Thursday, October 07, 2010

Nightmare on Fed Street

I went out of the country in 1972, first a year in Southeast Asia, then for four years to Spain, a few months back for school and then another three years in Germany. When I left the states I had a nice middle-class house in a new neighborhood. It cost me $32,000 dollars. When I came back ten years later that same house was worth $150,000. The unfortunate thing was I hadn't kept it and didn't experience that appreciation.

Upon return to the States, the inflation rate was hovering just under 20% and new mortgage interest rates were fifteen percent. A car that had cost $4000 when I left was going out of the showroom at $14,000. What was that about? It was about Jimmy Carter economic policies. It was about deficit spending, welfare programs, and a problem that might cause overwhelming deja vu, an oil crisis. We were going to exhaust the global oil supply by the year 2000. Thirty cent a gallon gas zoomed to well over a dollar.

Prices skyrocketed. Your savings for a new car or a new home fell back as the price ran away from you. Your dollars in hand became worth relatively less and less. That's why this should scare you:

Tired of Low Inflation, Fed Ponders Pumping it Up

If you've got savings left this would chop them up. If you've got much value in your 401(k) after the stock market collapse in the last two years, this would drive the stake in the heart. If you had hoped to be able to eventually catch up, this would move your target down range.

Time to refresh our historic memory. Look up Weimar Republic and add the search phrase "hyperinflation" to see what can happen. It isn't a pretty picture.

3 comments:

The Donald said...

Yeah, I've been saying for a few years now people should study Argentina to understand what's gonna happen.

TheOtherLarry said...

It's strange that they know exactly what's going to happen, but they just can't stop themselves. A severe case of lack-of-control.

George said...

"It's strange that they know exactly what's going to happen, but they just can't stop themselves. A severe case of lack-of-control."

No sir, it's not that they can't stop themselves but that this is the desired result.

They know exactly what is going to happen. They want it. And they know they will get away with it. Even if the responsible politicritters happen to get thrown out of office, they will be back before too long and the inevitable march will continue onward.

The politicians are very aware that they are untouchable once ensconced in DC and that the little people don't make one bit of difference.