ON YOUR MARKS, GET SET, GROW
[I]t's been interesting to watch the stock market march higher with the attendant hype about "new all time highs" for the Dow. Of course, outside of niche market commentators, there's no mention that those new highs are nominal . . . Jude Wanniski would have been proud -- and I'm sure he'd be reminding us right now that the Dow would have to rise several thousand more points to reach a "real" all-time high after accounting for inflation. This is one reason why, despite the stock market's rise in recent months, the economy still ranks as a major concern in public opinion polls. Give me a large truckload of million-dollar bills to distribute randomly for a few years, and I guarantee you the stock market will rise. I also guarantee that everything we need to live will get more expensive, and everything we merely want will get cheaper.(Emphases added.) It's worth reading the entire post, which includes a discussion of When Money Dies by Adam Fergusson, a book about the Weimar Republic's hyperinflation, and the attendant economic and social upheavals that bedeviled Germany during the inter-war years. One of the most interesting, and enlightening, of the comments:
At this point, it's clear we've entered a period in which policymakers have decided that it's never a good time for a stock market decline or a recession. Natural ebbs in the business cycle used to be times of cleansing and adjustment. Now, with a Federal Reserve chairman whose scholarly interest is the Great Depression, soft spots are considered "deflation" and are to be avoided at all costs . . . After the Fed's brief dalliance with sanity (draining liquidity) earlier this year -- during which the Nasdaq fell about 15% and some overseas markets plunged 25% or more -- the liquidity jets are blasting away again at full strength.
It's hard to predict how long this can continue (and risky to bet against it, of course). Monetary policy is the art of the possible, and much depends on our overseas creditors.
The book is an account of the inflation that ravaged Europe in the 1920's, particularly in Germany. Let's be clear....anyone who thinks we're living in Weimar-redux is either shrill or uninformed. Despite our current fiscal and monetary mess, the dollar is still the world's de facto reserve currency (although certainly not to the degree it has been in the past) and the U.S. still makes things the rest of the world buys. Germany enjoyed neither of these advantages eighty years ago, and that's important. But the basic dynamic of inflation doesn't change, and certain parallels are worth noting if only to understand the potential dangers of the path we've clearly started down.Wow. That's a damning revelation, and one I'm curious to look into. We know the road to ruin is often paved with good intentions. And by way of comparison, I'm sure Ben Bernanke, unlike his predecessor, believes his polices help the country. But the subquestions I focus on are: When? For how long? For whom, precisely? At what cost to fundamentals and soundness?
I'd always thought Germany's runaway inflation in the early 1920's resulted from the harsh reparation terms imposed after World War I. Instead, Fergusson shows that inflation was a calculated path chosen by Germany's central bank to boost the country's exports and thus its domestic employment.
Again, I recommend checking out the entire post. Enjoy.