Press Article: Don't Look Now, There's a Huge Wave of Inflation Coming Toward Us
October 29, 2008
Don't
Look Now, There's a Huge Wave of Inflation Coming Toward Us
By
October
29, 2008,
Paulson and Bernanke's
"rescue" have only begun to do their full long-term damage.
EXTRACT:
If
Paulson and Bernanke had been willing to take a reformist blowtorch to
the big fifteen and their practices and products back in late 2007 or
early 2008, some six or eight might well have had to be dismantled,
taken over or forced into bankruptcy or receivership, but the stock
market and credit crisis of the last few months might been avoided or
greatly mitigated.
Instead,
Paulson pretended that nothing serious was wrong because he came out of
the same Wall Street ego-trip, and Bernanke could not transcend his
student-of-the- 1930s academic background. "This was [his] claim to be
worthy of running the Fed," says Anna Schwartz. However, Bernanke
flubbed because he was fighting the last war, not the present one.
Worse
still, the policies that Paulson and Bernanke did implement at such
staggering cost have only begun to do their full long-term damage,
which will probably come in a round of even more serious
inflation.
Together,
the Treasury and the Fed have spent or loaned over a trillion dollars
in financial-sector aid.
As
set out by economist Brad Setser of the Council of Foreign Relations,
besides steering $950 billion into the U.S. financial system ($500
billion sent over by the Treasury), the Fed has provided still another
$450 billion of dollar liquidity to European central banks to spread
around on that continent.
This
decision by the United States to be the lender of last resort, in
tandem with Washington's late September and October scare rhetoric
about U.S. and world economy seizing up unless Congress passed the
Paulson-Bernanke bail-out plan, has internationalized the crisis and
made the U.S. dollar the pretended currency of the rescue instead of
the vulnerable currency of the underlying problem.
Something
similar happened back in August 2007, when for 4-5 weeks a flight to
"safety" and U.S. treasury debt buoyed the U.S. dollar. September and
October have brought this result on an even larger scale.
Administration
economists have said not to worry.
This
trillion won't be inflationary because that effect will be lost amid
the 2008 assets deflation. This is probably more bunk from economic
experts who have been right about practically nothing in the last few
years.
Global commodity indexes have been rising since 2003, although
carefully crafted federal statistics kept that pressure from being
acknowledged in the U.S. until 2008. Now the common wisdom is that
declining commodity prices spell a long-term decline. The
better likelihood is that inflation, still much in evidence globally,
is only taking a breather, as
it did circa 1971 and circa 1974 during the 1967-1980 inflation cycle.
Within a matter of months, Washington's huge 2008 borrowing and
soon-to-be-record trillion-dollar budget deficits will send inflation
to new heights, and the current "treasuries bubble" and "U.S. dollar
bubble" will pop.
(Kevin
Phillips's new book is Bad Money: Reckless Finance, Failed Politics and
the Global Crisis of American Capitalism, published in April by Viking.)
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