Chart of the Day: The Laffer Spike

posted at 10:11 am on June 11, 2009 by Ed Morrissey

Arthur Laffer, who brought us the Laffer Curve in the 1980s, has another kind of geometric shape for us today in the Wall Street Journal.  Let’s call it the Laffer Spike, and unfortunately this one isn’t hypothetical.  It demonstrates the massive boost in monetary supply pushed by the Fed and the government, and its historical singularity (via QandO):

With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs — such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid — are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.

But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.

About eight months ago, starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base — which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash — by a little less than $1 trillion. The Fed controls the monetary base 100% and does so by purchasing and selling assets in the open market. By such a radical move, the Fed signaled a 180-degree shift in its focus from an anti-inflation position to an anti-deflation position.

The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10 (see chart nearby). It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base — which prior to the expansion had comprised 95% of the monetary base — has risen by a little less than 10%, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50% of the monetary base. Yikes!

Laffer says we don’t have a historical model for this kind of action, and cannot accurately predict its effects.  That’s not entirely true.  While the US has never done this before, we do have at least one historical parallel from the 20th century: the Weimar Republic government of Germany that preceded the Nazis.  In fact, they deliberately printed money and devalued their currency in order to pay off (in worthless currency, but at face value) the crushing national debt imposed on them by the Treaty of Versailles.

Some have suggested that the US will have to follow the same model to rid itself of the massive debt we’re incurring now, which makes investors much less enthusiastic about Treasuries.  We’ve already begun to see the effects of this policy on the bond markets, with investors demanding higher yields as a hedge against the runaway inflation of this model.  The Financial Times reports that the US had to push yields up to 4% to get buyers this week, and they expect more trouble in today’s auction:

US long-term interest rates rose to the highest level of the year on Wednesday, threatening the “green shoots” of recovery, after the latest sale of 10-year government debt met with a tepid response from inflation-wary investors.

Concerns about the growth of government borrowing forced the US Treasury to give investors in an auction of $19bn in 10-year notes a yield of 3.99 per cent – 4 basis points higher than the yield available before the auction. That constituted the biggest yield markup since a 10-year auction in May 2003, said Morgan Stanley. Yields on the 10-year note, the benchmark rate for US mortgages, hit a high of 4 per cent during the day, up from 3.6 per cent a week ago. …

The next test of the US Treasury’s issuance program looms on Thursday with the sale of $11bn in 30-year bonds. An auction of 30-year bonds last month went badly as investors signalled their concerns about the budget deficit.

“That did not go well last time, so there is also some additional concern,” said Dominic Konstam, head of interest rate strategy at Credit Suisse.

If we have to keep paying higher interest rates for the Treasuries, we’re going to see much bigger deficits in the coming years than either the White House or the CBO projected earlier, as our debt service will skyrocket:

Unless we cut spending now, we’ll be setting up an inflationary ride like nothing we’ve seen before.


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Now that’s a hockey stick, Al Gore.

eforhan on June 11, 2009 at 10:16 AM

And the difference is…. Obooba!

Akzed on June 11, 2009 at 10:16 AM

The honorable thing to do would be if the president and congress threw themselves on that spike.

DrAllecon on June 11, 2009 at 10:16 AM

I’d call it the Laffer Dagger, cause that increase in M1 may be the Dagger into the America we know.

WashJeff on June 11, 2009 at 10:16 AM

Unless we cut spending now, we’ll be setting up an inflationary ride like nothing we’ve seen before.

I’ll have to ask an Argentinian what’s in store for us.

jgapinoy on June 11, 2009 at 10:16 AM

Where are all the people not 4 years ago who were complaining that congress spent more money than it took in and if we had households that did that they’d all go bankrupt!

Now NOBODY is making that analogy.

REVOKE THE STIMULUS PACKAGE… NOW!

Skywise on June 11, 2009 at 10:16 AM

“Unless we cut spending now, we’ll be setting up an inflationary ride like nothing we’ve seen before.”

HEY KIDS!! LET” DOUBLE DOWN.

notagool on June 11, 2009 at 10:16 AM

Unless we cut spending now, we’ll be setting up an inflationary ride like nothing we’ve seen before.

