Excellent point. But the "Helicopter Ben" bashers here on ET conveniently avoid bringing up such FACTS.
True. Why would anyone in their right mind wish to slash corporate spending and decelerate consumer consumption even further with tighter credit?
And what do you think would happen to the average depository bank if - just hypothetically - MER, LEH and MS were to file for chapter 11 next week?
That kind of attitude is really scary. What about retired people who have no job income and only have their savings to live on? That is the real travesty here. They are completely reamed in that scenario. I guess you are willing to throw them under the bus - I'm not. I guess for people still working, times might not be as tough, but there is no guarantee wages keep up with inflation. Inflation is guaranteed to crush everyone - while the sensible alternative (keeping interest rates in line with inflation) would most likely only crush people who were overleveraged. Now tell me, who deserves the crushing more?
It does suck that the retirees get hosed with high inflation, but a huge number of them don't have much in savings either. They are living off only social security checks. Recent estimates put this number at 1/3 of retirees and an even larger number with only minor income outside of social security. This suggests that only about 6% of our country is living off of savings. We have to be careful not to give the retirees too much weight in this scenario. Technically they would be best served by deflation as they would build wealth daily, but this would come at the expense of the other 88% of the population. What do you think happens to the social security of the retirees during a deflationary period like the Great Depression? Remember that a good portion of social security already comes from other tax revenues. What happens when those revenues dive? So what is best for 94% of all Americans? Continued inflation, or at the very least, avoidance of deflation.
Inflation isn't GOOD for anybody. (Yes, I know "borrowers get to repay with cheaper money".) It only gives the APPEARANCE of something positive while it promotes an offsetting, cancerous negative.... one which is covert enough that most people don't recognize its ills.
As a sound national policy, I think you must reward people for responsible financial behavior such as saving money. Everyone loses with high inflation, especially retirees who are living off social security which is based on faulty government inflation calculations to begin with. The discrepancy between reality and the government's perception of reality will get even worse with high inflation. I have no doubts that the government will make up more ingenious methods to massage the numbers so they don't have to pay what they owe on social security. The retired are going to be slaughtered.
Thanks to productivity growth the real income of the average working person increases over time in all developing countries - admittedly much more so in the better educated deciles than in the bottom deciles of the spectrum. A gardener/burgerflipper/janitor in the US doesn't have much of a competitive advantage compared to a worker in Asia or South America. The US and many countries in Europe (notable exceptions are the Scandinavian countries and Switzerland) have done a terrible job of investing in human capital in the last 25 years, now the middle and lower class are paying the price as highschool graduates are inept in basic math, spelling and grammar and the sciences. Of course, all I see on ET is Bernanke and only Bernanke himself being blamed for every single economic problem worldwide instead of politicians responsible for education, federally funded basic research, schools and universities. From the Dallas Fed, 1998: In calculating the cost of living in terms of time on the job, a good place to start is with the basics--food and shelter. For example, the cost of a half-gallon of milk fell from 39 minutes in 1919 to 16 minutes in 1950 to 10 minutes in 1975 to seven minutes in 1997. Using current numbers for private-sector, nonsupervisory jobs, the average hourly wage was $17.71 at the end of 2007. What's the price of a half gallon of milk in the US currently? How bad is it? I used $2.50 (not sure if this is accurate) and I get 8.5 minutes. Worse than 1998 but still much better than the 70s.