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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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

The above is mostly accurate. The cost of buying a home is a function both of the purchase price and of the interest rate. The market-clearing price for housing is not the purchase price, but the monthly payment amount. The monthly payment on $100,000 at 5% interest is the same as the payment on $90,000 at 6% interest.

Mortgage rates are not tied directly to bond rates, but both bond rates and mortgage rates are tied both to the Federal Funds rate and to the economy, so they do mostly move in the same direction at roughly the same time.

hicsuget on June 11, 2009 at 11:18 AM

Look up Private Enterprise Money System by, I think his name is E.C. Riegel. Basically a money system where the supply is based on the income of the members. Well, the essay explains it better than I could and it’s a quick read. I think maybe we should start organizing these exchanges. Then frankly let the U.S. government print toilet paper money to get out of debt, then shut the fed down and it can become a valun member too.

Gunhaver on June 11, 2009 at 11:20 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

Are you saying Bernake LIED about quantitative easing? Why would he do that?

Yes, to the extent that we print money to replace the holes in banks’ ballance sheets, that cash only affirms the inflation of years past caused by unprecidented credit expansion that is now being defaulted.

However, there are reports of renewed speculation in commodities. A lot of that money comes courtesy of taxpayers through bailout money laundered through AIG to counterparties. That is inflationary in those markets.

It remains to be seen that the Obama lovefest with the unions, taking over private corporations having significant numbers of employees, isn’t a significant step in an attempt to inflate wages, which will lead to overall inflation. He can raise pay for millions these companies and for government employees through increasing federeal debt, and in turn monetize that debt knowing revenue can’t pay it off.

shuzilla on June 11, 2009 at 11:21 AM

Does anyone else have a mental picture of Ben Stein in Ferris Beuller’s Day Off right now?

Even if you don’t, that scene is an astute analogy of the effect this info will have in the media and on the ignorant masses of US citizens.

bluelightbrigade on June 11, 2009 at 11:22 AM

Ed, it may be time to stop posting that graph with the projected budget deficits, because it may be giving people an overly-optimistic impression about how the economy will fare over that time span.

Tonus on June 11, 2009 at 11:23 AM

bluelightbrigade on June 11, 2009 at 11:22 AM

“Anyone? Anyone? It didn’t, and the US sunk deeper and deeper into the Great Depression.”

-Ben Stein, Ferris Beuller’s Day Off

bluelightbrigade on June 11, 2009 at 11:23 AM

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

Laffer’s chart does obscure the difference between base and supply in a manner that misleads but also happens to advance his argument.

dedalus on June 11, 2009 at 11:24 AM

I’m not an economist and don’t understand the potential long-term impact of Fed policies on our economy. But, I do understand debt versus income, the private versus the public sector, unfunded pension liabilities. Obama and the liberal Democrats have significantly worsened our debt and increased the public sector at the expense of the private sector, which worsens our unfunded public pension problems. And they pan to do more.

So, I expect stagflation is coming, big time.

Loxodonta on June 11, 2009 at 11:24 AM

I don’t need a curve to understand a basic rule of value. The less you have of anything the higher it’s value, the converse is also true. The more you have of something the less it’s value. This includes the US Dollar. If the total wealth of the US is X and this wealth represented by wealth/dollar, if you increase dollars with out a corresponding increase in wealth,the value per dollar decreases. Period.
Now we have the fed increasing the dollar supply. It don’t matter where they keep it, bank vaults,pillow cases, whatever. The value per buck will decrease, meaning we will need more of those dollars to have the same purchasing power that we now enjoy.
At the same time as the monetary supply is increasing, that great financial wizard, “THE ONE” has appointed a pay czar with instructions to keep and/or reduce the private sectors wages.
Not only are we going to have a hard time maintaining our current way of life, we are going to start sliding down the wealth curve.

oldernwiser on June 11, 2009 at 11:25 AM

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

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

The question is not whether the Laffer Curve is correct in principle–no one denies that. The question is whether a tax cut today leads to an increase in government revenue today. Only Republican political hacks make that argument–right-of-center economists do not. If my refusing to be a Republican political hack “discredits” me in the eyes of the HA community, so be it.

Speaking of Republican political hacks, nobody on the right was terribly worried when Bush 43 was inflating the hell out of M2 and M3, and both of those matter much more than M1.

hicsuget on June 11, 2009 at 11:26 AM

“Congressman Ron Paul claimed that “M3 is the best description of how quickly the Fed is creating new money and credit. Common sense tells us that a government central bank creating new money out of thin air depreciates the value of each dollar in circulation.”

M3 reporting was discontinued by the Bush administration in 2006 and the liberals went bat shit crazy over it claiming the govt was trying to hide data relevent to the economy. They were right. Some time around then the Bush administration printed a butt load of dollars and flushed them through the system while reducing interest rates to increase the debt load. I’m not an economist, but at the time I read this and freaked the hell out. This was about when I begged my husband to pull everything out of the stock market. He did, thank god.
.
But as bad as those days were, it was nothing compared to what we are doing now. Motley Fool of all sites is calling for a return of reporting M3 for the tranparency Obama promised.

FerfeLaBat on June 11, 2009 at 11:27 AM

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

And that, Sir Admiral, is where stagflation comes into play. Where I see us really getting boned by all of this is increases in import and commodity prices driven by currency devaluation. We’ve been spared so far because the price of oil and China’s currency are both pegged to the dollar, but that can’t continue for long.

Outlander on June 11, 2009 at 11:27 AM

Now that’s a hockey stick, Al Gore.

eforhan on June 11, 2009 at 10:16 AM

Exactly, if we can’t get the climate to follow Al’s graph, lets get the economy to blow up to it.

