February 29, 2008 11:38AM
More on Inflationary Recessions
By Alexis Glick
In the past 24 hours I have received a ton of responses to my interview and subsequent blog about Rep. Ron Paul. Many of you have thanked me for having him on and have asked me to invite him back on the show to discuss the two bills he recently introduced in Congress, “Honest Money Act” (HR 2756) and “Free Competition in Currency Act” (HR 4683). You’ll be happy to know that I did ask him at the end of the interview and that I am writing a note to him as we speak to reiterate the request. I, like many of you, was very impressed! His points on the U.S. dollar’s weakness and on the mounting inflationary concerns were well taken. He has ideas but he also has solutions. His grasp of the economy and his desire to get the message out in an honest and sincere manner struck me. I am thrilled to see a real and dynamic political and economic conversation going on in this country. I think all of the candidates are touching the issues and bringing Americans to the table.
“Ron” (not Ron Paul) wrote in response to my earlier blog that “Freedom scares some, so does the truth, thanks for giving us a glimpse at both.” I think he’s right. We are hearing the truth and in some cases we may not like it or think that it is politically motivated but the truth whether it be about the economy, housing or the war in Iraq has to be discussed. Some suggest that Bernanke talks about the economy through rose-colored glasses. I disagree. He’s telling us the cold hard facts and some may not like that but that is his job. The solution is the real issue at hand. Bernanke believes he has the right strategy in place. Only time will tell.
In reference to Rep. Paul’s use of the term “Inflationary Pressure,” my colleague and Fox Business Economist Mark Lieberman, who joined me after my interview with the Congressman, did some homework and found a paper written by Charles Baird in May of 1971 called “Inflationary Recession - A Diagrammatic Representation.”
Here are some brief excerpts and my thoughts below:
“No existing geometric model accurately pictures (much less explains) the commonly observed coxistence of continuing inflation with growing unemployment upon the heels of a restrictive monetary policy implemented to restrain an inflation.”
What happens in this case when the restrictive monetary policy is using rebates to stimulate the economy? Doesn’t that add to the inflation concerns?
“Usually decreases in the rate of growth of the money supply are followed after 2-3 quarters lag, by decreases in the rate of growth of real output. After an additional lag of three to four quarters the rate of growth of the price index starts to decline. As the rate of growth of prices diminishes so the does the unemployment rate.”
But does inflation diminish with a more restrictive monetary policy when global demand is stronger than ever? Is that what we have today and what does the weak dollar do to this theory both for the US and for the Countries who are holding dollar denominated assets?
What do you think? Is this an Inflationary Recession or as some people suggest Stagflation? Bernanke on the Hill yesterday said no. Do you agree? Weigh in!
Comment by JM
Feb 29th, 2008 at 12:16 pm
global growth is the conudnrum this time around vs previous slowdowns. No one can seem to answer is the price of oil increasing because of other contries doing well or the dollar declning or both. Keep the dialogue going and maybe we can all figure it out together
Comment by Sandra
Feb 29th, 2008 at 12:19 pm
Thank you so much!! Those of us who have been watching and waiting for Dr. Paul to get the opportunity to bring the economic discourse to a much higher level are indebted to you. No smirks, no interruptions, just a real, honest discussion. I can’t wait to see the next one.
As to your questions, based on anecdotal evidence we see here, my husband and I believe we’re witnessing stagflation.
Comment by Robert
Feb 29th, 2008 at 4:02 pm
“What happens in this case when the restrictive monetary policy is using rebates to stimulate the economy? Doesn’t that add to the inflation concerns?”
Forgive me, I don’t quite understand your question. Using rebates to stimulate the economy seems counterintuitive to a restrictive monetary policy and will certainly lead to inflation concerns. Where does the rebate money come from? It must either be taxed, borrowed, or inflated. To cure a recession brought on by inflation and deficit spending with more inflation and deficit spending will only prolong the day of reckoning. And yes, I beleive we are in a recession, an inflationary recession at that. We just may not feel it until the panic comes. But it seems the Fed is panicking, drastically cutting interest rates. But again, this is inflation and will only inflate the problem. Continuing to spend and borrow like crazy while simultaneously weakening the dollar is bad news. Common sense will tell us that countries will inevitably drop their dollar denominated assets if this monetary policy is maintained.