Eyeing the exits…..

sonofdy on June 11, 2009 at 10:17 AM

Let’s call it the Laffe Spike,

Why not call it the Laffer Spike, you know, just like his name?

Akzed on June 11, 2009 at 10:17 AM

In for a penny, in for a pound.

OldEnglish on June 11, 2009 at 10:17 AM

F$%K it. At least I will be able to pay off my mortgage with one days pay.

sonofdy on June 11, 2009 at 10:18 AM

BTW, I bags the wheel-barrow franchise.

OldEnglish on June 11, 2009 at 10:18 AM

I’ll have to ask an Argentinian what’s in store for us.

jgapinoy on June 11, 2009 at 10:16 AM

Ask a German too. And maybe a Jew. We seem to be headed that way.

mjk on June 11, 2009 at 10:19 AM

Unless we cut spending now, we’ll be setting up an inflationary ride like nothing we’ve seen before.
I’ll have to ask an Argentinian what’s in store for us.

jgapinoy on June 11, 2009 at 10:16 AM

Or a wheelbarrow pushing Zimbabwean on the way to the store to buy a loaf of bread.

ICBM on June 11, 2009 at 10:19 AM

OldEnglish on June 11, 2009 at 10:17 AM

that;s a lot of pounds of pennys.

SHARPTOOTH on June 11, 2009 at 10:21 AM

30 year mortgage up to 5.74% on Bankrate.com. That’s up 1% in ~6 weeks. Good times! Goood times.

WashJeff on June 11, 2009 at 10:21 AM

All the signs are there… all the facts are there in black and white (and red). If we don’t get these people out of office, we are all doomed. They are trying to sink our economic capability while weakening our strategic defense, undermining our Constitutional rights, allowing our country to be infiltrated by illegal invaders and others who truly wish to do us harm. The 3rd American Revolution is coming…. be ready.

HomeoftheBrave on June 11, 2009 at 10:21 AM

Buy gold.

the_nile on June 11, 2009 at 10:21 AM

I’m going to say it again:

Obama may be stupid and incompetent, but Obama is not doing this because he’s stupid and incompetent.

He is deliberately destroying our economy (and our liberty). Even Mark Levin is saying it that plainly now.

Daggett on June 11, 2009 at 10:21 AM

F$%K it. At least I will be able to pay off my mortgage with one days pay.

sonofdy on June 11, 2009 at 10:18 AM

The ONLY awesome thing about it. My family of four will have to move back in with my parents. (OMG OMG OMG OMG) But, at least they have a garden, starting to raise bees, etc.

How can we possibly revoke the stimulus???? What can even be done now? AND ON TOP OF THIS, this maniac says we have to shove in HEALTH CARE?!??!?!!?!? What kind of dangerous monster is he? Why does he hate us so much?

Mommypundit on June 11, 2009 at 10:22 AM

Aww who needs money we will be getting our free unicorn soon.
And we can all dance around the rainbow signing Kumbya

Until we starve

LincolntheHun on June 11, 2009 at 10:22 AM

At the beginning of Obama’s presidency I figured we would get the United States of Chicago. Now it appears that we are moving beyond that to the United States of Zimbabwe, both in economic irresponsibility and government thuggishness.

jwolf on June 11, 2009 at 10:24 AM

There’s no other way to put this;
That scares the shit out of me

oldernwiser on June 11, 2009 at 10:24 AM

The main difference in Weimar Germany was these financial machinations led to a Dear Leader (Hitler). We already HAVE a “Dear Leader” in the White House, so part of the effect of this idiocy we don’t have to wait for. Oh, Joy. Wait…isn’t that a former National Socialist thought? “Strength through joy”? Or is it the more infamous “Arbeit Macht Frei”? We shall see.

bradley11 on June 11, 2009 at 10:25 AM

Somewhere Jimmy Carter is smiling. He will not own the worst inflation crown anymore. He will be able to give that crown to the Chicago Jesus!!!

Dire Straits on June 11, 2009 at 10:25 AM

Buy gold.

the_nile on June 11, 2009 at 10:21 AM

Like, actual physical gold coins? We want to do this but don’t know how.

Also, buy out rifles and ammo for hunting and protection.

