Wednesday, February 18, 2009
Two hundred thirty one million
"Last year, official inflation based on the tumbling local Zimbabwe dollar was given at 231 million percent but the state statistics office said it was no longer able to calculate the inflation rate because of acute shortages of gasoline, food and most goods that spurred black-market dealings."
Two points to note:
1. Irresponsible monetary policy is destructive stuff.
2. Irresponsible fiscal policy lies behind irresponsible monetary policy. Why tax when you can borrow? Why tax when you can create liquidity out of thin air?
We're failing to learn these lessons now, unfortunately. The current global economic debacle stems in large part from the mentality that seeks wealth without production, and consumption without cost. Now that the painful adjustments have begun, we're trying to sidestep them with more fiscal and monetary stimulus. Thus we compound the mistakes of the last twenty years with ill-considered "bailout," "stimulus" and now "foreclosure rescue."
Currently these projects are financed by borrowing. Any dollar "invested" in these schemes that doesn't earn a positive net return will have to be paid for somehow... and that somehow have to be taxes, or default, or monetization. Given all the "careful thought and deliberation" that went into H.R. 1, I fear these losses will be substantial. We won't be anything like Zimbabwe, but I don't think the outcome is going to be happy.