Feb 26 2007
Does the U.S. Economy Have a Zimbabwe Problem?
UPDATED: 9:20 a.m. ET 02-26-2007
It is nice to see Carolyn Baum’s comments in Bloomberg on the forgotten subject of money supply. Actually, it was even nicer to see Baum point out the charade played month after month by the Fed and Ben Bernanke (and his predecessor, Sir Al), as well as the financial media as a whole, in that inflation is almost always described as some sort of exogenous force from the great beyond that our trusty knights at the Federal Reserve must ride into battle against each and every day. (”Thank GOD for the Federal Reserve!”, you can hear through a collective gasp when folks write about the economy.)
Says Baum:
” The Zimbabwe government recently outlawed inflation, arresting a number of senior executives in recent months for breaking the law: raising the price of flour and bread without the express approval of the Ministry of Industry and International Trade.
Venezuelan President Hugo Chavez adopted the same inflation- fighting tactic, threatening jail sentences and even nationalization if grocery store owners defy price controls.
The 1,331 word New York Times article on Zimbabwe’s economy never mentions money. Rarely does the Fed refer to money — in its public statements and apparently in its internal discussions. There are no mandated targets for the monetary aggregates, fewer aggregates (reporting on M3 was discontinued last year much to the chagrin of conspiracy theorists), no agreement on how to define money and no good way to measure it, we’re told.
But excess money creation is the cause of inflation, and it would be better if the Fed could make the public understand that the rise in the price level is not a result of higher commodity prices, aggressive labor union demands for wage increases or greedy businessmen trying to milk the public.
It may not sell in Zimbabwe, where anyone trying to explain the roots of inflation might be arrested on the spot. But in the U.S., with inflation running at about 2.5 percent, the public can handle the truth. “
Yet the Fed just plays along as if rising prices are the natural state and it would appear that most folks are none the wiser… and could care less. (Itis quite a racket to be able to print money out of thin air to loan into circulation for a profit, or use for highly leveraged dealmaking! That’s called getting something for nothing! You certainly won’t hear complaints coming out of Wall Street.)
Still, it is good to see a mainstream rag finger the real culprit for most all the inflation we experience: those who print money from nothing and exercise claims to others’ hard work, savings, and production without contributing anything of value to the economy to gain that purchasing power in the first place. Perhaps that is why counterfeitting is illegal. Perhaps we should question why the near exact behavior has been legalized for those in the banking system.
