The government can – inflation/deflation the debate goes on

In the context of “Is government almighty” it is clear our governments are at least attempting to show they are. This guy has the right idea:

However, considering this:


Bottom Line

Baby boomers have pulled back considerably on their spending this year, but they are not alone in doing so. Gallup finds significant declines among all generations in average reported daily spending in 2009 compared to 2008. Given that consumer spending is the primary engine of the U.S. economy, it’s not clear how much the economy can grow unless spending increases from its current low levels. But spending may not necessarily be the best course of action for baby boomers as they approach retirement age and prepare to rely on Social Security and their retirement savings as primary sources of income. Indeed, the two generations consisting largely of retirement-age Americans consistently show the lowest levels of reported spending.

I can only think that you can give money to banks but you cannot make the consumer or corporations borrow it. In a debt based economy, if you don’t have the consumer behind you, inflation pumping is going nowhere; and in a situation of gross industrial capacity utilization at multi-decades lows, why should corporations?

Inflationists say that absent the consumer and corporations, the government will step in and spend on behalf of everyone. Of course this requires a fairly important shift in the conceptual use of a US$ based fiat monetary system meaning that instead of governments buying bonds from each other they now have to buy from themselves. The question is: how long can this aberration last? Personally, I think we are at the end of the gig. World war by 2013

And anyway, as I showed in previous posts, governments stepping in and spending astronomical sums on behalf of everyone means that money is going to be extracted from the tax base. Thus, in so doing, the government is guaranteeing deflation for many years to come as it decrees lower disposable income for everyone in the future.

This is “Government’s day” an interesting yearly report. It is research on how many working days are required in order for individuals to earn enough money to pay for the cost of government. I’m sure you’ll find it interesting.


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