View Full Version : Critics were wrong about Reagan

02-06-2011, 03:33 PM
On at least one thing: that his wildly expansionistic budget policies (i.e., large tax cuts associated with doubling the defense budget spending = 12-digit deficits forever) would cause a massive spike in inflation.

That didn't happen, and in fact, inflation was reduced in his terms (although NOT from double digit rates-- Carter's last quarter came in around 7% inflation, and Reagan probably averaged about 4% or so).

Why were the critics wrong? Hint, close to the same reason why those forecasting hyperinflationary pressures now are wrong.

There was a massive counterbalancing factor that prevented increased inflation then, and now as well.

Back then it was the Fed under Volcker exercising sado-monetarism, targeting M-3 growth to keep it in a range they set, via use of extreme interest rate hikes. (This went on until Mexico threatened to go under, and thus make all the money center banks insolvent, then it eased).

In the current case, we do NOT have more money chasing the same amount of goods, because of the massive contraction and work-outs of private household balance sheet debt, and so little overall borrowing that even given the huge federal deficit, there is less borrowing still at this time then at normal times.

Money is created by increased lending, and destroyed by net decreases in borrowing.

02-06-2011, 04:42 PM
I look at inflation a bit differently to most.
Inflation iz basically the inkreec in wage rates.
Inflation kan be kept at nearnuff zero (not a bad idea) by gov restriktion of wages (wage fixing).
With wages fixed, the gov wouldnt need to hav price fixing.
The gov kood hav wage fixing, or price fixing, or both -- fixing wouldnt be diffikult.

But fixing interest rates iz krazy -- typikal krappynomix.
The ekonomy iz overheating (a krazy notion) -- ok lets inkreec pipples mortgage payments etc (a krazy idea).

mac -- "Captain, the USS Enterprize iz going too close to a reef on the port side -- but Captain, that reef duznt really exist".
Captain -- "The fed sez the reef exists -- and, so we must take the ship out of danger".
mac -- "Captain, shall i steer to starboard".
Captain -- "No, we will do what the fed allways tells us to do -- we will let out the starboard anchor, and drag it untill we are out of danger".
mac -- "Aye Aye Captain".