Alvaro Vargas Llosa: Unwise money-printing will soon lead to inflation

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  • Earl Sandy, UT
    Jan. 26, 2011 6:49 p.m.

    Robert Rubin, every liberal politician's favorite economist and financial insider, had an article he wrote published in a special Davos magazine for this week's World Economic Forum in Switzerland. Among other things, he said the following:

    "...our structural fiscal trajectory is unsustainable with multiple, serious risks (while at the same time, our large cyclical deficits are exacerbating debt levels and interest costs)..."

    In simple terms, we are on the path to economic collapse unless something happens very soon. That "something" cannot be in the form of more large debt (think QE3) because of interest costs and because monetizing more debt will almost certainly cause interest rates to rise:

    "Most dangerously, there is a risk of disruption to our bond and currency markets from the fear of much higher interest rates due to future imbalances or from fear of inflation because of efforts to monetise our debt."

    I don't know how you might read this article, but to me it looks like the U.S. economy is toast.

  • Earl Sandy, UT
    Jan. 26, 2011 2:56 p.m.

    Do I detect some bitterness, Lew? If you want to go on believing in the fantasy of government statistics, knock yerself out. Before you discount the work of John Williams, though, you ought to see how he comes up with those figures. It's actual statistical analysis, not dart-board throwing.

    I'd be happy to show you sometime how inflation of the money supply is at the root of stagnant wages, high unemployment and runaway price inflation. By the way, I'm very much a part of the working class, so I don't know where that accusation comes from.

    When government agencies (I know, Iknow, the Fed is "private") interfere in the money supply, interest rates and other components of the economy like they do, normal economic activity is disrupted. Government then tries to compensate for those disruptions, making thing actually worse. I know you're a die-hard Keynesian who truly believes that capitalism is a cruel taskmaster and needs taming by the central banks. He was wrong about a lot of other things, too.

  • ljeppson Salt Lake City, UT
    Jan. 26, 2011 12:56 p.m.

    "The current crisis was first and foremost caused by excess money created by the Fed." It was just as surely created by the fantastic profits generated the last 30 years by stagnant real wages. But them I can't expect Earl to have much sympathy for working class people.

  • ljeppson Salt Lake City, UT
    Jan. 26, 2011 12:31 p.m.

    "...under the old system the official rate wouldn't be 1.5%. It would be closer to 10%. " I think this overstates the case. Nevertheless I think the rate of infation is being low balled.

  • Earl Sandy, UT
    Jan. 26, 2011 11:32 a.m.

    If you think our inflation rate is benign, think again. Maybe this will help. It's from one of the money management websites I'm not allowed to name:

    "Over the past 30 years, the federal government has made a lot of changes to the way it calculates inflation. It's taken place under presidents of both parties. Each change in methodology has come with plausible-sounding justifications. But, as if by magic, each change has had the effect of flattering the numbers. Funny, that.

    "According to one rogue economist, John Williams at Shadow Government Statistics , if we still calculated inflation the way we did when Jimmy Carter was president, the official inflation figures would look about as bad as they did when ... Jimmy Carter was president. According to Mr. Williams's calculations, if we counted inflation under the old system the official rate wouldn't be 1.5%. It would be closer to 10%."

    So believe whom you wish, but it would be better to look for the truth and prepare yourself for the consequences of it.

  • Hellooo Salt Lake City, UT
    Jan. 26, 2011 11:15 a.m.

    Mr. Llosa to bad you do not have a seat on the Federal reserve. In fact your observances were those of Mr. Bernake before he became chairman. Now, he seems to have forgotten. Thanks for the article maybe he and others in the Fed will read and observe. Sad, Sad day when the USA is leading this irresponsible parade.

  • Earl Sandy, UT
    Jan. 26, 2011 11:02 a.m.

    The current crisis was first and foremost caused by excess money created by the Fed. Everything else followed because the banks had to figure out how to make a quick buck with so much new money sloshing around. They found willing accomplices in congress and in the Bush administration, and now the Obama administration. If interest rates hadn't been so outrageously low and new money hadn't been so plentiful, bankers wouldn't have had the means to create the mischief they did. Nothing good comes from flooding the economy with newly printed money. Nothing.

  • ljeppson Salt Lake City, UT
    Jan. 26, 2011 8:49 a.m.

    The current crisis was largely created by banks' marketing of complex unsupportable derivitives. This was a willful act; all that was important to them was to make a quick sale and let the chips fall on the purchasers. Of course, such is the nature of our system, these crooks, er bankers, had to be rescued first (women and children last). The system is flawed because it rewards first and always fraud.