Mark30339 on June 11, 2009 at 11:31 AM

Mr. BERNANKE. If there was broad interest in the Congress in receiving this information, we would look at it. But, again, Congressman, remember, it’s a burden on the reporting banks to provide the information, and we are trying to reduce that burden as much as we can. (Emphasis mine)

Dr. PAUL. But, of course, this has been available to the financial community for a lot of years, and for some people it’s very important to measure what you’re doing. If the money supply is important, which a lot of people believe it is, and it causes the inflation, this to me seems like we’re taking information about the money supply and literally hiding it from the people. And I yield back.

BTW – I’m didn’t vote for Ron Paul and I think his supporters are a wee tad out there, but when the man is right, the man is right. On a lot of issues, he is dead on accurate.

FerfeLaBat on June 11, 2009 at 11:31 AM

The question is whether a tax cut today leads to an increase in government revenue today. Only Republican political hacks make that argument–right-of-center economists do not.
hicsuget on June 11, 2009 at 11:26 AM

Didn’t tax revenue as a percentage of GDP increase from 7.2% to 8% from 2003 – 2006? Meaning, tax revenue growth outpaced GDP growth following the Bush tax cuts?

BPD on June 11, 2009 at 11:36 AM

Gunhaver on June 11, 2009 at 11:20 AM

Gunshaver, there are a lot of kooks out there peddling a lot of strange, and false, ideas about the economy. Their schemes are myriad and diverse, and at first glance they appear to be wildly different, but they all have one thing in common–they’re all wrong.

The Wiki article on the author quotes the following passages from one of his works:

The valun private enterprise money system is designed to break the present money control against the people and (a) raise wages and, salaries to the highest possible level, (b) maintain constant employment, (c) maintain a steady price level and prevent inflation and deflation, (d) abolish bureaucracy and centralization of government, (e) defeat fascism and communism, (f) assure real freedom, prosperity and democracy, (g) preserve peace.

That he would suggest any of the above indicates he has no clue what he’s talking about.

My suggested rule-of-thumb: if the author of the book also created a documentary about the Skull and Bones society, don’t take it seriously.

hicsuget on June 11, 2009 at 11:37 AM

Does anybody know where I can get a leather bound and gold trimmed Wheelbarrow?

I may be just buying a loaf of bread, but I still want to classy about it.

RustyFeedramps on June 11, 2009 at 11:38 AM

BPD on June 11, 2009 at 11:36 AM

Precisely. The greatest single overall increase in revenues came when JFK produced his tax cut way back in the early 1960′s. And, the economy took off, too.

coldwarrior on June 11, 2009 at 11:39 AM

Here is an interesting blog by an Argentinean that goes into what day to day life was like when SHTF happen to them in Dec. 2001. What struck me was the five Presidents in five days after the first one was choppered off the roof of the Pink (yes Pink) house.

sannhet on June 11, 2009 at 11:40 AM

hicsuget on June 11, 2009 at 11:26 AM

Laffer’s chart does obscure the difference between base and supply in a manner that misleads but also happens to advance his argument.

dedalus on June 11, 2009 at 11:24 AM

Quibble all you want but the Federal Reserve injecting that much ‘liquidity’ into the economy on this scale can have only one outcome..Well two if the Fed also removes that ‘excess liquidity’ as rapidly as they injected it.

For your amusement I refer you to a few paragraphs titled “Keynesian economists and cows” describing a point of view, and an observation made just a few days ago.

Skandia Recluse on June 11, 2009 at 11:42 AM

RustyFeedramps on June 11, 2009 at 11:38 AM

Place your prepaid order within seven days, and I’ll throw in a three-legged resting stool.

OldEnglish on June 11, 2009 at 11:43 AM

If it makes anyone feel better, the government will be able to lower the interest rates it has to pay on the treasuries it needs to borrow money from its lenders if they raise taxes. A lot.

As for what that means to your bottom line (or really, to the bottom line of a 2009 college graduate), see here. Just put your original starting annual income into the tool to ballpark the loss of purchasing power for yourself.

ironman on June 11, 2009 at 11:48 AM

I had the privilege to talk to an Ivy League economist at a social function a few weeks ago. A pretty apolotical person, but he made the following prediction of where we would be in 2012:

Unemployment will be 10+%
Inflation will be 10+%
Interest rates will be 15%+.

Pretty scary stuff indeed.

Norwegian on June 11, 2009 at 11:50 AM

I’d call it the Beck curve… Beck has been talking about this for months.

http://www.youtube.com/watch?v=FgJYCpRr5yI

Elastic Jordan on June 11, 2009 at 11:51 AM

U.S.S.R= United States Socialist Republic

Formerly known as the United States of America. Insert the playing of Taps here.

I am still down for fighting back, but this is so overwhelming. How are we going to be able to keep up the good fight while trying to provide food and shelter for ourselves? Which of course is the point of doing most of this crap!

freeus on June 11, 2009 at 11:53 AM

Does…does this mean that I might have to worry about putting gas in my car and making my mortgage payment after all? But,…but that can’t be!

Next you’ll be telling me that the earth isn’t going to start healing and we won’t finally be taking care of sick people!

Star20 on June 11, 2009 at 11:53 AM

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.)

California is living proof that the Laffer curve is an empircal law just as Moore’s law is.

Tacitus_SGL on June 11, 2009 at 11:54 AM

Didn’t tax revenue as a percentage of GDP increase from 7.2% to 8% from 2003 – 2006? Meaning, tax revenue growth outpaced GDP growth following the Bush tax cuts?