Mommypundit on June 11, 2009 at 10:25 AM

The ONLY awesome thing about it. My family of four will have to move back in with my parents. (OMG OMG OMG OMG) But, at least they have a garden, starting to raise bees, etc.

How can we possibly revoke the stimulus???? What can even be done now? AND ON TOP OF THIS, this maniac says we have to shove in HEALTH CARE?!??!?!!?!? What kind of dangerous monster is he? Why does he hate us so much?

Mommypundit on June 11, 2009 at 10:22 AM

He doesn’t hate you. He hates your success and independence.

Thunderstorm129 on June 11, 2009 at 10:25 AM

I can balance a bowl in my head. I’m good to go.

SouthernGent on June 11, 2009 at 10:25 AM

The only difference between Weimar Germany and the United States today is that inflation will have a far greater effect on the World economy.

I am already seeing the $A rise and it will continue against the $US.

At least US products will be cheaper for me in Australia.

Crux Australis on June 11, 2009 at 10:26 AM

Thank God for guns.

Disclosure: Short dollar, Long Ammo.

BPD on June 11, 2009 at 10:26 AM

Cut spending now? You mean with that huge spike, it’s still not too late??

Tuari on June 11, 2009 at 10:26 AM

Weimar actually put that ‘printed money’ into circulation, most of the money in that chart is not in circulation

jp on June 11, 2009 at 10:27 AM

I’ll have to ask an Argentinian what’s in store for us.

jgapinoy on June 11, 2009 at 10:16 AM

Nah. Just fly to Harare for a week. The Zims can show you exactly what’s in store.

BacaDog on June 11, 2009 at 10:27 AM

Better learn to love stagflation.

WannabeAnglican on June 11, 2009 at 10:28 AM

Isn’t Obama meeting with Zimbabwe’s leader this week? Ahhh yes, here it is.

Ed, I dare ya to put the Zimbabwe story right next to the Laffer story…

hawksruleva on June 11, 2009 at 10:30 AM

Like, actual physical gold coins? We want to do this but don’t know how.

Also, buy out rifles and ammo for hunting and protection.

Mommypundit on June 11, 2009 at 10:25 AM

You can do it on line. Also silver, which has a less cost per ounce but will hold value as well.
1 ounce of gold, 900 to 1000 dollars per ounce.
1 ounce silver 16-20 dollars an ounce.

sonofdy on June 11, 2009 at 10:30 AM

Eyeing the exits…..

sonofdy on June 11, 2009 at 10:17 AM

To where? uh. We’re IN THIS.

Anyone else feeling more rage toward these people than ever, ever before? Oh wow. I will not sin in my anger, however righteous…breathe, breathe.

Mommypundit on June 11, 2009 at 10:31 AM

I can balance a bowl in my head. I’m good to go.

SouthernGent on June 11, 2009 at 10:25 AM

You’re gonna need a bigger bowl.

thomasaur on June 11, 2009 at 10:31 AM

Glenn Beck vs. Big Brother Ben

Glenn Beck recently showed us what a trillion dollars would look like. Why? Because the Fed is “printing it up” — and as Glenn Beck and the rest of the Ron Paul crowd know for sure, printing money is an inflationary disaster that makes our currency worthless. It’s just that simple to them, because “inflation” doesn’t mean rising prices and wages, it means “more money, period.”

—-
First question Beck will never address:
What if the one trillion new dollars in that warehouse just sat there, static and immobile… what if nobody spent any of it on anything… what effect would THAT have on inflation?

Answer: It would have no effect whatsoever on inflation. Even if it were ten trillion new dollars, or a hundred trillion, and it just sat there collecting dust, it would not, and could not, cause prices or wages to rise one penny.

And guess what: That’s exactly what’s been happening. Here’s a chart from the St. Louis Fed titled “Excess Reserves” — bankerspeak for “money just sitting there doing nothing”:

whats going to do us in isn’t the Fed, its what Obama and the Dems do while the Fed is doing this

jp on June 11, 2009 at 10:31 AM

Weimar actually put that ‘printed money’ into circulation, most of the money in that chart is not in circulation

jp on June 11, 2009 at 10:27 AM

You mean it’s not all printed money. Electronic digits in Bank of America’s account still equal more currency out there for people to use; which means cheaper money, which means more upward pressure on prices. Right?

hawksruleva on June 11, 2009 at 10:33 AM

Weimar actually put that ‘printed money’ into circulation, most of the money in that chart is not in circulation

jp on June 11, 2009 at 10:27 AM

When the FED buys bonds on the open market, it is putting ‘printed money’ into circulation.

