Wednesday, February 11, 2009

When money grows on trees, problems arise

In a previous post I mentioned that even the NYTimes acknowledges that money grows on trees when Helicopter Ben and Taxman Tim click their ruby slippers...

From the NYTimes' By Edmund L. Andrews and Stephen Labaton:

Administration officials committed to flood the financial system with as much as $2.5 trillion — $350 billion of that coming from the bailout fund and the rest from private investors and the Federal Reserve, making use of its ability to print money.

Printing money is a monetary policy that's proven to be fatal to countries. Just ask Friedrich Ebert of Weimar Republic fame.

I know it's wishful thinking that President Obama will stop advocating the Bernanke / Geithner nonsense anytime soon and switch to a responsible monetary policy of sound money... but it would be nice if our President took five minutes to listen to the clear-thinking of Congressman Ron Paul on the problems that arise when money grows on trees:

Ludwig von Mises used to say that governments will always try to get people to focus on prices when thinking about inflation. But rising prices are a result of inflation, not inflation itself. Inflation is the increase in the money supply. If we understood inflation that way, we would instantly know how to cure it: simply demand that the Federal Reserve cease increasing the money supply. By focusing our attention on prices instead, we are liable to misdiagnose the problem, and we are more apt to accept bogus government
"solutions" like wage and price controls, as in the 1970s.

But hope springs eternal! And even though the President will continue ignoring the sage-like wisdom of Ron Paul, I suspect he may listen when America's chief banker speaks.

Feb. 11 - Bloomberg (By Belinda Cao and Judy Chen):

China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.

The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.

Yup. President Obama will ignore Congressman Paul. I realize that. But I also realize that it'll be difficult for the US to continue with the printing presses running 24/7... and not start getting some serious pushback from the people who financed our credit card spending spree for the past decade.

Tim White

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