BPD on June 11, 2009 at 11:36 AM

There are other reasons why that could be. Laffer’s ideas are applicable only to revenue from a single kind of tax. Without actually hopping on fedstats.gov to look up the data, I would suggest that the increase in government was primarily due to churn in the housing market that was the product of the credit bubble. Taking a cursory look at the data, personal income in that time grew by 20% while GDP grew only by 10%. Personal income is taxed at a higher rate than business or investment income, so it would make sense that overall tax revenues would have risen, Laffer Curve or no.

hicsuget on June 11, 2009 at 11:58 AM

Beaglemom on June 11, 2009 at 10:35 AM

Brings a tear to my eye.

kirkill on June 11, 2009 at 12:00 PM

California is living proof that the Laffer curve is an empircal law just as Moore’s law is.

Tacitus_SGL on June 11, 2009 at 11:54 AM

I’m not saying that the Laffer Curve is wrong–nobody is. Do yourself a favor, though–click the link and look at the curve.

What the idea is, is that there exists some taxation rate at which lowering taxes causes an increase in government revenue. However, the curve also suggests there exists some taxation rate at which lowering taxes causes a decrease in government revenue.

The debate is not over whether the curve is applicable; the debate is over whether we are on the right-hand side or the left-hand side of the curve’s apex.

hicsuget on June 11, 2009 at 12:02 PM

Unemployment will be 10+%
Inflation will be 10+%
Interest rates will be 15%+.

Pretty scary stuff indeed.

repeat of 9/11. Interest and unemployment and inflation will not drop below 9-11%

seven on June 11, 2009 at 12:03 PM

I think I need to go change my funderwear.

Chuck Schick on June 11, 2009 at 12:05 PM

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.)

For that matter, having been in a highly rated economics school for some time, I can tell you that most “mainstream economists” and “esteemed academia” have some of the most uninformed, distorted, unrealistic opinions I have ever met. They all live in an ivory tower far away from the realities of everyday business and are always SHOCKED when reality doesn’t match their purported theories. Latest case in point: Jared Bernstein.

I don’t know what’s more pathetic – that you can’t see the obvious empirical evidence that you can reach a maximum level of taxation in region A beyond which your yields which actually decrease as the opportunity cost for living in said region A outweighs the cost of relocation to a place with lower taxation, or the fact that you take stock in what the academic community of economists think. Economists do not test their theories and they are not scientific – they draw conclusions from hindsight based on partial (and often, incorrect) data and try to draw some sort of empirical foresight from them.

Most modern economists believe that the economy can be controlled like some kind of machine, when the fact is that it’s an ecosystem well beyond the control of any amount of centralized planning. Failure to recognize that will inevitably serve up lesson after lesson after lesson in the laws of unintended consequences, which are what produce pretty graphs like these.

So as far as what the “academic community’s” opinion of Art Laffer is, let’s just say they’re lacking in credibility on the subject. Laffer at least has the benefit of using California (his home state for most of his life) as an empirical proof that the Laffer Curve exists, which is more than most other economists can say for their own piddling theories.

Now please, go read some more Paul Krugman articles and stick your head back in the sand where it belongs.

Tacitus_SGL on June 11, 2009 at 12:06 PM

What the idea is, is that there exists some taxation rate at which lowering taxes causes an increase in government revenue. However, the curve also suggests there exists some taxation rate at which lowering taxes causes a decrease in government revenue.

The debate is not over whether the curve is applicable; the debate is over whether we are on the right-hand side or the left-hand side of the curve’s apex.

hicsuget on June 11, 2009 at 12:02 PM

Obviously we’re at a point where raising or lowering taxes isn’t going to make a bit of difference given that we have a banana republic that doesn’t respect contract law. Taxes have shit-all to do with people not wanting to do business at the moment – they’re bracing for more regulation and interference from the Government. Taxes are just the added insult to injury.

Tacitus_SGL on June 11, 2009 at 12:07 PM

hicsuget on June 11, 2009 at 11:58 AM

Ok since you persist.

First, that the Laffer Curve is applicable to the United States is a widely discredited idea among mainstream economists.
hicsuget on June 11, 2009 at 10:59 AM

..

The question is not whether the Laffer Curve is correct in principle–no one denies that.
hicsuget on June 11, 2009 at 11:26 AM

and

I’m not saying that the Laffer Curve is wrong–nobody is.
hicsuget on June 11, 2009 at 12:02 PM

Ok, so which is it? Discredited, or not? Or both at the same time as needed to advance your argument?

Skandia Recluse on June 11, 2009 at 12:08 PM

But one thing I’ll say for California is this: it’s tax receipts would be higher if taxes were lower. Businesses fled the state for greener pastures like Nevada and Texas where there isn’t an additional 10% state income tax. We lost over 1 million businesses over the course of the past four years due to our aggressive tax increases in-state, and that in combination with run-away spending is going to bankrupt us.

In a progressive tax system where so much of your revenue depends upon preying upon 1% of your population, the part of the population that has the most means to relocate itself to greener pastures if necessary, you will inevitably find that they’re going to get out when the business climate becomes as unfriendly and predatory as it is in California.

Tacitus_SGL on June 11, 2009 at 12:11 PM

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

This just in, Obama wants to borrow more to increase spending………….

……….. What could go wrong?

Seven Percent Solution on June 11, 2009 at 12:14 PM

Wow. Are you sure this is data for the US? It looks more like something from Zimbabwe.

Oh wait, I forgot we’ve moved on from Reaganomics to Ogabenomics Obamanomics.

My mistake.

BobMbx on June 11, 2009 at 12:17 PM

Zimbabwe and Wiemar Republic, it’s time to move over and make room for the former US of A.