I very much enjoyed your interview with Ron Paul. You impressed me. I will certainly be tuning in to you more and I hope to see this topic discussed much, much, much more as it is so critical.
Thanks.
Comment by David Robertson
Feb 29th, 2008 at 5:46 pm
The primary problem is that the financial system has suffered a heart attack. Credit is frozen. The central banks are trying without success to restart the global economy by pumping trillions of dollars, euros, pounds, into the system. This is causing commodity price inflation and PPI inflation, what you are calling strong global demand. These actions have begun to feed into the CPI as well. The banks are losing trillions in reserves because of their reckless lending, packaging and repackaging of dodgy loans, trading in derivatives and reliance on computer models. But they cannot announce these losses all at once or they would have to shut down for lack of capital. The US dollar is the world’s reserve currency and US consumption and money supply growth exports US inflation to other nations via the weak dollar. Normally these dollars are recycled into US assets but these assets are all falling in value, like the dollar, so the central banks of exporting nations like China and the Middle East are having to purchase these dollars with their own currencies, ergo inflation. They are beginning to diversify out of dollars and soon they may dump all their US paper assets and demand payment in gold or silver (China is still on a silver standard). With the shortage of credit, and given the fact that the US has consumed all its seed corn (savings capital), there is only one possible consequence, national bankruptcy and a firesale of US assets. The Fed will continue to operate on the fallacious models it uses and will continue to pump additional credit into the system taking lower and lower rated paper assets as collateral, in other words monetising the debt with worthless paper. The banks have already restricted credit to all their least important customers, probably bankrupting many small businesses, and will try to protect the biggest banks and the big corporations. Look for the big money centre banks to buy out the smaller banks for pennies on the dollar, if there are any left. At least that is what they usually do. This time it may be more difficult since they all have problems, except it seems, Goldman Sachs, who seem to have access to inside information.
Dr. Ron Paul is as good a lay economist as you are likely to find and he is a follower of the Austrian School of Economics started by Carl Menge and developed by Ludwig von Mises, Frederick Hayek and Murray Rothbard. They demonstrate conclusively that the Business Cycle is CAUSED by the actions of Central Banks, especially when they are driving the economy without functioning brakes, the situation we have had since 1971 when Nixon closed the gold window. They have had a very long run this time but it looks very much as though they have brought us to the brink of the precipice, hence the inflationary depression that Dr. Paul talked about and which Austrian Theory has always predicted as the inevitable conclusion of fiat currencies, fractional reserve banking and government welfare/warfare spending. Dr. Paul has the answer but you really have to listen to him and most people don’t want to. Give him more time. This may be you last chance to save your nation.
Comment by Albert
Mar 1st, 2008 at 8:27 pm
I’m pretty new to monetary policy and to Dr. Paul. I only heard about him a few months ago. Learning more about him and his views is addicting. The more I learn, the more I want to learn. In the past couple of months I have learned more about monetary policy, foreign policy, political history, the Constitution, and even conspiracy theories than I ever learned in school.
Thank you for having Dr. Paul on your show. Hopefully his message reached more people through your efforts. If more people got addicted to educating themselves, this country would go through some real change.
Comment by Karl
Mar 2nd, 2008 at 1:23 pm
Well David “from above” that was an awesome comment. I have to say, if we would of kept a commodity backed currency and not went to a fiat currency none of this would of ever happened. Very simple.
Comment by SoCalinMW
Mar 2nd, 2008 at 2:13 pm
I think it is simple financial irresponsibilty.WE ARE BROKE!Printing more money will not solve the problem.Borrowing more money will not solve the problem.
If we ran our finances like the government we would have lost every asset we had a long time ago. Were does it end?
Comment by WILL WORK FOR PEACE
Mar 2nd, 2008 at 3:55 pm
First of all, thank you Alexis for having Ron Paul on. He seems to be the only one who is willing to connect the dots between loose monetary policy, inflation, the national debt and our misguided foreign policy.
The Federal Reserve perpetuates a roller-coaster economy. When it floods the market with liquidity then that liquidity has to go somewhere, and when it does it creates another bubble. The Fed can’t fix this problem and every attempt at doing so only delays the inevitable.
