Category: Economics

Not what I expected to get in my Inbox:

Because you are one of our loyal customers, we wanted to give your Citi® Card even more value. So reward yourself with the spending power and flexibility that comes with a higher line of credit.

You’ve earned it. Now enjoy it.

Isn’t this how you guys got us all into trouble in the first place?

Todd Zywicki explains:

Why has this incredible boost in the money supply had no impact? Presumably because the “velocity” of money has remained low–people and banks are hoarding money, rather than spending, borrowing, and lending it. Assuming velocity rises again, however, we may be looking at an inflationary spiral like we’ve never seen before in this country.

Peter says it well, “We’ve Never Been Here Before.”

I keep joking to Bitter that I need to buy some gold sovereigns.  Maybe it’s time to stop joking.

Megan McArdle is skeptical the stimulus proposed by Congress is going to do much, and pretty much represents an excuse to push multiple Democratic spending priorities:

Though you wouldn’t think it from the really quite shocking incivility emanating from the pro-stimulus side, the empirical evidence that this works in a large industrial economy like ours is basically nonexistant.  The problem is, we have very, very few examples to test on:  America during the Great Depression, and Japan in the 1990s.  And neither America nor Japan managed to stimulate their way out of their troubles.

Meanwhile, it looks like Boehner is getting the GOP to start acting like Republicans again.

I’m not as panicked as Kevin, SayUncle, and PDB about the vast expansion of the money supply.  While I would not sell myself as any economic expert, the risk in inflation the money supply is, well, inflation.  But my understanding is that the reason to do this is to prevent giving rise to a much worse beast, which is deflation.  We’re already experiencing deflation in a lot of sectors, like Housing, which was the match that lit this fire.

If this recession is fundamentally a problem of people over-borrowing, and business being over leveraged, and falling asset prices, one easy way out of the problem is to inflate your way out of it.  The problem with deflation is that it gives people an incentive to hoard money.  Not to spend, or invest it, but just to sit on it, because it’ll be worth more tomorrow than it is right now.  That’s very damaging to the economy.

Inflation is painful to people who have saved, which isn’t many of us these days.  Too much inflation is indeed a bad thing, but if the problem is too much debt, and declining asset prices, an inflationary cycle would actually help alleviate the problem.  Unfortunately, runaway inflation is also a big problem, and stopping it can be highly painful.  I suspect this massive expansion in the money supply is going to have detrimental effects at some point, as the fed will have to tighten the spigot to deal with inflationary pressures.  That’s going to suck, but I suspect it will suck a lot less than the consequences of deflation.  Given that, I’ll worry about what effect a rapid expansion in the money supply is going to have when it comes time to cross that bridge.  The really scary part to me is, everyone, even expert economists, seem to be playing this by ear.  No one seems to really understand what’s going to get us out of this.

I hope you’ll keep the important things in mind today and tomorrow. I know I’m looking forward to the small things about Christmas.

For those of you who received a little extra something from either work or gifts, I leave you with this excerpt from an article on the state of charitable giving.  Read it all the way to the end, as the last number may surprise you.

Charitable organizations are feeling the effects of the economic downturn, too. A recent news story entitled “Giving season struggles to earn its name” lamented that this year’s charitable giving total is unlikely to top last year’s total of $306 billion. It will be only the second time in 40 years that charitable giving failed to grow from one year to the next.Certainly, that’s bad news for organizations that depend on private contributions, particularly given that the poor economy will increase demand for many charitable services. Yet there is a very “glass half-full” way of looking at the statistics: Americans’ ongoing willingness to give, even as their household wealth shrinks by trillions of dollars, is testimony to the true generosity of our citizens.

Americans stand out in the world for their commitment to private charity. Americans don’t lead the pack just in terms of total dollars donated but also when giving is measured as a percentage of gross domestic product. In 2005, private giving in the United States was 1.67 percent of GDP, more than twice the next most charitable country, the United Kingdom, which gave away just 0.73 percent of its GDP.

A recent report released by the Philanthropic Collaborative shows that Americans’ commitment to charitable giving is more than a sign of compassion. It’s also an important investment in the country’s well-being. The report measures the impact of private and community foundation giving, and it suggests that the grants made by these organizations produce very large economic returns. The authors estimate that each dollar of grants provided by the foundations generates $8.58 of economic benefit.

This is a big part of why GM can’t succeed.  I don’t even get half that many holidays, and I’m management.

When formerly red countries have a better tax structure than Western European ones.

Bill Clinton isn’t blaming the Republicans for deregulating banks.  I think Clinton is right on this one.  Also, if you’re looking for a great outline of the current credit crisis, head over to Marginal Revolution.

The Mackerel standard is just too inflationary.