Count to 10 on June 11, 2009 at 10:33 AM

This is indeed uncharted territory, which is why I am not panicking over this chart. The flood of money into the system by the Fed probably has prevented another depression which would have been worse than the Great Depression and really led to some social unrest and demands for even more government takeovers than we have already seen. Before you condemn the Fed you need to ask what would have happened without this monetary spike. The answer is most likely far scarier than anything that is going to happen in the next few years.

rockmom on June 11, 2009 at 10:33 AM

Time for a new distraction. Obama’s buds at the UN are getting the WHO to raise the swine flu alert again.

MarkABinVA on June 11, 2009 at 10:33 AM

You can do it on line. Also silver, which has a less cost per ounce but will hold value as well.
1 ounce of gold, 900 to 1000 dollars per ounce.
1 ounce silver 16-20 dollars an ounce.

sonofdy on June 11, 2009 at 10:30 AM

Would it be stupid to take some (or all) of what we have in our (smaller) 401K and use it toward this and, hopefully, if things get better reinvest (after selling the gold) later? We are only 30 and 31 years old with 2 babies. Is this a bad idea?

Mommypundit on June 11, 2009 at 10:33 AM

1 ounce of gold, 900 to 1000 dollars per ounce.
1 ounce silver 16-20 dollars an ounce.

sonofdy on June 11, 2009 at 10:30 AM

which has been the price for years now, though Gold got down to $700 ounce last year….at the same point the Peter Schiff’s of the world were predicting hyper-inflation

jp on June 11, 2009 at 10:34 AM

Inflation is our friend.

Mr. Bingley on June 11, 2009 at 10:35 AM

I’d call it the Laffer Dagger, cause that increase in M1 may be the Dagger into the America we know.

WashJeff on June 11, 2009 at 10:16 AM

Which is Dear Leader’s intent. The One wants to “remake” America.

rbj on June 11, 2009 at 10:35 AM

I’ll have to ask an Argentinian what’s in store for us.

Does that make MO Evita?

It won’t be easy, you’ll think it strange
When I try to explain what we did
That we still need your love after all that we’ve done
You won’t believe me
All you’ll see is an America you once knew
Although I’m dressed up to the nines-
Goodwill will have to do for you

We had to let it happen, you had to change
Couldn’t allow free markets anymore
Had to take from the rich and give to the poor
So we chose Socialism
Running around, trying everything “new”
But nothing really help things at all
We never expected it to

Don’t cry for America!
The truth is we were clueless
All through our first term
Our mad insistence
We kept our promise
Your wealth is nonexistent….

Beaglemom on June 11, 2009 at 10:35 AM

This is indeed uncharted territory, which is why I am not panicking over this chart. The flood of money into the system by the Fed probably has prevented another depression which would have been worse than the Great Depression and really led to some social unrest and demands for even more government takeovers than we have already seen. Before you condemn the Fed you need to ask what would have happened without this monetary spike. The answer is most likely far scarier than anything that is going to happen in the next few years.

rockmom on June 11, 2009 at 10:33 AM

???????????? huh?

Mommypundit on June 11, 2009 at 10:36 AM

To where? uh. We’re IN THIS.

Anyone else feeling more rage toward these people than ever, ever before? Oh wow. I will not sin in my anger, however righteous…breathe, breathe.

