productivity can't keep up with that.

Why do people want too much money? Because they expect inflation, just as they expected inflation in the Carter Administration, and demanded a new job pay them in advance for the inflation they inspected. Inquiring minds may recall that the Phillips curve asserted that some inflation encouraged consumption, and it was thought that creating inflation would decrease unemployment. But that only worked until people caught on and expected unemployment. At that time, rather than accept a job that resulted in lower pay from inflation, they demanded higher wages to pre-empt the inflation they inspected. If they didn't get that job, they stayed unemployed or under employed for longer, and so the unemployment rate of the later Carter administration remained high.

Under Reagan's first term, the Fed chief cut money creation, and thus inflation expectations. People didn't expect so much inflationary compensation, and accepted jobs.

What is wrong with prices now? We have a Socialist as president. So soon as it became likely that he would be elected, it was expected that taxes would increase, that money would be created to pay for the government programs, and eventually inflation would be the result. People know that drill, and want to be paid up front for the money they will lose to inflation, and so don't take jobs. Company management don't see how they can raise prices for their products, and so don't increase production. Government has stopped or slowed the forclosure process to clear the housing glut. Housing prices are wrong, but not allowed to change.

Recession. Not man caused- Government caused.

Prices clear markets.


Post a Comment

Subscribe to Post Comments [Atom]

<< Home