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“There are no such things as limits to growth, because there are no limits on the human capacity for intelligence, imagination and wonder.”     Ronald Reagan

April 29, 2008

It’s the dollar, stupid

by Quincy

So, GWB and San Fran Nancy have been sniping at each other over the nation’s economic malaise. Who’s to blame? He says inaction by a Democratic congress is to blame, while she says his administration’s incompetence is to blame. Well, as entertaining as this tussle is, they’re both wrong.

Fabius Maximus has a good post about rising commodity prices, in which he reminds me about this truism from Milton Friedman:

Inflation is always and everywhere a monetary phenomenon.

Combine this thought with the following observation from Larry Kudlow:

Whether it’s energy, wheat, grain, corn, or whatever, since these raw materials are priced in dollars on global markets, a strong greenback will reduce commodity prices. And that, in turn, will lower both consumer and producer inflation. This would help corporate profits and would boost the purchasing power of wages.

In other words, a strong dollar would relieve gas prices and boost the economy. But so far as I know, the president never mentioned the dollar. And I don’t think any of the media people asked him about it.

The media has this recession exactly backwards. Every day, I hear the talking heads say that oil prices and food prices are driving inflation. They’re being driven by inflation, meaning they’re being driven by the likes of Bush, Pelosi, and every other big-government politician on Capitol Hill (a.k.a., the porkers).

The federal government has the absolute power to stop this recession. Do they have the discipline or will to do so?

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9 Comments

  1. Do they have the discipline or will to do so?

    Is that a rhetorical question?

    Comment by Brad Warbiany — April 29, 2008 @ 11:09 pm
  2. Its the punchline!

    Comment by underground — April 30, 2008 @ 3:53 am
  3. Brad –

    What do you think? ;-)

    Comment by Quincy — April 30, 2008 @ 7:17 am
  4. since Washington is still stuck in Keynes mode like it’s been for over 50 years, there can be no “remedy” sincerely given by an administration or Congress. Keynes clearly laid out that government spending was integral to a stable economy and that’s how our central planning has operated since, with a corresponding expansion of the Fed Gov.

    what you’re seeing today is something that is actually now almost out of the Federal Reserve’s control, especially since the usual mechanism of T-bill used for both expansionary and contractionary monetary policy is getting close to exhausted. fiscal policy for increased government spending/purchases/tax cuts is not an effective option now either now that our national deficit is at a level where a government response (Bush,Congress)would do little to nothing. our national banking system is virtually non-functional at the moment and more at risk to global forces than ever before, in the form of global commodity demand competition.

    the USD reserve currency status is not the same as it used to be, and its decline in global circulation is forcing this nation’s population to actually pay for its own government largesse and regulation. this trend will accelerate. i truly believe this country is going to choose the acceleration of socialism as a route to escape this crisis and that it will happen soon.

    Comment by oilnwater — April 30, 2008 @ 9:57 am
  5. olinwater –

    Now that you bring it up, I’ve got to absolutely agree with you. In sniping at the big guys, I’d almost forgotten about the mid-level bureaucrats who really run things and who remain from Congress to Congress and President to President.

    No matter what the higher-ups do or say, short of axing entire department’s (which ain’t gonna happen), these folks will be running the show. Since Keynesian thinking is the very reason for their livelihood, they won’t give it up. Ever.

    (OK, that was a buzz-kill!)

    Comment by Quincy — April 30, 2008 @ 12:33 pm
  6. i see that the tendency for organizational self-preservation and expansion as a part of the reason why FedGov will never be given up. but in this current era, a larger part of the reason why we’re trying to keep and/or expand all arms of the FedGov system is that so much of the population is now fully and crucially invested in them: from pensions & retirement structured securities paid to those who work for them, as well as states and cities whose budgets are invested in bonds that are in a current crisis (look at CA). wish i had the numbers to show what govt debt/investment as a % of GDP, but my guess is that it’s far too high to give up without serious political and social pain.

    but in exchange for avoiding the serious pain, our country is sacrificing our access to true risk/reward (freedom) as well as innovative potential. this goes hand in hand with socializing both the banking system and the real domestic economy without pause or end. there’s almost nothing that can be done about this process and it’s very painful and sad to see it happening.

    Comment by oilnwater — April 30, 2008 @ 1:09 pm
  7. Do they have the discipline or will to do so?

    HAHAAHAHAHAHAHAAHAHAHAAHAHAHAAHAHAHAAHAHAHAHAAHAHAHAHAHAAHAHAHAHAHAAHAHAHAHAHAHAAHAHAHAHAAHAHAHAAHAH

    oh man, you kill me…..

    Comment by MikeF — April 30, 2008 @ 1:31 pm
  8. that was weird, sorry about that. I closed off the blockquote, not sure where the tanspace came from….

    Comment by MikeF — April 30, 2008 @ 1:32 pm
  9. Quincy,

    oilnwater’s got it completely right.

    This Monday I had to sit through a speech at Rotary given by a bureaucrat working for the state of Kansas on health policy (i.e. socialized medicine). She gave a long speech about hard financial times and how the key to fixing our nation’s “health-care problem” was simply to raise taxes on smokers (who she claimed were leeching up all the resources) and greedy companies (the audience was a group of businessmen, bankers, and people who actually understand free-market economics). Then she tried to gain the audience’s sympathy about how her daughter’s health care was expiring because she was a full-time graduate student and almost 24 so if she didn’t find affordable coverage she might have trouble still going to school. My boss’ face went about 12 shades of purple when he heard that one…I think he was half-reconsidering his ban on me asking our speakers questions when I wondered out loud to him why taxpayers should have to subsidize her master’s degree and why she couldn’t work out a better budget or get a fucking job like billions of people who don’t expect the world to give them a living do.

    Of course she loved the idea of more taxes, though…that money insured her office would get more funding. And keep in mind that it was the bureaucrats who gutted Milton Friedman’s proposal for a negative income tax because they saw it as a threat to them. To bureaucrats, the answer will usually be more government.

    Comment by UCrawford — April 30, 2008 @ 5:57 pm

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