MarkTheGreat on June 11, 2009 at 12:23 PM

That graph is beyond depressing….

therightwinger on June 11, 2009 at 12:30 PM

BTW – I’m didn’t vote for Ron Paul and I think his supporters are a wee tad out there, but when the man is right, the man is right. On a lot of issues, he is dead on accurate.

FerfeLaBat on June 11, 2009 at 11:31 AM

Paul has a very ignorant view of what ‘inflation’ is, its not inflation if your wages are going up at the same time, its inflation when prices of goods go up but you aren’t making more.

that is why inflation has always been a boogey man around the corner, for Single Entry Accounting types to scaremonger over.

http://www.optimist123.com/optimist/2007/11/two-different-d.html

“Two Different Definitions of Inflation: Ron Paul’s, and Ben Bernanke’s”

jp on June 11, 2009 at 12:32 PM

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

Only if you think that Krugman is the only mainstream economist in the country.

The vast majority of economists believe in the concept of the Laffer curve. There is a great deal of disagreement regarding the shape of the curve and where the US is on the curve.

Evidence from the last 40 years makes it pretty conclusive that the US is still on the high side of the curve.
Many, perhaps even a bare majority of economists believe the sweet spot in the curve is between 20 and 25% for income tax rates.

MarkTheGreat on June 11, 2009 at 12:34 PM

Are you saying Bernake LIED about quantitative easing? Why would he do that?

Yes, to the extent that we print money to replace the holes in banks’ ballance sheets, that cash only affirms the inflation of years past caused by unprecidented credit expansion that is now being defaulted.

No, I’m saying that chart Ed linked is misleading, most of that Spike is not in circulation

jp on June 11, 2009 at 12:35 PM

For that matter, having been in a highly rated economics school for some time, I can tell you that most “mainstream economists” and “esteemed academia” have some of the most uninformed, distorted, unrealistic opinions I have ever met. They all live in an ivory tower far away from the realities of everyday business and are always SHOCKED when reality doesn’t match their purported theories. Latest case in point: Jared Bernstein.

I don’t know what’s more pathetic – that you can’t see the obvious empirical evidence that you can reach a maximum level of taxation in region A beyond which your yields which actually decrease as the opportunity cost for living in said region A outweighs the cost of relocation to a place with lower taxation, or the fact that you take stock in what the academic community of economists think. Economists do not test their theories and they are not scientific – they draw conclusions from hindsight based on partial (and often, incorrect) data and try to draw some sort of empirical foresight from them.

Most modern economists believe that the economy can be controlled like some kind of machine, when the fact is that it’s an ecosystem well beyond the control of any amount of centralized planning. Failure to recognize that will inevitably serve up lesson after lesson after lesson in the laws of unintended consequences, which are what produce pretty graphs like these.

So as far as what the “academic community’s” opinion of Art Laffer is, let’s just say they’re lacking in credibility on the subject. Laffer at least has the benefit of using California (his home state for most of his life) as an empirical proof that the Laffer Curve exists, which is more than most other economists can say for their own piddling theories.

Now please, go read some more Paul Krugman articles and stick your head back in the sand where it belongs.

Tacitus_SGL on June 11, 2009 at 12:06 PM

So many incorrect conclusions you have drawn!

First, I am not denying the principle of Laffer’s curve (go back and reread my posts); just that the current level of Federal income tax is not enough to put us on the right-hand side of the curve.

Second, I myself do not ascribe to the views of the mainstream economists–I think Ludwig von Mises and George Reisman are much more accurate.

Third, I do not consider Paul Krugman even to be an economist, for the same reasons I do not consider Ken Ham to be a scientist.

Fourth, I believe in giving the devil his due. I’m sorry if that does not agree well with your preconceived political notions.

hicsuget on June 11, 2009 at 12:36 PM

its inflation when prices of goods go up but you aren’t making more.

jp on June 11, 2009 at 12:32 PM

I’d love to see the econ book you got that definition from.

Inflation is when the value of the dollar is decreasing. It has absolutely nothing to do with whether or not your raises are keeping up with inflation.

MarkTheGreat on June 11, 2009 at 12:38 PM

No, I’m saying that chart Ed linked is misleading, most of that Spike is not in circulation

jp on June 11, 2009 at 12:35 PM

And the article connected with the chart makes that point. It does declare that the money will be in circulation as soon as the banks can loan it out.

MarkTheGreat on June 11, 2009 at 12:39 PM

First, I am not denying the principle of Laffer’s curve (go back and reread my posts); just that the current level of Federal income tax is not enough to put us on the right-hand side of the curve.

hicsuget on June 11, 2009 at 12:36 PM

Funny thing about reality. It always finds a way to confound even the grandest of theories.

The evidence from the Reagan and Bush the Jr. tax cuts, and the Bush Sr. and Clinton tax cuts disputes your beliefs.

MarkTheGreat on June 11, 2009 at 12:41 PM

That spike is the money coming off the printer. Between that and the biofuels scam, look for your food costs to at least quadruple over the next two years, among other inflationary effects. Everything will go up like you’ve never seen in your lifetime, except for your pay.

curved space on June 11, 2009 at 12:41 PM

Perhaps Obama doesn’t fear inflation like a rational person would.

By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
John Maynard Keynes

Irrational versus rational.

Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.
Ronald Reagan

Speakup on June 11, 2009 at 12:42 PM

Paul has a very ignorant view of what ‘inflation’ is, its not inflation if your wages are going up at the same time, its inflation when prices of goods go up but you aren’t making more.

that is why inflation has always been a boogey man around the corner, for Single Entry Accounting types to scaremonger over.

http://www.optimist123.com/optimist/2007/11/two-different-d.html

“Two Different Definitions of Inflation: Ron Paul’s, and Ben Bernanke’s”

jp on June 11, 2009 at 12:32 PM

Thank you for the link. Book marked the site. I’m more inclined to believe Peter Schiff’s scenarios that include a collapse of Bretton Woods (gonna happen) and a sudden flush of all those dollars in storage being flushed back through to our shores potentially doubling the money supply with no change in GDP. My post was more about the measure of Money because I believe we have had a blind spot ever since the FED stopped reporting M3 and if there is any way to see that tidal wave pulling back from the shore, I suspect M3 may be one of the few places an ordinary investor will be able to see it happening before hyper inflation takes over. Whatever reason Paul has for wanting it back, I’m with him on the push for my own selfish reasons.
.
I’m just a romance novelist and computer god – I need all the tools I can get to hang onto what I’ve earned. Economists and investors probably have other methods.

FerfeLaBat on June 11, 2009 at 12:43 PM

Well, the important thing is that we elected a black man President and isn’t that all that really matters?

Think of the history.

First black President. And the last President, the way this unqualified, inane jackass is running this country into the ground.

NoDonkey on June 11, 2009 at 12:44 PM

No, I’m saying that chart Ed linked is misleading, most of that Spike is not in circulation

jp on June 11, 2009 at 12:35 PM

How can we know when it enters circulation?

FerfeLaBat on June 11, 2009 at 12:44 PM

its inflation when prices of goods go up but you aren’t making more.

jp on June 11, 2009 at 12:32 PM

I’d love to see the econ book you got that definition from.

Inflation is when the value of the dollar is decreasing. It has absolutely nothing to do with whether or not your raises are keeping up with inflation.

MarkTheGreat on June 11, 2009 at 12:38 PM

um, thats what I basically said: “When the value of the dollar is decreasing”

This happens when the prices of goods increase, yet people’s incomes are stagnant or decrease. i.e. purchasing power

or how its explained here:

• In Ron Paul’s zero-inflation scenario, the “money supply” stays unchanged, which implies that, in a growing economy, wages and prices must decrease. In simplified terms, the same amount of money paid out for producing and purchasing more goods and services translates to lower wages and prices in the aggregate. Ron Paul’s definition of zero-inflation, in a growing economy, equates to what many others think of as “deflation.” [Would you feel comfortable with a pay cut, just because Congressman X said "don't worry, prices are dropping too, and there's no inflation"?]

• In Ben Bernanke’s zero-inflation scenario, the “money supply” grows at the same rate as goods and services. In simplified terms, x% more money paid out for producing and purchasing x% more goods and services translates to unchanged wages and prices in the aggregate. [Wouldn't you feel more comfortable with constant wages and constant prices?]

Key there being a “growing economy”

jp on June 11, 2009 at 12:46 PM

How can we know when it enters circulation?

FerfeLaBat on June 11, 2009 at 12:44 PM

Well… SOMETHING is in circulation…. The world is still in a recession and oil has doubled in price over the past few months… square that circle.

BPD on June 11, 2009 at 12:48 PM

First, I am not denying the principle of Laffer’s curve (go back and reread my posts); just that the current level of Federal income tax is not enough to put us on the right-hand side of the curve.

Second, I myself do not ascribe to the views of the mainstream economists–I think Ludwig von Mises and George Reisman are much more accurate.

Third, I do not consider Paul Krugman even to be an economist, for the same reasons I do not consider Ken Ham to be a scientist.

Fourth, I believe in giving the devil his due. I’m sorry if that does not agree well with your preconceived political notions.

hicsuget on June 11, 2009 at 12:36 PM

I’m sorry that I bruised your fragile pseudo-intellectual ego.

Tacitus_SGL on June 11, 2009 at 12:49 PM

California is living proof that the Laffer curve is an empircal law just as Moore’s law is.
Tacitus_SGL on June 11, 2009 at 11:54 AM

Laffer moved out of California a while ago because he foresaw the coming disaster that is now a reality. I wish I had done the same.

Unfortunately, the current crop of economists has been indoctrinated into a system, most glaringly at the Ivy Leagues, in which Karl Marx is given center stage. They graduate believing that their mission is to deliver to Milton Friedman the comeuppance which the free market refused to deliver (apparently never questioning why).

I know this because my niece just graduated Ivy League econ, and didn’t even learn Milton Friedman’s name until her second year of econ classes. Marxism was the entire first year.

PoodleSkirt on June 11, 2009 at 12:50 PM

Has anyone gone out and got their wheelbarrow yet?

Gonna need it to carry your ObamaDollars to the store to pick up that loaf of bread.

REICHSMARK!-IT’S THE NEW BLACK!

victor82 on June 11, 2009 at 12:51 PM

FerfeLaBat on June 11, 2009 at 12:43 PM

the Fed isn’t perfect, but what I’m trying to point out is the grassroots fodder, starting with Paul and Lew Rockwell/Mises crowd, filtering up to Glenn Beck isn’t THE VIEW of Libertarian economist necessarily.

We could still have inflation, who knows though, people have been predicting economic doomsday and hyper-inflation for decades now, a broken clock is right, or appears to be, twice a day.

What happens if Conseratives go all in, as confidently as Ron Paul is, on this doomsday scenario and then it doesn’t play out(like past predictions of theirs)? We could set ourself up to be completely discredited on Economics

Milton Friedman and other Hayek minded Libertarians are not Anti-Fed, its the Anarcho-Capitalist like Paul and Lew Rockwell that are. Problem is Friedman is dead and these guys are still around

jp on June 11, 2009 at 12:51 PM

square that circle.

BPD on June 11, 2009 at 12:48 PM

The Joy of Pi by David Blatner One of my favorite novels. What’s in circulation now is nothing to what is coming.