Mommypundit on June 11, 2009 at 10:31 AM

I have a new zealand passport. The 401k money? Its risky either way. This government could just take either or both.

sonofdy on June 11, 2009 at 10:36 AM

You mean it’s not all printed money. Electronic digits in Bank of America’s account still equal more currency out there for people to use; which means cheaper money, which means more upward pressure on prices. Right?

hawksruleva on June 11, 2009 at 10:33 AM

most of that money is sitting in a vault, on standby basically, if needed. It can not effect inflation unless it enters circulation.

the Fed could print up $100 Trillion dollars, place it at the bottom of the grand caynon and it would not have any effect on Inflation unless

jp on June 11, 2009 at 10:37 AM

Obama would better understand a Paretto chart being the socialist he is.

fourdeucer on June 11, 2009 at 10:39 AM

When the FED buys bonds on the open market, it is putting ‘printed money’ into circulation.
Count to 10 on June 11, 2009 at 10:33 AM

Yep!! The money we printed isn’t the money sitting in banks’ excess reserves. The money we printed was when the fed bought over $1 trillion in T-bills. That, in turn, is devaluing our currency, which is why Treasury now has to pay 4% on new T-bill issuances. That, in turn, will drive up interest rates… And, eventually, those banks will start to lend against those excess reserves, which will further drive inflation.

Outlander on June 11, 2009 at 10:39 AM

???????????? huh?

Mommypundit on June 11, 2009 at 10:36 AM

read some of Nail Ferguson’s recent articles on this, I’m much more worried about Congress and its anti-Growth policies than I am the Fed

jp on June 11, 2009 at 10:39 AM

Better learn to love stagflation.
WannabeAnglican on June 11, 2009 at 10:28 AM

Can I have fries with that??

DamnYankee on June 11, 2009 at 10:40 AM

November 4, 2008… Our Treaty of Versailles.

mjbrooks3 on June 11, 2009 at 10:40 AM

Now that’s a hockey stick, Al Gore.

eforhan on June 11, 2009 at 10:16 AM

Even more dangerous than Gore-bull warming.

We need some fiscal and monetary cooling, QUICKLY!

Better learn to love stagflation.

WannabeAnglican on June 11, 2009 at 10:28 AM

Carter times 10, or 100, or (add zeroes at the whim of the Fed). We used to have dollar parity with the Euro, soon we’ll have parity with the yen.

Steve Z on June 11, 2009 at 10:40 AM

With the level of government dependence today, we won’t survive another 70′s style inflationary mess.

Cities will burn

Children will starve

American Idol will be canceled

Kittens and puppies will not seem as cute.

Complete anarchy!

quax1 on June 11, 2009 at 10:41 AM

Here is a chart titled “EXCESS RESERVES”, Excess means its not in Circulation!

http://research.stlouisfed.org/fred2/series/EXCRESNS

“Excess Reserves” — bankerspeak for “money just sitting there doing nothing”

It tracks closely to the Chart above

jp on June 11, 2009 at 10:41 AM

Well Chairman Bernanke is one of the foremost experts on the Great Depression. To someone with a hammer every problem looks like a nail. He’s cut short term rates to almost zero, but long term rates are determined by market expectations of inflation. The spike in mortgage rates, more than the increase in M1, is proof of the coming inflation.

Ted Torgerson on June 11, 2009 at 10:42 AM

Thanks Barrack Hussein Obama.

rlongstrat on June 11, 2009 at 10:42 AM

American Idol will be canceled

my god NNNNOOOOOOOO!!!!!!!

;-)

sonofdy on June 11, 2009 at 10:44 AM

This must be why Obama canceled his visit to Weimar.

forest on June 11, 2009 at 10:44 AM

It demonstrates the massive boost in monetary supply pushed by the Fed and the government, and its historical singularity

There is a difference between “monetary base” and “money supply”. One should lead the other but that isn’t currently happening, mostly because the monetary base is being used to increase reserves against toxic assets. The money is traveling between banks but unless it makes it out into the economy it wouldn’t be the cause of inflation.

Commodities should continue to be bid up on fears of inflation, recognition that countries are devaluing their currencies, and traders crowding into the same position. However, the consumer remains unlikely to spend and more likely to save. Businesses will likely keep inventories low and payrolls as small as possible.

dedalus on June 11, 2009 at 10:45 AM

Weimar Republic

I thought the Democrats won the election, but I guess it was the Weimar Republicans.

zmdavid on June 11, 2009 at 10:46 AM

The individual states are the answer to the federal problem.

The states that prepare now to print their own state currency will be the ones who will survive this.

If they create their own currencies, valid for any transaction within the state borders, they will boom while Washington collapses.