As painful as it may be, let’s get the Federal Reserve out of the picture, end the US empire overseas, pay off the national debt and allow the financial markets to regulate themselves.
Stagflation will be followed by deflation at some point. Look at a chart of gold, does that look sustainable to you?
Comment by Lynn Ellen
Mar 2nd, 2008 at 4:08 pm
Dr. Ron Paul is the only candidate that seems to understand that we cannot continue outrageous spending. You hear all that the Gov will do for you. There are not enough of us to pay for it all. We need Ron Paul.
Comment by Pete Norris
Mar 2nd, 2008 at 4:22 pm
The truth has always been hard to swallow, but we cannot exist otherwise. In today’s world, when corporate influence is so great in the media, anything that is to the contrary, is whisked away in the hopes that it will go fade away. The simple truths of Dr. Ron Paul, will not fade, for they are the truths that set us free from the tyranny of King George, many years ago.
History has repeated itself, under the guise of financial indentured servitude, the system that we live under today is one of taxation to feed the national debt. The banking system, has enslaved us, so that they can line their pockets. The Morgan’s, Wartburge’s, and Rothchild’s, etc. Did it with the Federal Reserve act, and the 16th amendment. All of witch is unlawful, and Unconstitutional, and therefore not withstanding. But they have the guns, and that equals enforcement of their policies. If we allow it to stand as it is, the banks will own everything, and we will own nothing. Never have so few had so much, and left so little for so many.
Comment by Ronald Albers Sr
Mar 2nd, 2008 at 5:00 pm
Thank you for a very fair and enlighting interview with Dr. Ron Paul. Not to repeat. I just agree with all the other comments ! Please everyone we need to save our country NOW .
Comment by Mark
Mar 2nd, 2008 at 7:51 pm
Ms. Glick you are a breath of fresh air in the Fox Business lineup. Your interview with Ron Paul was a good one, but didn’t hit the nail on the head. Alan Greenspan started this whole inflation mess many years ago by flooding the market with dollars at an artificially low interest rate. Ben Bernanke inherited the mess, and seems to be unable to fix it.
I would advise reading Antal Fekete and his writings for the solution. It won’t be pretty, but it will work.
Ms. Glick should be the main host for Fox Business, not Neal Cavuto.
Comment by Shannon
Mar 4th, 2008 at 9:39 am
I am so pleased to see that you have invited Ron Paul to do another interview with you! I’ll be sure to tune in!
Comment by blakmira
Mar 4th, 2008 at 6:48 pm
Dear Ms. Glick,
Thank you so much for your interest, interview with and coverage of Ron Paul; his words of wisdom are sorely needed in these troubled economic times.
I am particularly grateful to you because Dr. Paul does not get much media coverage, and it is such a shame, as he has so many brilliant things to say in answer to our problems! I, for one, believe he is “right on the money,” as they say, when it comes to diagnosing our economic woes and prescribing the solution! As you know, he has written several books on the economy.
Thank you again for inviting him back on for further discussions, as it will give more people a chance to find out about him and listen to what he has to say. How about a regular show with you, would that be possible?
Sincerely,
A. Hayes
Georgia
Comment by steven orrange
Mar 6th, 2008 at 6:57 pm
During the presidential debates I heard Hillary Clinton state she might ‘freeze the interest rate for five years”. I heard John McCain say ‘we may need to stay in Iraq for 100 years”. I keep ‘hoping’ (that is a joke of course) Barack Obama will say anything of substance.
So Ms. Glick, a GIANT THANK YOU for the great interview with Republican Presidential Candidate Ron Paul. Finally a candidate who understands our monetary systems, and is unafraid to speak the truth.
GREAT INTERVIEW!!!!!!!!!
Comment by Robert Montgolf
Mar 9th, 2008 at 1:11 pm
Yes we need Ron Paul,if you will check my bog on the video by Lindsey Williams
called The Energy Non Crisis you will for sure see where were headed.
And if the American people dont stand up and be counted,We then have nobody
to blame but ourselvs.
Again thanks for having Dr paul on you know we need a doctor here and he is our man.
Comment by Scott
Mar 31st, 2008 at 5:44 pm
The Dr. is in the House - and he needs to be in the White House