Inflationism is the ideology of increasing the money supply to spur economic activity and “growth.” In the 19th century, economists were generally against it, though certain “innovators” (cranks) thought that increasing the supply of money would “increase aggregate demand” with no bad repercussions. “Cross of gold” kind of nonsense; “free silver” idiocy.
In the 20th century, alas, inflationism went mainstream.
Today, a few respectable economists — high-profilers like the New York Times’s Paul Krugman and U.C. Berkeley’s Brad DeLong, for example — embrace inflationism. Occasionally their arguments sound sophisticated, but all are just warmed-over rehashes of very old errors.
It’s the economic equivalent of the “perpetual motion machine”: the eternal quest to get something for nothing, progress on the cheap. It inevitably fails — but only after fooling people by “working” for a while.
Reason’s Tim Cavanaugh, discussing declining housing prices, notes that “it’s becoming harder for the Fed, HUD, the Treasury Department and the National Association of Realtors to pretend the 25-year real estate inflation was anything but a $15 trillion rip-off.” He welcomes the deflation of housing prices. The idea that one’s house should increase in value by always increasing in price — that’s really just a recipe for social disaster. It endured as long as it did only “through government subsidized debt.”
Thank Congress; thank their Fannie and their Freddie; thank the inflationist Fed.
“Creating” money and loosening credit tends to nudge up prices . . . but not all prices equally. It signals people to over-invest in certain sectors, often real estate. This creates a sector boom . . . that then must “bust.”
The alternative? The honesty of sound money.
This is Common Sense. I’m Paul Jacob.
3 replies on “Ups and Downs”
Would banks forclose on these homes with inflated money and stick the past owner bad credit?
the same banks invested in dirivitives and couldn’t buy their way out of a paper bag made with their bad contracts. Maybe the banks hope for enough housing stock to cover their fractional banking practice, but didn’t they lose the ownership by reinvesting those homes in derivitaves? Now we have the same bankes expecting us to bail them out again and again using taxpayer money while they buy smaller banks with better porfolios to cover their bad investments inthe past and sticking the posterity of this country with the bill.
Could their be a resetting of the currency by removing the un-needed zeros on the collar bills like happened in Brazil in the early 1970’s? Then they would have this real property with little or no investment. No wonder there is ROBO signing going on in the forclosure and bankruptcy courts!
The housing bubble was just redistribution of wealth by another name. Have to have the dollars collected in one place before it can be taken away. Between that and the continual decay of savings done by the FED’s policies, Presbo has had to struggle to do any comparable damage. The wealthy will be fine, mostly, regardless of what Presbo does. The people who are taking the hit are the middle class. Probably serves some of them right for voting for him. The rest will just be colaterally damaged
It was always a bad idea to think of your home as an ‘investment’ that would grow. Housing is an expense, not a source of growth. It can offer benefits over an apartment but it’s not free.