PKT message, Credit Bubble Bulletin: Unavoidable bust?

Jas Jain is kind to send us Doug Noland's The Credit Bubble Bulletin which says: [emphasis added by me]

"... We are in the midst of a truly pathetic case of inflating our way to financial debacle and economic impoverishment. And, damn right, there will be a backlash. Not only are many of our workers being priced out of the global market-place, they are taking on enormous debts in the process. Come the unavoidable bust, there will be the natural search for scapegoats and villains. There will be a move toward protectionism, isolationism, and nationalism. And the inflationists will surely be quick to point blame at inept politicians, shortfalls in our education system, and powerful global forces outside of our control. And we will be challenged not to let them get away with it."

Doug may be right -- or the bust may be mild as we try to avoid it in the light of the same knowledge Doug possesses and shares with not-so-inept politicians.

I may be unduly optimistic -- but we cannot be vanquished by inflation and deflation simultaneously.

(Stagflation was a form of inflation and could have been beaten by government low interest credit to subsidize domestic production and consumption.)

Doug is correct that current debt will bring on a crisis. But when the crisis begins, it will be deflationary and can be ended with the same low interest government credit mentioned above.

We may have to have mortgage holidays (in addition to government refinancing loans) to protect home and business owners. But they will solve the debt problem -- not make it worse.

There is no limit to government credit. If you fear that it can lead to hyperinflation and the end of money, I disagree:

If low interest credit is followed by investment and entrepreneurial paralysis and an insufficiency of necessities people expect money to buy, government can initiate micro-loans and small business loans to end unemployment and produce as much as we can.

The standard of living may go down as foreign suppliers raise prices -- but the higher their prices the more jobs there will be over here.

In other words, we learned after government spending ended the great depression (to win a war), that government guarantees, lending and spending can cope with any problem faced by a competent nation.

We bailed out Chrysler, the Savings and Loans and Mexico. We will bail out the creditors of bubble priced home mortgages -- after all it only takes bits and bytes (not gold) to do it.

The result will be numerical readjustments, not isolationism or national bankruptcy.

Nor will hyperinflation destroy the dollar. Our people are too good at everything they do. The immediate problem of jobs will be solved when government takes many of the burdens of health care and red tape off the shoulders of small business.

It is time for the IRS to get into the business of doing payrolls for small business free of charge.
It's time for government to perform for free the overhead tasks that cannot be dispensed with, (including paying union dues for workers who earn less than the median wage), and allow business to produce the goods and services we need.
Let government print the money and the private sector produce the things that money can buy.

American government and business can make a good team -- and they may have to -- when China stops selling stuff for paper, bits and bytes called American money.

John Gelles