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October 19, 2008 at 19:23:28
Promoted to Headline (H2) on 10/19/08: by Paul Craig Roberts Page 1 of 1 page(s) |
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Until the Reagan administration indexed the income tax, inflation was a boon to government, because by pushing up wages and salaries inflation pushed taxpayers into higher brackets. This allowed the real tax burden on labor to rise without politicians having to raise the tax rates. Inflation also destroyed the value of depreciation allowances, thus raising the tax rate on capital as well.
It is not easy to make the young aware of the long-term rise in prices. The inflation indices are periodically re-based, resulting in measures over time with different years as the base. The Clinton administration further destroyed comparability by substituting a variable basket of goods for the fixed assortment that had previously prevailed. With the Boskin Commission "reform" adopted by the Clinton administration, the Consumer Price Index (CPI) no longer compares apples to apples. If the price of apples rises, the CPI assumes that consumers switch to a cheaper substitute. The "substitution effect" thus underestimates the rate of inflation and destroys the comparability of the inflation rate from one period to the next.
Inflation is inherent in a fractional reserve banking system based on fiat money. Fiat money is not subject to limits on its supply, and fractional reserve banking permits the banking system to create money by expanding loans.
Aware of the ever present threat of inflation from such a system, Milton Friedman advocated a monetary rule that would limit the growth of the money supply to the long-term growth rate of the economy. For example, if the money supply grew 2 to 3 percent annually in keeping with the increase in real output, prices would remain stable. Perhaps it wasn't a perfect solution, but at least Friedman thought about the problem.
In the post-WW II period, the US has experienced dramatic increases in the growth of money and credit. One way to demonstrate the erosion of the purchasing power of money is to look at the change in the behavior of the prices of used Ferraris. In the 1950s, 1960s, and even the 1970s, Ferraris depreciated rapidly. Well-to-do playboys attracted by the unique cars wanted the latest model, and few other people wanted the maintenance expense associated with the high performance machines. It was not out of the question for a person with an ordinary income to become the second owner of a Ferrari.
Excepting a few models of high volume and undistinguished performance, today it is totally out of the question that a person lacking an out-sized income or a large inheritance could acquire a previously owned Ferrari.
For example, in 1973 when I left Stanford University I had an opportunity to purchase a 1967 Ferrari 330 GTS. It was a low mileage car in new condition. The asking price was $10,000 and could have been negotiated down. Unfortunately, the Scottish part of my ancestry prevailed, and I did not purchase the Ferrari. Recently at the Monterey auction a 330 GTS sold for $671,000, 67 times its 1973 used car price.
As an assistant professor of economics in 1967, I cut a road test out of Road & Track magazine and filed it. The test was one of a 1967 Ferrari 275 GTB/4. The new price was $14,500. I intended to find one in a few years at a substantially depreciated price. At a recent Monetary auction, a 1967 GTB/4 sold for $1,925,000.
What has happened to money that causes a 41-year-old used car to sell for 133 times its new car price?
The abundance of money from a fiat money/fractional reserve banking system raises the price of scarce items that are beautiful and unique, such as Ferraris and antiques. Few Ferrari models were produced in numbers greater than several hundred cars. Perhaps the most famous Ferrari is the 250 GTO. Less than 40 were produced. The GTO, which is street legal, dominated racing and won the World Manufacturers Championship in 1962, 1963, and 1964. The new car price was $18,000. In 1989 one sold for $13 million, This year one sold for $28 million. I have a friend who bought a used GTO in Europe in the mid-1960s for $9,000 and sold it six months later for the same price.
Ferraris became collectibles, a store of value, a role that the dollar no longer performs. Today collectible cars have become items for speculation. They are flipped in auctions with bids rising several hundred thousand dollars from auction to auction, just as real estate speculators bid up waterfront condo prices and hedge funds bid up oil futures contracts.
The cars are worth so much now that you will never see one on the road, not even in the playgrounds of the rich and famous. The more than 1,500-fold rise in the price of the GTO over the last 45 years makes gold's 28-fold price rise seem insignificant. But both prices show the ruin inflicted on the dollar by our fiat money/fractional reserve system.