General Maximus on June 11, 2009 at 10:46 AM

Weimar actually put that ‘printed money’ into circulation, most of the money in that chart is not in circulation

jp on June 11, 2009 at 10:27 AM

Whether or not it’s “printed” doesn’t matter. If the Fed creates “credits” out of nothing to lend to the Treasury to spend on Porkulus or cap-and-trade or socialized medicine, eventually those selling services to the Government will want to be paid, which will increase the money supply in circulation.

Too much money chasing too few goods devalues the money, and leads to inflation.

Steve Z on June 11, 2009 at 10:46 AM

sonofdy on June 11, 2009 at 10:18 AM

I saw on MM that you had twins (congratulations) and received your marching orders (please stay safe).

txag92 on June 11, 2009 at 10:47 AM

American Idol will be canceled

my god NNNNOOOOOOOO!!!!!!!

;-)

sonofdy on June 11, 2009 at 10:44 AM

This will be the tipping point for millions of Americans. Damn you, Simon!

quax1 on June 11, 2009 at 10:47 AM

Ok am I reading this as pants terrifyingly scary

karasoth on June 11, 2009 at 10:48 AM

At this point I don’t see how we can possibly avoid a prolonged period of crippling inflation. The only question is whether it will be the product of a deliberate design on the part of this Administration or another example of their fiscal ineptitude.

And I don’t know which possibility would be less alarming.

cruadin on June 11, 2009 at 10:48 AM

The spike in mortgage rates, more than the increase in M1, is proof of the coming inflation.

Ted Torgerson on June 11, 2009 at 10:42 AM

could be, might just mean that the housing market is coming back as quickly as hoped and is reflected here.

jp on June 11, 2009 at 10:49 AM

Too bad Barry never studied economics. They don’t cover that in socialism classes.

GarandFan on June 11, 2009 at 10:50 AM

watch Milton Friedman’s take on the Depression and the Great Depression:

http://www.youtube.com/watch?v=O7pnjzCuSv8

You’ll note, he doesn’t consider Keynes to be the spawn of Satan, which the Glenn Beck crowd has been fire breathing about lately.

jp on June 11, 2009 at 10:50 AM

Inflation is the best way to tax the poor. Nice work King Hussein Obama.

Mojave Mark on June 11, 2009 at 10:51 AM

Weimar actually put that ‘printed money’ into circulation, most of the money in that chart is not in circulation

jp on June 11, 2009 at 10:27 AM

Yep!! The money we printed isn’t the money sitting in banks’ excess reserves. The money we printed was when the fed bought over $1 trillion in T-bills. That, in turn, is devaluing our currency, which is why Treasury now has to pay 4% on new T-bill issuances. That, in turn, will drive up interest rates… And, eventually, those banks will start to lend against those excess reserves, which will further drive inflation.

Outlander on June 11, 2009 at 10:39 AM

JP, you’re right. I suspect all of this money was ‘printed’ to cover up much more massive problems on the books of banks and other financial insitutions than we’ll ever know about…..derivative losses, much worse mortgage and commercial paper losses that may never be made public for fear of inciting a public panic. That money may never see the light of day. Just a hunch…..

And Outlander, banks may be wanting to lend against that newfound capital sitting in their vault or registered in as 0s and 1s in their cyberbank but before they lend there has to be demand for lending. Considering the financial ditch that the American consumer has dug for him/herself, I suspect demand will be weak for years while people pay off cars, schools loans and credit cards.

TheAdmiral on June 11, 2009 at 10:52 AM

With the level of government dependence today, we won’t survive another 70’s style inflationary mess.

Cities will burn

Children will starve

American Idol will be canceled

Kittens and puppies will not seem as cute.

Complete anarchy!

quax1 on June 11, 2009 at 10:41 AM

Yes well, Michelle Obama will still have nice arms, so it will be a wash.

BPD on June 11, 2009 at 10:52 AM

Like, actual physical gold coins? We want to do this but don’t know how.

Also, buy out rifles and ammo for hunting and protection.

Mommypundit on June 11, 2009 at 10:25 AM

I’ve been looking at BullionVault, but haven’t pulled the trigger yet. Another choice is to buy ETF’s that are gold based.

The only hedge against inflation is to purchase things with long lasting and intrinsic value with dollars before cash becomes less valuable. It doesn’t have to be precious metals.

