"They defended him, verbally and physically, every time he committed one of his criminal acts. They went blithely on past the suffering of all the bombing victims, the prisoners in the concentration camps, and the religious persecutors, because a different regime would have meant the end of their power. 'You made this monster, and as long as things were going well you gave him whatever he wanted. You turned Germany over to this arch-criminal.'”
Friedrich Reck-Malleczewen, 1947
Income Tax revenue is taking a drop commensurate with the kind of slump which we are experiencing in domestic GDP.
But there is a bull market in government spending. This does not include much of the support being given to Wall Street banks and other 'off balance sheet' shenanigans.
Thanks to Escape From America Magazine for these charts.
The expansion of credit in a fractional reserve banking system seems to be geometric.
The spending in the wage - price function, as captured by the velocity of money, seems to be more arithmetic, on the order of 2 or so.
Can money creation then fail to overcome the output gap if monetization is permitted and government spending has been and continues to be robustly in excess of tax receipts?
A refusal of banks to lend would tend to dampen the geometric power of credit expansion and a potential source of money creation. It also would tend to dampen velocity of money.
An undeveloped thought which this blogger is just beginning to consider, offered in the hope that someone might offer some useful data or existing theory on the subject.
And on a separate but somewhat related topic, the flip side of deflation is not hyperinflation as it is an extreme. People who based their risk portfolio only for the extremes of an outcome cannot consider themselves hedged since they are likely to be killed in the middle, the most probable, over a reasonable investment horizon.
A serious bout of inflation is rarely caused by normal business activity, such as commercial bank lending and private debt.
In almost every case that I have studied, a very serious monetary inflation is triggered by excessive government debt obligations, and not private debt, that can no longer be adequately serviced by a productive real economy and domestic taxation.
That unserviceable debt becomes 'monetized' and a serious inflation results. It is a form of debt default.
Devaluation of a currency is a form of inflation which specifically addresses external debt obligations, as well as default on bonds which is a form of selective national bankruptcy.
The reason that the output gap is no sure barrier to this type of inflation is that it ironically serves to feed it in the presence of profligate government spending, since it dampens tax revenues and domestic GDP.
Private debt bubbles, asset bubbles, stock bubbles all seem to be the symptoms, the side effects, of an over easy monetary policy from a central monetary authority. In some instances they have been caused by exogenous events, even in the face of a hard monetary standard, by events such as a precipitous decline of the population from disease, or a sudden influx of a new wealth from discovery, such as the influx of silver and gold to Spain from the New World.
But the notion that banks must always lend to create inflation, or employment must be at robust levels, absolutely flies in the face of all historical experience.
And it does raise the issue, despite his protestations of innocence, impotence, and confusion, that Fed chairman Greenspan and the Federal Reserve itself, owns a unique culpability in the creation of several bubbles, from tech to housing, and the eventual outcome.
