spriralling deflation which we’ve just narrowly escaped is their nightmare because it’s infinitely harder to fix as the Japanese discovered in the 90’s

The Japanese could have EASILY fixed their deflation by massive reflation. (By bombing Pearl Harbor in 1941, they gave us the excuse to fix ours in exactly that way.)

The problem is that massive reflation causes major economic dislocations that are just not in the Japanese culture anymore.

Massively reflating the economy out of a deflation without severe dislocation is ONLY possible if it’s accompanied by wage-and-price controls and rationing. In World War II, that is EXACTLY the policy that FDR pursued: Incredibly massive government spending on the war, coupled with wage-and-price controls and rationing here at home. Plus war bonds to soak up even more consumer spending.

And after WW2 ended, the deflation of the 1930s did not return.

Notice that Adolf Hitler pursued a similar policy in the late 1930s: Massive government spending on feverish rearmament, combined with wage-and-price controls, rationing, and a unique element: Hitler simply dissolved most small businesses by decree, so that they wouldn’t compete with big business (which Hitler needed for his rearmament program) and draw capital away from those big businesses. The result? The depression of the 1930s (which was worse in Germany than any other European nation) vanished, and full employment returned.

FDR did it.
Hitler did it.
The Japanese could have done it.

Create more bank credit, for what? Oh right, to spur demand and get PRODUCTION going again. But wait, isn’t this the same productive structure that just found itself massively in the red, therefore signaling a waste in economic goods? Why are we propping up a production structure that is fundamentally not serving our needs? Ah right, because the alternative, DEFLATION, is the real enemy. Deflation, which lowers prices… oh, how awful!

No, sadly neoclassical economics is a bad joke, being played on all of us. Inflationism is bad policy for several reasons. 1) It distorts the production structure, misaligning it with true (i.e., market) needs. 2) It creates an environment where the productive structure is altered not through voluntary investment, but whereby savings are devoured surreptitiously. 3) It creates a boom, during which everybody thinks they are a brilliant and sage investor. 4) It inevitably leads to bust, which dispirits the entire population while miring them in depression.

Creating credit money out of thin air, be it by fractional reserve banking or central banking manipulating a fiat currency, has only one logical (and therefore predictable) outcome. The boom-bust cycle; and we’re mired in it up to our necks.

http://americaspeaksink.com/2009/10/wall-street-the-president-and-the-rest-of-us/

” inflationism is bad policy…..study economic and monetary history, then comment.”

………I have…..I’ve got an MBA and did it as part of my undergrad degree ……moderate inflation is the aim of all central bankers……..spriralling deflation which we’ve just narrowly escaped is their nightmare because it’s infinitely harder to fix as the Japanese discovered in the 90’s……..with due respect as is apparent from the opening comment about Bernanke etc, you haven’t the faintest idea of what you’re talking about.

WillyP — well put

……Why bother wasting time here then?

JimBob // Oct 20, 2009 at 8:34 pm

“Gold will continue to rise as markets around the world worry about Ben Bernanke and his trashing of the dollar.”

……..Would you like to specify a target number or is this just something you picked up somewhere like the Weekly Standard……..I’ve got news for you…….recent dollar weakness is mainly a sign of global recovery……when the world was collapsing a year ago there was a flight to quality ie. the dollar……now the world is recovering it’s appetite for risk the dollar is declining which is very good news for American industry(check the Cat stock price) which becomes more competitive while the demand for christmas tree decorations and handbags from China is reduced by rising prices and this both reduces our trade imbalances and probably encourages saving

Dr. Ron Paul, who’s a REAL doctor and everything!, says that Neocon Constitution-haters like you support Israel so much that you don’t NEED to make money on G_ld because of the Fed and fiat currency. It’s simple logic. And I’m not surprised that you don’t get it.

That THAT.