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Monday, June 10, 2013

By Michael Mccune: The Rant (government auditor for 16 years) - Inflation Supported by Central Banker - (( to Have Michael send you the Rant to your Email contact Him Here (( ))

One of the comments received by the Rant on Friday concerned the apparent topic focus switch from economics to politics. In my view, politics have to be considered because they are the driving force behind any economy. Fortunately Kenneth Rogoff, former chief economist for the IMF, unwittingly helped me make my point.-Mike

 Inflation Supported by Central Banker
Kenneth Rogoff, former chief economist for the International Monetary Fund, urged central bankers to embrace inflation instead of dreading it in an article for Project Syndicate published over the weekend.
He is obviously out of touch with reality. Central bankers have been causing inflation for years, since their governments went away from any stability inflicted by the 'gold' standard so the printing press could be run at full speed without backlash.
Despite central bankers love affair with inflation--it allows their government to nominally maintain the illusion the respective national debts can be repaid--it is an unrequited love. Inflation is a dangerous toy to be playing with which explains why our Federal Reserve insists on eliminating such necessities as food, housing and energy from its official inflation rates.
The usefulness of inflation comes from the weekly, monthly, quarterly and annual reports the bankers and financial centers are so wedded to. You'll hear the shills for these organizations spout the most outlandish drivel when trying to drum up support for the current governmental or central bank action.
"Look, this stock reached its highest price ever..." or "the housing market is starting to look like a bull again..." is today's standard spiel. It is like a carnival barker trying to get you to look over at him. If you look, you're likely hooked.
But behind the tasty hype lurks the evil inflation dragon.
Inflation isn't factored in. Today the Federal Reserve continues its $85 billion a month printing press run, essentially creating dollars out of thin air. Inflation drives up prices. But the shills omit that detail.
So let's look at the Dow Jones Industrial Average. Back when the Dow topped 14,160 as its best close ever, the dollar that was being measured was worth about 5.5 cents of what a dollar was actually worth on December 31, 1963 (based on the then price of gold compared to now). So why did the market touts go bonkers when the Dow topped the 15,000 mark for the first time last month when the value of the dollar currently in use is less than 2 cents of the December 31, 1963 dollar?
A decrease by a factor of 3 means the DOW should be back at 42,000 just to stay even with its high point when measured in equal currency.
That's the ugly side of inflation central banker Rogoff would have you weighted by if the bankers were to embrace inflation.
Rogoff's article noted the Federal Reserve may cut off its QE program soon. To Rogoff that was akin to "taking away the punch bowl before the party gets going."
Phooey! Inflation is used to make things appear better than they are for governments who can't govern themselves--it is as simple as that.
Governments, especially those in developed countries, continue racking up debt at record paces on some pretext or the other. The only way to offset that debt is by stealing more from the populace of said country--never by cutting back on the worthless political aims of those sitting in power.
Rogoff maintains market bubbles created by the QE program by distorting asset values are not the main threat. In his narrow world "it would be a catastrophe if the recovery were derailed by excessive devotion to anti-inflation shibboleths."
He then proves his point by denigrating 1920s and 1930s central banker devotion to the 'gold' standard.
What school did he go to? The devotion to the gold standard in the USA in 1933 was to turn the then standard of $20 per ounce to $35 per ounce--after the government confiscated all the gold at the $20 per ounce price. That's a hefty 75% profit for the government but lowered the lowered the standard of living for all Americans by inflation. A lower standard which wasn't alleviated until the conclusion of WWII.
But Rogoff fails to mention the awful inflationary effects that led to that mass butchery of millions of people in the war.
True, the originating effects were mainly felt in Germany at the time but the aftermath has reduced the United Kingdom to permanent pauper status as the Bank of England refused to pay its outstanding bonds which included the war debt. The fact the English refuse to recognize the debt is one of the main factors that ascended the USA to the top spot in the world's economic pecking order since WWII.
Now we are on the same path, with a debt that cannot be repaid even if 100% of the economic activity is taken from the populace.
The only thing that can make the debt payable is to so devalue the fiat currency the holders of said bonds are getting half-pennies on the dollar or yuan or yen or pound.
We've already seen what happens when a state is bankrupt (Greece to the Euro Union) but how much greater will the effects be when it is a country instead of a state declaring bankruptcy?
To avoid that specter is the only reason for Rogoff to make the claim he does. But somehow, sometime, in some way, the debt will be called for payment.
Oh, wait, it already has! Germany called in half its' American IOUs, about $300 billion worth and wants gold payment. The Germans know the Americans can't pay so they gave us seven years advance notice.
We thus know the time, the way and probably how the last shoe will drop. We just need to see if the Germans are serious or if any other of our other creditors will follow suit and cash in their bonds too.
"I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man."--Thomas Jefferson

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