The Inflationary Depression

Check the link above to Business Spectator and the comment from Alan Carr on the disburbingly resilent inflation despite the severe economic downturn. We are beginning to see the outlines of how The Great Recession is playing out. Following the Keynsian mantra governments around the world are seeking to spend their way out of this depression, and invariably are in the process of creating a severe stagflationary environment.

In the absence of productive growth this deliberate attempt to use the global printing presses to rescue the world economy will attack real incomes in a vicious way. Although a careful balancing act could prove the right medicine to deleverage the world - what the great minds are currently thinking - it will probably fall victim to its success. What the western world and particularly the United States needs now is to increases its domestic savings and reinvest in its productive capacity. The sad irony is while individual savings rates are rising government expenditure on frivolous bailout (and in Australia handouts) appears out of control.

You no doubt are asking what the irony is? If I am saving 10% of my income to invest productively why should I care what the government spends? The reason is that governments have no productive capacity in themselves. The government's debt is your debt paid through taxation just as your mortgage is your debt paid through monthly installments.