FerfeLaBat on June 11, 2009 at 12:52 PM

How can we know when it enters circulation?

When a Federal Reserve Note can’t buy a plastic house on Marvin Gardens, that’s when.

When people from Zimbabwe laugh at us, which is real soon, that’s when.

victor82 on June 11, 2009 at 12:53 PM

Well… SOMETHING is in circulation…. The world is still in a recession and oil has doubled in price over the past few months… square that circle.

BPD on June 11, 2009 at 12:48 PM

summer demand combined with companies planning for the economy improving in the latter half of this year.

jp on June 11, 2009 at 12:54 PM

Another good Libertarian Economics site, that isn’t Mises absolutist(really Murray Rothbard absolutist) is

http://cafehayek.typepad.com

run by the Head of the Econ Dept at George Mason(where Walter Williams works). He’s more of a Milton Friedman type also.

If you analyze the last 30 years of prices, we are buying for for our money and working less. Thanks to alot of things, much wealthier overall. Yet the Ron Paul crowd will still run the canard about a “$20 Gold coin in 1930 could by what cost $500 today”….always failing to note how much more complex it is in reality.

jp on June 11, 2009 at 12:57 PM

That is a very misleading chart. Not only does it show percentages instead of raw numbers (always a clue that something fishy is going on), but Mr. Laffer (apparently) deliberately obscures the fact that he is talking about M0, the smallest and least significant component of the money supply. M0 represents a small fraction of the total monetary supply, so large changes have little overall effect.

Here’s a fact that will help put that in perspective: with all of the “exploding” of M0 noted by Mr. Laffer and his scary percentages, M2 (a much better indicator of total monetary supply) has only increased by 8.5% since April of last year(source: Federal Reserve Statistical Release, June 4, 2009). Given the drop in the velocity of money caused by the locking up of the credit markets, the inflationary effects of all of this, so far, are probably nil.

That’s not to say I support Obama’s drunken spending binge; I don’t. But I am annoyed when someone on my side, like Mr. Laffer, makes a profoundly disengenuous argument for the sake of scoring debating points.

HTL on June 11, 2009 at 1:00 PM

What happens if Conseratives go all in, as confidently as Ron Paul is, on this doomsday scenario and then it doesn’t play out(like past predictions of theirs)? We could set ourself up to be completely discredited on Economics

Milton Friedman and other Hayek minded Libertarians are not Anti-Fed, its the Anarcho-Capitalist like Paul and Lew Rockwell that are. Problem is Friedman is dead and these guys are still around

jp on June 11, 2009 at 12:51 PM

I’m Reading a book called The Black Swan by Nassim Nicholas Taleb (ck) about preparing for the unknown because history is not always a predictor of what will happen, so I’m leaning toward preparing for the worst here just in case. At this point, I am less concerned for my reputation as a conservative and more concerned for surviving the next 3 1/2 years somewhat intact. So many variables – all of them entering a state of entropy under this administration. Krugman is nuts btw – just say’n

FerfeLaBat on June 11, 2009 at 1:02 PM

How can we know when it enters circulation?

When a Federal Reserve Note can’t buy a plastic house on Marvin Gardens, that’s when.

When people from Zimbabwe laugh at us, which is real soon, that’s when.

victor82 on June 11, 2009 at 12:53 PM

Bwahahahaha!! I love that. So noted.

FerfeLaBat on June 11, 2009 at 1:03 PM

Sorry, but I am not Laffing.

Del Dolemonte on June 11, 2009 at 1:04 PM

I’ll have to ask an Argentinian what’s in store for us.
jgapinoy on June 11, 2009 at 10:16 AM

Try asking the Republic of the Congo or the Republic of Zimbabwe first. Argentinia is a lagard in comparison. Personally, I think the Messiah is looking to Kenya for guidance here.

Friendly21 on June 11, 2009 at 1:08 PM

RustyFeedramps on June 11, 2009 at 11:38 AM

Place your prepaid order within seven days, and I’ll throw in a three-legged resting stool.
OldEnglish on June 11, 2009 at 11:43 AM

LOL

RustyFeedramps on June 11, 2009 at 1:09 PM

wasnt the laffer curve what convinced people that a country could not have both high inflation AND high unemployment?

ernesto on June 11, 2009 at 1:17 PM

It’s called the laffer curve because it’s so depressing that I just have to laugh so I don’t start crying at what the Dems are doing to our country.

scotash on June 11, 2009 at 1:25 PM

Paul has a very ignorant view of what ‘inflation’ is, its not inflation if your wages are going up at the same time, its inflation when prices of goods go up but you aren’t making more.

jp on June 11, 2009 at 12:32 PM

It’s also inflation when wages increase along with the price of goods.

shuzilla on June 11, 2009 at 1:32 PM

Mommypundit on June 11, 2009 at 10:25 AM

If you buy gold you want the actual coin. If you need it as actual specie you want to have it close by. Weapons and ammo are never a wasted investment.
If you buy actual bullion (coins bar etc), you can do it at most coins stores or even a pawn shop. You can also do it online but you have to pay for shipping etc. In some states you will have to show ID and pay tax on the purchase.
I personally do not have many gold coins, if we were to use them as money a 1 ounce (most common size) coin would be good for buying large things (say a car) but not for groceries. Also there is a problem with the value of gold at the moment. A large percent of gold is used in jewelry and if no one is buying jewelry the value will drop eventually if this market continues (merchants can sit on their merchandise for a while but at some point either the mines will have to stop to keep the price up or there will be more gold than what is needed and the price will drop). Also Governments use gold as a reserve and when they get to buying and sell bullion the price can jump around a lot.
If you really want to by bullion I would suggest after you check out things for yourself and you have a normal income go with silver. There are industrial uses that absorb most of the mined metal, the value is less which means if Russia dumps its bullion (this has happened) you are not wiped out.