Asher on June 11, 2009 at 10:54 AM

We’ll be back to huntin’ for our food. Can’t afford to buy a loaf of bread. Good thing the family is well armed. What are those poor libs going to do?…..STARVE!

Jeff from WI on June 11, 2009 at 10:55 AM

Weimar. That’s good.

Just like in the Weimar Republic, there are a bunch of citizens and politicians who don’t like our form of government and want to change it to something more monarchical. And they certainly never let a crisis, real or imagined, go to waste, just like the current administration. The legislature was also a rubber stamp for the Leader.

But even in Weimar, the Nazi Party never got close to a majority of the vote, unlike the current Leader. And the Nazi party never had more than about 8 million members. 48% of our population are Good Germans.

Apologies to Godwin.

misterpeasea on June 11, 2009 at 10:57 AM

Is this the point in the movie where one of the supporting characters panics and starts screaming ‘game over man’, while the charismatic group leader tries to hold everyone together?

Meanwhile the evil villain is seen rubbing his hands in glee, chortling over his impending victory?

Where is John Wayne? The Lone Ranger? Hopalong Cassidy? Audie Murphie? Bruce Willis, Will Smith, Tom Cruise. What, all we have is Glen Beck, Mark Levin, and Rush Limbaugh?

Skandia Recluse on June 11, 2009 at 10:57 AM

could be, might just mean that the housing market is coming back as quickly as hoped and is reflected here.

jp on June 11, 2009 at 10:49 AM

Mortgage rates tend to be inverse of home prices…. similar to bonds. As I understand it, an increase in rates by 1% leads to a 10% decline in housing price. Mortgage rates usually don’t fluctuate with housing supply/demand. They move with long bond rates (banks borrow money to lend it out as mortgages… as the cost of borrowing goes up, they pass it along to the customer).

At least, this is how I understand it. So, if this is correct, rising mortgage rates are due to rising bond rates , which can be attributed to a number of things (including inflation fears and/or a move to riskier assets because people think the economy is improving).

BPD on June 11, 2009 at 10:58 AM

Sky King, Clint Eastwood?

Bueller?

Anyone?

Skandia Recluse on June 11, 2009 at 10:58 AM

BTW, I bags the wheel-barrow franchise.

OldEnglish on June 11, 2009 at 10:18 AM

Yep. We may end up having government and private busnisses/companies, if any are left, having to pay their employees twice a day, with a two hour lunch break, so they can spend their pay before inflation makes it worthless later on that same day.

Weimar all over again? Not an impossibility. Plenty of examples other than Weimar where government went wild printing money…Zimbabwe comes to mind as a recent example. Brazil, Argentina, Italy, a host of others tried this and brought their economies to their knees in very short order.

coldwarrior on June 11, 2009 at 10:59 AM

A few things…

First, that the Laffer Curve is applicable to the United States is a widely discredited idea among mainstream economists. Whether or not a decrease in price per unit causes an increase in revenue depends on the elasticity of demand for the market in question. When the marginal income tax rate for top earners was 90% we were undoubtedly at the right end of the Laffer Curve (in the section where a decrease in tax rates would cause an increase in revenue). Now that the marginal tax rate is in the 40% neighborhood, statistical analysis leads one to reject its applicability to modern policy. (When I first saw Laffer’s article in the WSJ a few days ago, I was quite surprised they printed a submission of his–he’s something of a laughingstock in academia.)

Second, gold is not an investment. Gold is a commodity, like oil or copper. Its nominal value is a function of the money supply, the industrial and commercial demand for it, and the supply of gold itself. Assuming that the rates of increase in industrial demand and gold supply are roughly identical, the rate of increase in its nominal value is roughly equal to the rate of increase in the money supply. However, its real value is (by definition) not affected by the supply of money, and thus can be expected to remain roughly constant.

An actual investment is one in which the underlying asset appreciates in real value, or generates positive cash flow in excess of its depreciation in principal. An broad-index-tracking Exchange Traded Fund is an investment, because the underlying shares appreciate in real value, because the underlying companies make real (as opposed to nominal, not as opposed to imaginary) profits. An apartment building is an investment if/because it generates cash flow in excess of the mortgage payments and upkeep costs. Gold, meanwhile, just sits around collecting dust like a Precious Moments doll or a beanie baby.

