New Deflation Fears

I' been singin' this song for two years now.  Inflation is not a fear relevant to our current economic situation:  Deflation is.  And now the Fed is worrying about it too.  But what can the Fed do?  Interest rates are already at zero.  They could buy more treasury notes and increase the money supply, go negative interest, but is that really desirable?

Monetary policy has failed--except for Bernanke's landmark moves to save the financial system from complete meltdown, the country needs a blood transfusion, stat.  And that means, yooouuu guessed it!  More government spending!

Here's the thing.  While politicans respond to polls and Fox news fears about the federal deficit, the States are in serious trouble.  We all know about California, but that's only the tip of the iceberg.  And the states can't run deficits.  They are constitutionally unable to run deficits.  Except for one state, Vermont.  So when the government can't afford to pay their employees, the only way to close the budget will be to institute mass layoffs or accept federal subsidies.  Watch those Republican governer's squirm as they bitch about government spending with their mouths, and greedily go for all the cash they can grab with their hands.  We've already seen that in Louisana.  Go Bobby Jindal!

Let's see who to can first?  Everyone hates bureaucrat's, let's can them.  So no state licensing, no state medical billing, no consumer protection=no new businesses.  Not to mention that every single one of those guys will be eligible for unemployment, raising the deficit higher.  No wait, Republicans want to eliminate unemployment checks.  Ok, that's great.  Well, millions of people aren't going to starve to death, and there are no jobs to have, so let's riot.  So crime will go up, but wait, we've cut down the police force to minimal staffing requirements.  Not to mention our nonexistent state fire departments, so you can count on raging neighborhood fires.  Thousands of homeless.  But wait, let's cut the teachers.  That's a good idea.  So, business goes on as usual except for the fact that public education is at a stand still.  Well at least childcare will go up.  Oh wait, that's not counted in GDP, so there again, continue the downward spiral.  But don't we want to grow the economy?  Not allow for a productivity gap larger than anything the world has experienced since World War II?  Don't count on it.  What else?  Road maintence down, accidents up.  No courts, no justice.  Let alone the markets.  If the SEC were to dissolve say, public companies would be under no obligation to tell the truth to their investors.  Everyone would declare famous profits, and the market would crash in disbelief. 

So yay states rights.  Yay right to life.  Yay personal responsibility.  Boo gay marriage.  Boo Mexicans.  Boo Muslims. 

Yay chaos and anarchy.

So I'm being a little overboard.  True.  If any of this happens at all, it won't happen overnight.  And all it takes will be a taste of blood letting in the streets before politicans on both sides of the aisle get off their hands.  But lest we forget, think Summer of 1967, 1968, and 1969.  Riots and assassinations.  Police brutality, John Birch Society, Black Panthers, riots in a dozen major American cities.  All this has happened here before.  And it can happen again.  And it will happen again.

So forgive me for not being concerned about the deficit.  America's venerability as a debt guaranteeing society does not depend on today's Federal Deficit, it depends on its political stability.  America's economic future does not depend on the money it owes today, it depends on the investment it makes on its people tomorrow.

So Americans vote Democratic.  We ain't great, but we've passed two major, historical pieces of legislation with absolutely no help from the opposition party.  And we're already seeing the effects.  Remember overdraft charges?  In 5 days, you'll never see another overdraft charge again*.  That's what we call consumer protection.

*Caveat.  Provided you 1) opt out.  And 2) This means your card will get declined, so mind your balance!