Hopes this helps

LincolntheHun on June 11, 2009 at 1:35 PM

If they really wanted to get people to start spending money, they would explain to them that their money will be worthless shortly.

rockhead on June 11, 2009 at 1:39 PM

If they really wanted to get people to start spending money, they would explain to them that their money will be worthless shortly.

rockhead on June 11, 2009 at 1:39 PM

+1

BPD on June 11, 2009 at 1:41 PM

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

FAIR WARNING: To all of you thinking that running out and buying gold will protect you, you must be aware that the federal government has confiscated gold in the past and still retains the power to do so today.

Puddleglum on June 11, 2009 at 1:47 PM

FAIR WARNING: To all of you thinking that running out and buying gold will protect you, you must be aware that the federal government has confiscated gold in the past and still retains the power to do so today.

Exactly why I said both were risky.

sonofdy on June 11, 2009 at 1:51 PM

That is a very misleading chart. Not only does it show percentages instead of raw numbers (always a clue that something fishy is going on), but Mr. Laffer (apparently) deliberately obscures the fact that he is talking about M0, the smallest and least significant component of the money supply. M0 represents a small fraction of the total monetary supply, so large changes have little overall effect.

Here’s a fact that will help put that in perspective: with all of the “exploding” of M0 noted by Mr. Laffer and his scary percentages, M2 (a much better indicator of total monetary supply) has only increased by 8.5% since April of last year(source: Federal Reserve Statistical Release, June 4, 2009). Given the drop in the velocity of money caused by the locking up of the credit markets, the inflationary effects of all of this, so far, are probably nil.

That’s not to say I support Obama’s drunken spending binge; I don’t. But I am annoyed when someone on my side, like Mr. Laffer, makes a profoundly disengenuous argument for the sake of scoring debating points.

HTL on June 11, 2009 at 1:00 PM

I understood that there was a linear relationship between M0 and M1-3. Could you explain the discrepancy between the change in M0 and M2 then (for my own benefit, not to prove a point) ?

As an aside, the fact that the chart has percentages doesn’t inherently make it “fishy”. Economic rates (a’[x]) are typically expressed as a % difference over the course of a fixed period of time so the RATE OF CHANGE (acceleration) (a”[x]) is going to be expressed as a % difference between growth rates. That’s just my opinion though.

Tacitus_SGL on June 11, 2009 at 1:55 PM

Paul has a very ignorant view of what ‘inflation’ is, its not inflation if your wages are going up at the same time, its inflation when prices of goods go up but you aren’t making more.
jp on June 11, 2009 at 12:32 PM

“Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation ).”
“A general increase in prices.”
“The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.”

http://dictionary.reference.com/browse/inflation

It most certainly would still be inflation if wages are rising too, so I don’t quite see where you are coming from on this one. While you would be right to say inflation is less harmful if wages are increasing too, it never happens at the same rate, and the way in which money is spent by the government greatly effects the damage as well. Those who get to spend it first (who are preferentially chosen) get to spend it before the value has declined. Meanwhile, after it is in the system and the value declines, then it hurts everyone else.

Rangeley on June 11, 2009 at 1:58 PM

You’re gonna need a bigger bowl.

thomasaur on June 11, 2009 at 10:31 AM

Fine…a huge woven basket or a huge gourd.

Nitpicker!

SouthernGent on June 11, 2009 at 2:08 PM

Krugman is nuts btw – just say’n

FerfeLaBat on June 11, 2009 at 1:02 PM

Agree, he’s beyond nuts probably

jp on June 11, 2009 at 2:08 PM

There are other reasons why that could be. Laffer’s ideas are applicable only to revenue from a single kind of tax. Without actually hopping on fedstats.gov to look up the data, I would suggest that the increase in government was primarily due to churn in the housing market that was the product of the credit bubble. Taking a cursory look at the data, personal income in that time grew by 20% while GDP grew only by 10%. Personal income is taxed at a higher rate than business or investment income, so it would make sense that overall tax revenues would have risen, Laffer Curve or no.

hicsuget on June 11, 2009 at 11:58 AM

Tax cuts don’t increase government revenue, eh?

So when the economy took off (after Ronald Reagan lowered taxes) that was caused by something else, I guess. And when it happened in the sixties (after JFK cut taxes) that must have been caused by another thing altogether.

And when Carter raised taxes and the economy completely tanked? Another coincidence?

I just love how you guys can come up with excuses for anything that disagrees with your inbred worldview. It’s always a coincidence, eh?

Squiggy on June 11, 2009 at 2:13 PM

FAIR WARNING: To all of you thinking that running out and buying gold will protect you, you must be aware that the federal government has confiscated gold in the past and still retains the power to do so today.
Exactly why I said both were risky.
sonofdy on June 11, 2009 at 1:51 PM

Okay, hypothetical question – can you buy it with cash so there’s no paper trail?
I guess it wouldn’t be worth as much after it was ‘Illegal’ to have it, right?

Isn’t it great to live in such Interesting times? /sarc

Chainsaw56 on June 11, 2009 at 2:13 PM

Rangeley on June 11, 2009 at 1:58 PM

Paul says that by simply ‘printing money’ the Fed is creating inflation.

my point is the mainstream definition is much more, ‘nuanced’, than that on what real, true, harmful inflation is.

