Nov 132010
An explanation of Quantitative Easing (and Country Rape) so simple that even Paul Krugman might be able to understand it.
An explanation of Quantitative Easing (and Country Rape) so simple that even Paul Krugman might be able to understand it.
Just watched the video ( Fall of America ) and it is really scary because it
explains the monetary policies we have lived under since 1913, when the
Fed was created, and just like a cartel for oil countries, the Fed is one for
the banks, with our government protecting them, and keeping their profit
margin at levels unimaginable prior to their creation.
I recommend this video, and believe every citizen should watch it…….
To be fair, (and feel free to correct me if I’m wrong) deflation in prices requires deflation in wages, since employers are then running on slimmer (or negative) profit margins. Wages in this country are rather rigid when it comes to the downward direction… unions simply will not stand for it, and employers generally don’t think in those terms. Therefore the end result of deflation is layoffs. Which means more defaults on credit cards and mortgages. Which, if I’m not mistaken, is what got us into this mess to begin with. Far too many banks are only marginally solvent, so that scenario may well end with banking crisis, round two.
Or did I go off the rails here?
On the other hand, the whole “risk of deflation” argument is absurd at this point, so I guess this question is purely academic.
Ed,
Thanks for your caption comments.
Regarding your comments on wages, I do not think you went “off the rails,” although you do seem to be mixing in some Keynesian presumptions and assumptions.
Unions no longer play a big role in private industry. Public unions now dominate. Profit motives and/or market pressures don’t exist in the public sector. Distortions beyond some level eventually get corrected. Eventually tax constraints become binding and public entities make adjustments in spending, employment levels and wage and benefit levels. We have not reached that point (yet!).
Privately we have seen adjustments. Employers have cut hours for both salaried and hourly. Employment levels have dropped (unemployment has increased) as a result of wages not adjusting far enough or fast enough.
Wages are no longer determined by national conditions. Labor arbitrage on a worldwide basis takes place as a result of other countries providing some of the same products and services as the US. Part of this adjustment has been offset by driving down the purchasing power of the dollar.
If the dollar is losing purchasing power and nominal wages hold constant, workers are actually experiencing lower wages in real terms. Lower wages is precisely what we would expect in an economic slowdown.
Keynes prescribed inflation as a solution to high wages because he believed wages to be “sticky.” He believed “monetary illusion” governed the behavior of labor. That is, workers focused only on the monetary level of wages and were assumed to be too stupid to realize that their purchasing power was declining.
There are more complexities here, but your concerns appear “purely academic” at this point.
When you call the plumber to fix something, they usually fix it, not break it more.
This is true, the plumber is clearly smarter than the Ben Bernank.
Love it!!!!!!!!!!!!!!!
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