Thursday, May 28, 2009

GM to announce 14 plant closures Monday



If you want to get rich, stock up on used cars now!

Shrinking the productive capacity of a nation to produce the real assets that a growing society needs is absolutely insane policy. This will do far more to exacerbate and sustain long-term inflation than the Fed's reserve build, which in fact, has zero direct influence on inflation. No, I take that back...an expansion in reserves tied to a policy of reducing interest rates to near zero is actually deflationary, not inflationary.

But downsizing a nation's ability to produce the real capital that every society needs will ensure shortages and higher prices in the future. That's is like signing a law mandating a lower standard of living for every citizen and future generations of citizens!

Even more outrageous is the fact that Obama and his team seem absolutely determined to sustain the financial sector in its current form--a form that carries inherent volatility and risk--but adds no real value to the economy.

All from a president who promised to "help the working class." It's bizarre!!

If you want to get rich, stock up on used cars now. It'll be the best speculation you ever did.

3 comments:

Matt Franko said...

Mike,
to make an observation on the following:
"No, I take that back...an expansion in reserves tied to a policy of reducing interest rates to near zero is actually deflationary, not inflationary."

Since the Fed started to buy MBS/Agencies and Treasury Securities in earnest first week of Jan. 09 until this week, Reserve Bank Credit has actually fallen from $2.246T
here to $2.074T here.
The Fed is taking some heat in the media this week from the usual "debasing" and "printing money" crowd as rates have somewhat backed up on the long end, and oil is rising (oooooh here comes inflation!), but cant these Monetarist types read a report and see that reserves have actually fallen by 7.7% while the Fed has been doing this?
Resp,

Mike Norman said...

Yes, they can read it, but that would create cognitive dissonance causing them to rationalize it away.

Mike Norman said...

The $200 billion drop in the size of the Fed's balance sheet is exactly why you are seeing rates back up. Again, Fed controls this. As Warren (or Karim) pointed out recently, the Fed is perfectly happy letting rates rise if stocks are rising as well and if the economy is growing. On the other hand, the Fed doesn't tolerate a weak economy, falling stocks and rising rates. If latter condition describes the current situation, don't expect the Fed to let rates get too high.