You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
What monetary policy works for stagflation?
- Thread starter a529612
- Start date
Quote from a529612:
You can tackle inflation or growth one at a time but not both at the same time. Any idea?
Look what happened in the former Soviet Union in 90s.They got stagflation and GDP in 10 years halved.
Growth returned only when hyperinflation was stopped
The other side of story - all peoples savings were burnt
My opinion Fed must respect people who were disciplined and made some savings. although this is not the case now
Tighten credit to kill inflation causing recession and decline in demand. That's what Volcker did and it was very painful for a few years, but worked.
Unfortunately, it might not be a good idea when you have a huge debt bubble and deficits out the ying yang, because it means its likely the debt bubble will collapse. Just imagine 20% interest rates when the government has $9 trillion in debt that needs to be refinanced every 2 or 3 years.
Thus, we have baby steps trying to "nudge" credit tighter like now, without causing a recession which would cause the debt bubble to collapse. One more oil shock is going to kick us over the edge, IMO.
Unfortunately, it might not be a good idea when you have a huge debt bubble and deficits out the ying yang, because it means its likely the debt bubble will collapse. Just imagine 20% interest rates when the government has $9 trillion in debt that needs to be refinanced every 2 or 3 years.
Thus, we have baby steps trying to "nudge" credit tighter like now, without causing a recession which would cause the debt bubble to collapse. One more oil shock is going to kick us over the edge, IMO.
Quote from a529612:
You can tackle inflation or growth one at a time but not both at the same time. Any idea?
A new war which can be won.
Seriously; everyone had got load of debt and the next thing; people will demand increasing their wages.
Every time your local politician are working on a motion of increasing their salary, you can be sure where the wage is heading.
real irony... we're falling prey to the same economic circumstances that brought down the USSR
buying war we can't afford with debt we can't service
buying war we can't afford with debt we can't service
Guess the U.S of A can demontize their debt,devalue the currency in an attempt to buoy the economy and consumer.Would work for a temporary time only. Longer term would just make the current monster sized problem much bigger and the cure much more painful. Bernanke puhlease adapt the Volcker cure for the good of us all. Tighten the rates!
Imagine if they raised rates by 3% to kill the inflation and speculative bubbles.
That would add $270 billion per year to the Federal deficit just for the increased interest expense.
Additionally, since it would cause a recession, as more people were laidoff/fired/retired it would increase the deficit and debt as they got thrown onto the safety net. For example, when Ford gets rid of 90,000 workers. What do you think happened to them and their families? They didn't ALL go get other jobs. Many or most are just retiring earlier, making do with less. The younger ones are just going back to school to retrain for low paying jobs that may or may not exist. This is well documented. The same thing has happened to the airline employees fired in the wake of 9/11.
Pretty soon we'll ALL be retired collecting checks. But if we are ALL retired, who will be producing the stuff for us to buy on the shelves, and WHY?
I looked at the deficit swing from surplus in 1999 to deficit in 2001, and basically we went from a $200 billion surplus to a $200 billion deficit. I guess we could say $100 billion of that might be 9/11 related, but that leaves a $300 billion increase in deficit attributable to the recession. I'm sure the big negative effect would be from reduced tax revenues as the economy contracted. You'd need to add the $300 billion to the $270 billion increase in interest expense to get to a total, giving a $570 billion INCREASE in defict.
I don't think anyone has bothered to think about the long term effects of all this.
That would add $270 billion per year to the Federal deficit just for the increased interest expense.
Additionally, since it would cause a recession, as more people were laidoff/fired/retired it would increase the deficit and debt as they got thrown onto the safety net. For example, when Ford gets rid of 90,000 workers. What do you think happened to them and their families? They didn't ALL go get other jobs. Many or most are just retiring earlier, making do with less. The younger ones are just going back to school to retrain for low paying jobs that may or may not exist. This is well documented. The same thing has happened to the airline employees fired in the wake of 9/11.
Pretty soon we'll ALL be retired collecting checks. But if we are ALL retired, who will be producing the stuff for us to buy on the shelves, and WHY?
I looked at the deficit swing from surplus in 1999 to deficit in 2001, and basically we went from a $200 billion surplus to a $200 billion deficit. I guess we could say $100 billion of that might be 9/11 related, but that leaves a $300 billion increase in deficit attributable to the recession. I'm sure the big negative effect would be from reduced tax revenues as the economy contracted. You'd need to add the $300 billion to the $270 billion increase in interest expense to get to a total, giving a $570 billion INCREASE in defict.
I don't think anyone has bothered to think about the long term effects of all this.