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Reality-based economics bites
December 17, 2013 - Harry Eagar
A fundamental belief of Tea Party and similar economic radicals is that inflation is inevitable if government deficits are large. The market does not think so.
I dunno what a market worshiper does when the market refuses to behave in an ideologically pure fashion. Rethink basic premises? Fuhgeddabahtit!
RtO, on the other hand, drawing on the real experience of the Great Depression has warned since its beginning that deflation is the worst thing that can befall an economic system, because no one knows how to control or reverse it. The Republicans forced deflation on us, and the Democrats and the technocrats at the Federal Reserve don't know how to reverse it.
Heaven knows they've tried:
"Bond investors are signaling they expect the Federal Reserve to lose its battle against disinflation, even after inundating the U.S. economy with more than $3 trillion in the past five years."
Reality was a long time in getting the market's attention. Gold went up crazily from 2009, just as it was supposed to do according to radical theory if deficits were large and growing. For reasons unclear to RtO, around six months ago, the whole world decided that was a mistake; and gold has crashed.
This coincided with the slowdown (but not reversal) of the rate of growth in US fiscal deficits, but that hardly seems adequate to explain it.
In percentage terms, its fall has been only somewhat less than the stock market's collapse in 2008-9.
This week was time for legislators to discuss spending. I saw no evidence that any of them -- certainly not the radical right -- was aware of what is going on.
You might suppose, in the abstract, that people who elevate the purported wisdom of the market above all merely human understanding would listen when the market speaks. You would be wrong.
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