And for those who insist that we need to look at inflation in stuff like gasoline, bread, and milk: well, the BLS has convenient average price data, so let’s compare some of those prices to what they were, say, three years ago, when Bush was in the White House and all was well with the world. Over those three years, the price of gasoline has soared by … well, actually gasoline is a bit cheaper now than three years ago. OK, but milk … actually, milk prices are down substantially since three years ago. But it’s true: bread has gone up in price.
Krugman writes that people weren't complaining about deflation lowering the cost of gasoline. That is because consumers were complaining about gas being high and they were right. I'm sure many small businesses were feeling the pinch of deflation. A mom and pop convenience store can see the prices of milk, food and other products decrease. This same mom and pop store owner still haas to pay the same cost for his lease, workers and utility bills.
Tas noted today that another unintended side effect of the Federal Reserve $600 billion is that it could raise the cost of living faster than pay increases. Right now it is an employer's market and there is less worries from companies that they have to give pay raises in order to retain employees.
Krugman is supporting a policy called quantitative easing. The Federal Reserve will buy more buying government bonds, private bank bonds and printing more money. The Federal Reserve needs a bigger cash revenue stream. In economic terms quantitative easing is a "hail Mary" pass. The practice is used after near zero interest rates have not received the intended results. The Federal Reserve have kept interest rates at historic lows and banks aren't lending.
Tas tweeted me that Obama is hoping that a cheaper dollars will increase exports from the United States. China has been so good at increasing their export business by devaluing the yen. If Obama is expecting exporting to take off and banks to start giving out loans before the 2012 general election then he is in for a big surprise. My attitude is much like Tas's. If quantitative easing works then great. Let's just not kid ourselves about the possible side effects.
I'm trying to look at the positive aspects of Obama/Fed's move here. One benefit is that, for new jobs to be created immediately, we won't need to build new factories yet since manufactures have been cutting back on hours. So more exports would have an immediate effect on jobs.
ReplyDeleteOther than that... Getting factory output to capacity falls under the "if devaluation works" scenario. Conversely, if devaluation doesn't work then we not only have inflation, we're also risking a trade war. It's not like new American dollars are simply printed. Some of these billions will be used to purchase securities in other nation's currencies -- increasing the price of their exports. So besides pissing off China (who hold a ton of US securities...), there are lingering thoughts of a trade war...
The fact that Obama has to double down on such a risky financial move to try and grow the economy means he fucked up. Granted, I still believe GOP leadership of 8 years previous to Obama's administration is more at fault; but Obama is still too concerned with playing politics over doing what's needed.
I still believe GOP leadership of 8 years previous to Obama's administration is more at fault; but Obama is still too concerned with playing politics over doing what's needed.
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