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i used to have a great deal of respect for the wall st journal....
but have recently started to agree with the comments that ole rupert&co have dumbed it down to the point of 'infotainment' ala fox news - and out n out propaganda, designed to get us 'desensitized' to the bernank flushing OUR money down the toilet to achieve what? (sides the 3rd-worlding of The US)
now they are trying to have us believe that "inflation finished off the great depression" ?
next thing ya know, they'll be telling us that the .gov can spend us out of the 14trillion dollar hole DC put us into, making us 'feel more prosperous' because the dow is up and we just need to go out and spend more on our credit cards....
right?
http://online.wsj.com/article/SB1000...810246540.html
What This Country Needs Is a Good 5% CPI
By BRETT ARENDS
Inflation is heating up. The news last week was that the official rate, which had been rising all year, surged to 3.6% in May. That's three times the level it was just last summer and the highest rate in nearly three years.
Markets were alarmed, and stocks sold off.
But is this news as bad as it sounds? Here's a heretical thought. Maybe we actually need a serious dose of inflation to get this economy moving again -- something like a sustained 5% annual rise in the Consumer Price Index (CPI).
Sure, it sounds crazy. And a lot of people won't like it.
But everybody knows what really ails the U.S. economy. It isn't, say, a lack of consumer confidence, or sluggish exports or worries about Greek government bonds.
It's the debt, stupid.
Do we need a serious dose of inflation to get this economy moving again? It sounds like a crazy thought. Off the wall. And, doubtless, unpopular with many folks. But is it right? Brett Arends explores the issue.
Today American families owe $13.3 trillion -- in mortgage debt and home-equity loans, credit-card debt and other revolving loans. As recently as 1999, it was less than half as much. Paying the interest, and trying to pay down the principal, siphons off so much of their spare cash. If they also get hit by higher gas prices, or they lose their jobs, the amount left over to spend down at the mall vanishes completely.
And despite four years of trying, they have barely made a dent in the amount they owe. Household debt has fallen less than 4% from its peak. And a lot of that has been write-offs by the banks.
Throw in corporate and U.S.-government debt and the total is at least three times the size of the gross domestic product. We are the most indebted nation in the history of the world. No one comes close. Modern America is to borrowing what Renaissance Italy was to the arts and Shakespeare's England was to the theater.
We're No. 1. The all-time champs. They can retire the cup.
How we got into this mess is one story. But how do we get out of it?
The last time we were in this kind of trouble was, of course, the Great Depression. And what really cured the problem was World War II.
Sure, it boosted demand for munitions. And it destroyed our economic competitors. But the most visible way it cured the problem was by injecting a massive amount of inflation into the U.S. economy. From 1940 through 1948, the consumer-price index rocketed 70%.
Inflation cures a debt hangover. It may be the only known cure. The reason? The value of the debt stays the same in dollars, but there are more and more dollars to go around and pay the debt off.
Naturally, each dollar is worth less. It is a default by stealth.
It has to be general inflation. You need wages and asset values to rise, not just consumer prices.
Sure, it sounds topsy-turvy. After all, we all hate inflation, right? We hate seeing prices rise at the gas pump. We hate seeing prices rise in the store. This year's jump in prices, from food to fuel, has us all grinding our teeth.
Ask shoppers and they'll tell you they don't want inflation, they want deflation. We love it when prices fall. We want cheaper hamburgers, cheaper clothes and cheaper cars. We want next year's iPad to cost half as much as last year's and do twice as much stuff.
But to say that, therefore, we want general deflation across the economy is to make a serious blunder.
Deflation for you is a sale. Deflation for everyone is a disaster. Deflation is what happened to the U.S. in the Great Depression. It's what has happened in Japan over the past two decades.
Between 1929 and 1933, consumer prices in the U.S. plummeted by 27%. People didn't wander around stores marveling at all the cheap deals. They didn't regale their grandkids for decades to come about what a great time it was to go shopping. This wasn't a golden age for Main Street.
The Great Depression lasted so long because the economy was stuck in deflation throughout the 1930s. Wages, prices and asset values were stagnant or falling, while the size of the debt outstanding stayed the same.
The World War II generation didn't set the stage for the great post-war boom until they had effectively repudiated the debt hangover from the 1920s through inflation.
Rising wages give people more ability to pay down their debts. Rising asset values give them more ability to pay off their debts by selling assets.
Inflation of 7% a year for five years would reduce the real value of our national debt by nearly one-third.
Look at housing. As many as 28% of U.S. homeowners are underwater on their mortgages -- that is, they owe more than their houses are worth. Mr. and Mrs. Whoosis are underwater, so they can't sell their home. That's why they can't buy yours. And because they can't buy yours, you can't buy the one across town. Alas, there are lots of Mr. and Mrs. Whoosises. So no one can buy your home. So the price falls. And now you are underwater.
The market, in other words, is frozen. A 20% general rise in home prices, without any other change in the economy whatsoever, would unfreeze it.
An economic debate continues between those who see more deflation ahead and those who see inflation. But the chances are high we will get inflation sooner or later, for the simple reason that we have to. Federal Reserve Chairman Ben Bernanke once vowed, if necessary, to get up in a helicopter and shower the country with paper dollars to keep us out of deflation. It may come to that.
Meanwhile, those who really understand the economy are watching the real indicators, and right now they aren't cheering. Home prices are falling. Wages are falling in real terms. Household debt is falling too slowly. Real unemployment remains disastrously high.
The best news? Surging inflation in China, including very high wage inflation. London-based hedge-fund manager Crispin Odey, one of the world's most successful investors, says the U.S. economy won't really pick up until we see that cross the Pacific.
