Posted by: The Elephant Owner in Economics,predictions on December 23rd, 2010
According to a writer for the Business Insider, quantitative easing has not led to inflation and all the worry about it amounts to hysteria. He believes the recent increase in commodity pricing has come from genuine economic growth being fueled by China.
Despite all of the incessant shrieking over “money printing” and other inaccurate descriptions of QE and its impact on the economy there is still almost no signs thus far that inflation is making any sort of sustained pick-up. And that’s not surprising to anyone who actually understands that QE is a non-event…Read more
A “non-event”. If it is a non-event…why not do it again and again.
Government is good at creating one thing…bubbles. They try subvert market forces until the weight of the market become unbearable. Today we are still staggering around from a punch to the head. That punch was popping of the housing bubble.
According to Zillow, the value of homes in the U.S.A are still falling. I believe the falling prices are a correction that has been a long time coming. The FED thinks it can stop this correction by pumping up the money supply. I have predicted in the past that we will see high inflation due to an increase in the money supply. The writer at the Business Insider mocks this idea. His arrogance says that his point of view is shared by those “anyone who actually understands that QE is a non-event”.
Haven’t we been burned by these people in-the-know before. Barney Frank was on the banking committee in the House of Representatives. He assured us that Freddie Mac and Fannie Mae were in good shape. He understood the situation. We were too stupid to know what was really going on. Except history showed us that common sense ruled the day. Barnie Frank and all the experts at the big banks were wrong.
Before the housing bubble was the tech bubble. All the experts told us there was a new paradigm. The old economy was gone. Technology changed the world. You could now make money without a solid business foundation. The experts were wrong. The Money Supply as measured by the M3 Money Stock (which has been conveniently discontinued), sky rocketed around 1996. This extra money was pumped into the new DOT-COMs. A tech bubble soon followed.
Personally, I was burned by the tech bubble, but I pulled all my money out of stocks before the housing crisis hit because I knew the financial institutions were build on a foundations of wet sand. That’s what common sense told me to do. Common sense is now telling me that inflation will return when the economy is growing and products are in demand. I don’t believe we are there yet, so any determination that inflation fears were unfounded is still premature.
Only time will tell.
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