Gold serves as a hedge against inflation, but that is all it serves as, and any non-depreciating real asset (like copper, for instance) can do the same. However, an index-tracking ETF is both a hedge against inflation AND an asset that can be expected to appreciate in real value.

hicsuget on June 11, 2009 at 10:59 AM

“Like, actual physical gold coins? We want to do this but don’t know how.

Also, buy out rifles and ammo for hunting and protection.

Mommypundit on June 11, 2009 at 10:25 AM”

To save purchase power , just invest in some gold stock getting “out” of dollar.

the_nile on June 11, 2009 at 11:01 AM

Now that’s a hockey stick, Al Gore.

eforhan on June 11, 2009 at 10:16 AM

That statement just made my day.

theguardianii on June 11, 2009 at 11:02 AM

First, that the Laffer Curve is applicable to the United States is a widely discredited idea among mainstream economists.

Mainstream economists are always right!

zmdavid on June 11, 2009 at 11:03 AM

Would it be stupid to take some (or all) of what we have in our (smaller) 401K and use it toward this and, hopefully, if things get better reinvest (after selling the gold) later? We are only 30 and 31 years old with 2 babies. Is this a bad idea?

Mommypundit on June 11, 2009 at 10:33 AM

Find a professional financial planner locally that you trust. You won’t be using your 401k for many years…no need to panic.

Asher on June 11, 2009 at 11:03 AM

Buy gold.
the_nile on June 11, 2009 at 10:21 AM

Like, actual physical gold coins? We want to do this but don’t know how.
Also, buy out rifles and ammo for hunting and protection.
Mommypundit on June 11, 2009 at 10:25 AM

Crap! I thought everything was A-okay and SOLD all of my guns….

Some guy by the name of Art Vandelay or something – he’s and importer/exporter I think.

Chainsaw56 on June 11, 2009 at 11:05 AM

A few things…

First, that the Laffer Curve is applicable to the United States is a widely discredited idea among mainstream economists.

In such a short time a commentator on HotAir has immediately discredited himself with so few words that it is beyond discussion.

Whether or not a decrease in price per unit causes an increase in revenue depends on the elasticity of demand for the market in question.
hicsuget on June 11, 2009 at 10:59 AM

The subject under debate here is inflation where the purchasing power of the national currency is devalued.

It would be a waste of time to cut and paste the remaining polysyllabic bafflegab intended to confuse the innocent and obscure the meaning of the graph at the top of the page.

Skandia Recluse on June 11, 2009 at 11:08 AM

Mainstream economists told us the housing market wouldn’t collapse…. I haven’t forgotten all the calls for a “leveling off” of the housing market. The handful of people who called it a bubble and predicted it to pop were routinely scoffed at.

BPD on June 11, 2009 at 11:09 AM

Better learn to love stagflation.
WannabeAnglican on June 11, 2009 at 10:28 AM

Can I have fries with that??

DamnYankee on June 11, 2009 at 10:40 AM

Surrrre! . . . if you pay the coming unhealthy food tax under Obama’s healthcare plan.

WannabeAnglican on June 11, 2009 at 11:10 AM

Now that’s a hockey stick, Al Gore.

eforhan on June 11, 2009 at 10:16 AM

That statement just made my day.

theguardianii on June 11, 2009 at 11:02 AM

And this one , will hit with were it hurts.

the_nile on June 11, 2009 at 11:11 AM

how will the city people eat when we have panic/inflation/anarchy? i have a garden & can hunt & fish & defend myself. i might grow plants to barter to city people.

kelley in virginia on June 11, 2009 at 11:12 AM

I wish y’all would relax. Barry is only doing for us what he would do for any post-colonial African nation or any large American city run by, excuse the redundancy, black Democrats. Welcome to the Third World my fellow Americans.

mr1216 on June 11, 2009 at 11:13 AM

The First Amendment will protect religious co-operatives, which will be free to issue their own currency for their members’ use. The Mormons have been doing this for quite awhile so it stands to reason that they will suffer less than everybody else.

Go Galt as much as possible and do co-operatives for the rest.

platypus on June 11, 2009 at 11:13 AM

end the fed…

libertytexan on June 11, 2009 at 11:16 AM

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