Write to Brett Arends at brett.arends@wsj.com
but have recently started to agree with the comments that ole rupert&co have dumbed it down to the point of 'infotainment' ala fox news - and out n out propaganda, designed to get us 'desensitized' to the bernank flushing OUR money down the toilet to achieve what? (sides the 3rd-worlding of The US)
now they are trying to have us believe that "inflation finished off the great depression" ?
next thing ya know, they'll be telling us that the .gov can spend us out of the 14trillion dollar hole DC put us into, making us 'feel more prosperous' because the dow is up and we just need to go out and spend more on our credit cards....
right?
http://online.wsj.com/article/SB1000...810246540.html
- JUNE 19, 2011
What This Country Needs Is a Good 5% CPI
By BRETT ARENDS
Inflation is heating up. The news last week was that the official rate, which had been rising all year, surged to 3.6% in May. That's three times the level it was just last summer and the highest rate in nearly three years.
Markets were alarmed, and stocks sold off.
But is this news as bad as it sounds? Here's a heretical thought. Maybe we actually need a serious dose of inflation to get this economy moving again -- something like a sustained 5% annual rise in the Consumer Price Index (CPI).
Sure, it sounds crazy. And a lot of people won't like it.
But everybody knows what really ails the U.S. economy. It isn't, say, a lack of consumer confidence, or sluggish exports or worries about Greek government bonds.
It's the debt, stupid.
Do we need a serious dose of inflation to get this economy moving again? It sounds like a crazy thought. Off the wall. And, doubtless, unpopular with many folks. But is it right? Brett Arends explores the issue.
Today American families owe $13.3 trillion -- in mortgage debt and home-equity loans, credit-card debt and other revolving loans. As recently as 1999, it was less than half as much. Paying the interest, and trying to pay down the principal, siphons off so much of their spare cash. If they also get hit by higher gas prices, or they lose their jobs, the amount left over to spend down at the mall vanishes completely.
And despite four years of trying, they have barely made a dent in the amount they owe. Household debt has fallen less than 4% from its peak. And a lot of that has been write-offs by the banks.
Throw in corporate and U.S.-government debt and the total is at least three times the size of the gross domestic product. We are the most indebted nation in the history of the world. No one comes close. Modern America is to borrowing what Renaissance Italy was to the arts and Shakespeare's England was to the theater.
We're No. 1. The all-time champs. They can retire the cup.
How we got into this mess is one story. But how do we get out of it?
The last time we were in this kind of trouble was, of course, the Great Depression. And what really cured the problem was World War II.
Sure, it boosted demand for munitions. And it destroyed our economic competitors. But the most visible way it cured the problem was by injecting a massive amount of inflation into the U.S. economy. From 1940 through 1948, the consumer-price index rocketed 70%.
Inflation cures a debt hangover. It may be the only known cure. The reason? The value of the debt stays the same in dollars, but there are more and more dollars to go around and pay the debt off.
Naturally, each dollar is worth less. It is a default by stealth.
It has to be general inflation. You need wages and asset values to rise, not just consumer prices.
Sure, it sounds topsy-turvy. After all, we all hate inflation, right? We hate seeing prices rise at the gas pump. We hate seeing prices rise in the store. This year's jump in prices, from food to fuel, has us all grinding our teeth.
Ask shoppers and they'll tell you they don't want inflation, they want deflation. We love it when prices fall. We want cheaper hamburgers, cheaper clothes and cheaper cars. We want next year's iPad to cost half as much as last year's and do twice as much stuff.
But to say that, therefore, we want general deflation across the economy is to make a serious blunder.
Deflation for you is a sale. Deflation for everyone is a disaster. Deflation is what happened to the U.S. in the Great Depression. It's what has happened in Japan over the past two decades.
Between 1929 and 1933, consumer prices in the U.S. plummeted by 27%. People didn't wander around stores marveling at all the cheap deals. They didn't regale their grandkids for decades to come about what a great time it was to go shopping. This wasn't a golden age for Main Street.
The Great Depression lasted so long because the economy was stuck in deflation throughout the 1930s. Wages, prices and asset values were stagnant or falling, while the size of the debt outstanding stayed the same.
The World War II generation didn't set the stage for the great post-war boom until they had effectively repudiated the debt hangover from the 1920s through inflation.
Rising wages give people more ability to pay down their debts. Rising asset values give them more ability to pay off their debts by selling assets.
Inflation of 7% a year for five years would reduce the real value of our national debt by nearly one-third.
Look at housing. As many as 28% of U.S. homeowners are underwater on their mortgages -- that is, they owe more than their houses are worth. Mr. and Mrs. Whoosis are underwater, so they can't sell their home. That's why they can't buy yours. And because they can't buy yours, you can't buy the one across town. Alas, there are lots of Mr. and Mrs. Whoosises. So no one can buy your home. So the price falls. And now you are underwater.
The market, in other words, is frozen. A 20% general rise in home prices, without any other change in the economy whatsoever, would unfreeze it.
An economic debate continues between those who see more deflation ahead and those who see inflation. But the chances are high we will get inflation sooner or later, for the simple reason that we have to. Federal Reserve Chairman Ben Bernanke once vowed, if necessary, to get up in a helicopter and shower the country with paper dollars to keep us out of deflation. It may come to that.
Meanwhile, those who really understand the economy are watching the real indicators, and right now they aren't cheering. Home prices are falling. Wages are falling in real terms. Household debt is falling too slowly. Real unemployment remains disastrously high.
The best news? Surging inflation in China, including very high wage inflation. London-based hedge-fund manager Crispin Odey, one of the world's most successful investors, says the U.S. economy won't really pick up until we see that cross the Pacific.
Write to Brett Arends at brett.arends@wsj.com
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