Jackson Jambalaya

A former editor for a local alternative weekly recently made this comment about Obama's stimulus plan and the economy on the publication's website:
"Mc, your Wall Street Journal article is the most underwhelming refutation I've ever seen. All it can do is talk about how their might be inflation down the road. It can only make that argument because inflation is not a problem now. Rather, deflation is the larger threat. That is exactly what I said in my post. Do you want to try again? posted by Brian C Johnson on 02/27/09 at 01:49 PM"

His argument reveals a fundamental flaw in liberal thinking and that is the economy can be managed by the government. If the economy is going through a period of deflation, well, the government can ensure a recovery by providing the economy with the proper amount of inflation and will be able to stop inflation when it so desires. There has yet to live a ruler who could command an economy to prosperity through that kind of central planning. As Karl Denninger wrote recently, no one man is smarter than the markets.

What the re-inflate proponents fail to realize is there are different kinds of deflation. Currently we are experiencing the bursting of a bubble. Bubble's by their nature are artificially inflated. Eventually they implode and a correction takes place. The longer the correction is put off, the more severe it is. The economy over the last 15 years was fueled first by a tech bubble, then a real estate bubble. When the tech bubble burst, we couldn't handle the thought of having a recession, so we demanded our leaders do something to prevent it from taking place. Unfortunately, they kicked the can down the street as Greenspan kept rates artificially low for too long, creating a bubble in the economy as well as the housing market to some degree.

If we try to keep housing prices at a phony level of value despite what their true worth is, we will suffer even more as eventually the market will call the bluff of the bubble-heads (pun intended). Glen Beck demonstrates in this video how much housing bubble still needs to evaporate:



Still think its a good idea to do something even if it harms us? Unfortunately Obama and the Democrats do as they seek to finance their deficit spending by dumping over two trillion dollars on the markets. Obama advisor and investor superstar Warren Buffet warned of yet another bubble, except this time it is in treasuries:

"Warren Buffett, whose Berkshire Hathaway Inc (BRKa.N) (BRKb.N) sits on $25.54 billion (17.8 billion pounds) of cash, said worried investors are making a costly mistake by buying up U.S. Treasuries that yield almost nothing.
In his widely read annual letter to Berkshire shareholders, the man many consider the world's most revered investor said investors are engulfed by a "paralyzing fear" stemming from the credit crisis and falling housing and stock prices. Treasury prices have benefited as investors flocked to the perceived safety of the "triple-A" rated debt.
But Buffett said that with the U.S. Federal Reserve and Treasury Department going "all in" to jump-start an economy shrinking at the fastest pace since 1982, "once-unthinkable dosages" of stimulus will likely spur an "onslaught" of inflation, an enemy of fixed-income investors.
"The investment world has gone from underpricing risk to overpricing it," Buffett wrote. "Cash is earning close to nothing and will surely find its purchasing power eroded over time."
"When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s," he went on. "But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary." Reuters Article

When the treasuries' bubble pops, the yields will soar, causing interest rates on housing and other consumer credit to increase as well as making it much more expensive for the Democrats to finance more spending, assuming of course someone will buy their paper in the first place.

What is needed now is not reinflation or sustaining phony prices but letting the markets and economy correct themselves so a true recovery can begin.