I would hazard a guess that Zimbabwe has massive inflation because of the Mugabe school of economic thought rather than because it is a small economy.
http://upload.wikimedia.org/wikipedia/commons/7/70/Nominal_G...
Looking at: http://en.wikipedia.org/wiki/File:Supranational_European_Bod... European economic zone is a larger economic group. And the UN is even larger, but hey that's another story.
That's both sides of the political spectrum endorsing irresponsibility
But you can't live like that. Government != God meaning that misconception can't last forever. Following that logic it means our society learns this lesson now or by some miracle gets by only to have the next generations face a collapse and learn it. Maybe it's time to feel some pain now so our Children and Grandchildren get the message that the Government can't always bail you out.
To take an oft-used metaphor, suppose the economy is a car or truck and money supply is one part of the steering system. If you notice you're heading for a crash, well you're going to spin the wheel hard or slam on the brakes - there's your discontinuity. The path of the car, on the other hand (which is GDP), will change more slowly. And once you've observed that the new course takes you out of immediate danger, you can then moderate the control system which you had drastically changed. In other words, slamming on the brakes (or accelerating out of danger, or swerving - adjust your metaphor to taste) does not in itself damage the car, but aims to substantially alter its vector.
In the bigger picture, addressing the question of whether the US economy will be in the toilet or at least near to it for years to come, of course it will. Just as the unpleasant effects of a hangover can often go on longer than the drinking party which induced it, so it will take time to unwind and recover from the serious structural imbalances of recent years. Obviously, I have a more sanguine view of this process than you do, as I believe it will still be possible for opportunity and growth to take place in the US. If you find my view dangerously laid-back, I guess the appropriate thing for you would be to invest heavily in defense contractors and raw materials.
Then it still wouldn't matter. Some things only make sense when they are plotted on a log or log-log scale. These graphs are pointless.
You assume US can just slam on the brakes and the brakes would stop the car completely. When in fact, with the massive amount of baby boomers retiring/draining SS and medicare, the disappearance of our manufacturing sectors, the increasing commodity (food, oil) prices, and the need to pay back 100T+ debt owed to foreign countries and to ourselves, I suggest that it is impossible.
This is deflationary, at least in asset markets. Retiring baby boomers = pulling their money out of the stock market = falling stock prices.
"the disappearance of our manufacturing sectors"
Deflationary in consumer markets, inflation in asset markets, at least to the extent that it results in job losses and concentration of wealth among a professional/capitalist class. Wealthy people tend to spend a lower fraction of their income.
"the increasing commodity (food, oil) prices,"
This is an effect, not a cause. Saying that higher prices cause inflation (while somewhat true...see wage/price spiral) is circular reasoning.
"the need to pay back 100T+ debt owed to foreign countries and to ourselves"
Deflationary. Debt increases the money supply; paying back that debt reduces it. This is a large part of why the Fed's actions haven't triggered inflation: they're compensating for destruction of money as homeowners default in droves.
But really, we both know the Fed is tinkering with monetary policy in response to the recent financial crisis, not in response to the upcoming demographic one. Unless you want to go all tinfoil hat and say they provoked the former in order to deal with the latter by stealth :)
I feel you're shifting the goalposts a little with this post, although it is an interesting issue in its own right.
keep in mind that during the depression we were on the gold standard, thus there was none of the inflationary/deflationary risk of a fiat currency..
Sure there was. Gold as currency is just as susceptible to instability as anything else, as a simple thought experiment can show.
Consider that the supply of gold, though growing, grows extremely slowly. The supply of goods and services which are exchanged in economic transactions (and for which currency acts as a proxy), however, goes through great spurts of growth which the supply of gold cannot hope to match. Thus, a gold standard during such a spurt can only lead to widespread deflation (as would any currency which failed to keep pace with the quantity of goods and services it must stand in for).
I really don't know why people harbor this mystical belief that a shiny piece of metal is somehow immune to well-understood economic principles.
Because thinking is hard.
The odd thing is that for most of that time period, there were always folks saying that we not only had a chance of hitting the doomsday scenario, it was virtually certain. The first time I encountered people saying that the Fed was destroying the money supply and we would all be doomed to hyperinflation and a survivalist existence, it was 1991 and I was 10 years old (it probably would've been earlier, but my dad wouldn't let me read his newsletters before then). And folks were certain it would happen by the end of Clinton's first year in office...no wait, by 1997...no, at the Millenium...no, by 2005...no, by fall of 2006...no, 2007 will surely be it...YES, finally it's 2008 and the world's falling apart, except it's going to get a lot worse by 2010!
Kinda like the boy who cried wolf.
"keep in mind that during the depression we were on the gold standard, thus there was none of the inflationary/deflationary risk of a fiat currency.."
Then why did it deflate so much from 1929-1932, or inflate so much from 1932-1937?
Large sample regressions with graphs, detailed timelines and other supporting data in Eichengreen's Golden Fetters.
Stuff that matters indeed.
In the interest of full disclosure, do you still hold dollars or have you completely converted to gold now ?
Force trumps money, currency, and metal. In a true doomsday situation, the guy with the gun will always have more in the bank than the guy with the gold.
After asking yourself "WTF does that mean?", do a Google search for the aforementioned phrase (http://www.google.com/#hl=en&q=Curse+of+Maturin+Towers); hmm, no useful results (that is, we could not find a definition).
Now do a Google search for "Maturin Towers" as an exact phrase (http://www.google.com/#hl=en&q=Maturin+Towers) and notice we have 300+ hits for a rather odd exact phrase; all of which point to, or are directly related to, the AngloAustria blog (http://angloaustria.blogspot.com/).
Could this be an well crafted SEO blog designed to tell people what they want to hear?
An American would mention Murphy's Law, without meaning to imply there was ever a legislator named Murphy who went around causing things to fail.
You are drinking alot of government kool-aid. Keep watching CNBC.
Looking at, for example, the current yield on treasuries shows very little inflation expectations.
I'm not saying the US dollar is fine. I'm just tired of people using this kind of graph to try to make a point.
Here's what FRB NY's Dudley said this week - from Reuters article:
"Dudley argued that the Fed's large and growing balance sheet is nothing that prevents the Fed from controlling inflation once the economy corrects. 'It is not the case that our expanded balance sheet will inevitably prove inflationary,' he said.
Specifically, Dudley said the Fed's new ability to pay interest on excess reserves is a critical tool it uses to keep banks from lending these reserves and thereby creating new credit and boosting inflation. 'Thus, through the IOER rate (interest on excess reserves), the Federal Reserve can effectively retain control of monetary policy,' he said, noting that the Fed can increase the IOER rate if banks begin to find it more profitable to lend these reserves."