His view is that the Fed, if we have a Fed, should never “print money”, so in a Growing Economy that would logically mean our wages would fall among other things(good luck selling that one politically).

anyway I covered this earlier with a good link on it, here is another on the Definitions

http://www.inflationdata.com/Inflation/Articles/Definitions.asp

Shifty Words

So between 1983 and 2000 the definition appears to have shifted from the cause to the result. Also note that the cause could be either an increase in money supply or a decrease in available goods and services.

jp on June 11, 2009 at 2:13 PM

Chainsaw56 on June 11, 2009 at 2:13 PM

two problems, one to buy/sell you have to provide ID in several (if not all) states
Two Gold is only worth something if both buyer and sell agree on the value. If the Government make Gold illegal it would be like trying to use cocaine to buy your groceries.

LincolntheHun on June 11, 2009 at 2:19 PM

If the Government make Gold illegal it would be like trying to use cocaine to buy your groceries.

LincolntheHun on June 11, 2009 at 2:19 PM

That actually works here in S. Fla. There are a few blogs on how to do pretty much anything here using cocaine as currency – also lists fast food oint restaurants that have cocaine friendly bathrooms.

BrideOfRove on June 11, 2009 at 2:26 PM

Not that I …. read those blogs or anything.

BrideOfRove on June 11, 2009 at 2:28 PM

BrideOfRove on June 11, 2009 at 2:28 PM

UmmHumm Suuuuuure.
I did HS in St Pete so I do know about drug bartering.
Nice blog design BTW

LincolntheHun on June 11, 2009 at 2:38 PM

Nice blog design BTW

LincolntheHun on June 11, 2009 at 2:38 PM

Not my work except for the warhol art addition and the eyes. But thanks!

BrideOfRove on June 11, 2009 at 2:57 PM

Okay, hypothetical question – can you buy it with cash so there’s no paper trail?

Chainsaw56 on June 11, 2009 at 2:13 PM

The paper trail isn’t the problem. If you read the article, you will see that the U.S. Secret Service as well as U. S. Customs Officers were specifically authorized to seize gold. Here is the executive order issued by Roosevelt:

Executive order: By virtue of the
authority vested in me by Section 5(B) of
The Act of Oct. 6,
1917, as amended by section 2 of
the Act of March 9, 1933, in which
Congress declared that
a serious emergency exists, I as
President, do declare that the national
emergency still exists;
That the continued private hoarding
of gold and silver by subjects of the United
States poses a
grave threat to the peace, equal
justice, and well-being of the United
States; and that appropriate
measures must be taken immediately
to protect the interests of our people.

“Therefore, pursuant to the above
authority, I herby proclaim that such gold
and silver holdings
are prohibited, and that all such
coin, bullion or other possessions of gold
and silver be tendered within fourteen days
to agents of the Government of the United
States for compensation at the
official price, in the legal tender of
the Government. All safe deposit boxes in
banks or financial
institutions have been sealed,
pending action in the due course of the
law. All sales or purchases
or movements of such gold and
silver within the borders of the United
States and its territories,
and all foreign exchange
transactions or movements of such metals
across the border are herby prohibited.

“Your possession of these
proscribed metals and/or your maintenance
of a safe-deposit box to
store them is known to the
Government from bank and insurance
records. Therefore, be advised
that your vault box must remain
sealed, and may only be opened in the
presence of an agent of
The Internal Revenue Service.

“By lawful Order given this day,
the President of the United States.”

If you were caught hoarding, failure to comply was punishable by a fine of $10,000 or 10 years in prison or both.

Puddleglum on June 11, 2009 at 3:02 PM

Oh, and that fine was $10,000 in 1933 dollars. Would be a lot more now.

Puddleglum on June 11, 2009 at 3:05 PM

Good enough sent you email to register

LincolntheHun on June 11, 2009 at 3:08 PM

Didn’t tax revenue as a percentage of GDP increase from 7.2% to 8% from 2003 – 2006? Meaning, tax revenue growth outpaced GDP growth following the Bush tax cuts?

BPD on June 11, 2009 at 11:36 AM

That’s a fact, and darn it, facts don’t matter! Get with the program.

jimmy2shoes on June 11, 2009 at 3:52 PM

Tacitus SGL: there is indeed a linear relationship between growth in M0 and in M1-3. M0 is a subset of M1, M1 is a subset of M2, etc. But M1-3 are orders of magnitude larger than M0, which is why a 100% increase in M0 results in only an 8.5% increase in M2. I don’t think they report M3 anymore, so I don’t know what those numbers are, but it would be proportionally less.

And percentages are not inherently fishy, but when disassociated from the baseline data (as in this case) they can produce charts that exaggerate the effect of a trend. The way this chart is done, for example, makes it look as if something increased by 50x (the difference in the height of the datapoints on the “y” axis in this case), when in fact it increased by 1x. That “mere” 100% increase in M0 could be problematic if continued on an annual basis indefinitely, but it would not look nearly as bad as this chart does.

Also, my thinking is that this jump represents the TARP dollars plus some “normal” rate of increase, which means that it was a one-time event and not an indication of long-term growth rates, although I can’t provide a cite for that theory at this point.

Needless to say, if you showed this increase in the context of the total money supply, an 8.5% increase would look like nothing more than a small bump.

HTL on June 11, 2009 at 4:12 PM

The goal of all of this is to wipe out the white middle class.

Dhuka on June 11, 2009 at 4:40 PM

Man, central banks do this the world over. When they tried this on us, they underestimated our ability to get through it. During the 70′s they tried again and failed due to Reagan’s tax cuts. Now they are trying again.

They first cut off the paper, then they flood you with paper, and then your screwed. It’s a purposeful manipulation of the money supply. The business cycle is a fraud if you have a central bank.

It’s too bad conservatives can’t see what’s going on.

True_King on June 11, 2009 at 5:28 PM

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