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Mr Roberts seems to forget that
Ronald Reagan a wife and political party swappin senile sap created under his administration the largest form of government and bloated deficit spending that your great-grandchildren will be paying a fraction of the interest on. All Reagan administration officials committed Treason and are accomplices to War Crimes, and drug dealing from the negotiating with Terrorists Iran and taking the profits from the weapons sales to purchase guns for the Contras, who exchanged them for cocaine, Iran-Contra. Causing the epidemic scourge that befell the inner-city's of the USA during the 80's. Of Which Bu$h II won't disclose the last time he's done it. Bill Clinton has been the only president to create a budget surplus, of which the GOP Greed & Oppression Party Bu$h II was able to create into the biggest deficit since Reagan's time. Hell even the republicans Bob Barr and Henry "Youthful Indirection" Hyde were guilty of multiple martial infidelities they had accused Clinton of during his lame impeachment trial. Try as you might Mr. Roberts you can never clear Ronald Reagan's name higher than the scum on the pond of water that it resides upon. He will always be remembered as the president who called Saddam Hussein and Osma Bin Laden Freedom Fighter's, the republican's have re-labeled as Terrorist's. Such stooges who are affiliated with these tyrannical types. What else should I expect from a B rated actor and the bumbling fools who rode his coat-tails into Washington upon. Many of the dilemmas facing the USA today were problems fostered by the Reagan regime. Who should have been rode out out on a rail after having been tarred and feathered for the gross corrupt-deregulation championing, hand-off miss-management of Treason fomenting lackeys who have operated out of the White House, until the most recent bunch of convicted felons of the Bu$h cabal, many who were a part of the Reagan "Revolution" team. by Stanimal (2 articles, 226 quicklinks, 38 diaries, 1254 comments [234 recommended, 2 rejected]) on Sunday, Oct 19, 2008 at 11:21:41 PM  (0+)
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Where Inflation came from.
It is difficult to imagine anyone as misinformed as Stanimal. There is no excuse for rudeness based on gratuitous ignorance. by paul roberts (0 articles, 0 quicklinks, 0 diaries, 60 comments [14 recommended, 0 rejected]) on Monday, Oct 20, 2008 at 12:54:08 PM (0+)
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Please provide one example
of where I am not providing a truthful example of the Reagan administration. by Stanimal (2 articles, 226 quicklinks, 38 diaries, 1254 comments [234 recommended, 2 rejected]) on Monday, Oct 20, 2008 at 1:14:10 PM (0+)
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Stanimal; Choices
Stanimal, Mr. Roberts mentions one small, good thing that Reagan happened to do, and you equate that to some sort of hero worship? But your response of one little thing Clinton did right adds a lot of light to the source. I guess one sticks to what one understands, in one's explanation of things to one's self, and if you need a hero I guess that's ok. But Clinton? If you're going to deal with people in the verbal world, you might want to add some perspective to your outlook, lest you come off sounding like a drummer in a string quartet - a one-note thumper that, no matter how hard he tries to play along, merely distracts from the subtle complexities of the discussion at hand. You can't blame everything on any one person in any given administration. From my perspective, it's because evil is also bigger than any one person, and political power attracts said evil. Even those with good intentions can misuse power. Yes, even Democrats. I know, it may be hard for you to believe, but it is highly unlikely that any person, no matter how good their intentions, will have an overall postive effect in the political atmosphere that exists in DC. No matter how good a public speaker they are, no matter how good their abstract intentions to save us from our fears sound, no matter how much or how little they actually do, there are hundreds or thousands of other bureaucrats all working against the limitations on their power, in order to realize their own good intentions, with less attention paid to the secondary effects of their plans on the future or on others. With our government, your choices are between Coke and Pepsi. Sweet on the tongue, acid in the body. There is no such thing as coffee. Milk? Water? Those are for babies and health nuts. Studies show more people drink Coke or Pepsi than anything else that generates tax dollars, so those are your official choices. Can't tell the difference? What a maroon! EVERYONE knows the difference between Coke and Pepsi! Pepsi's a little sweeter. That about sums up our Presidential candidates this (or any past) election cycle as well. I'll leave it to the reader to match the soft drinks to their respective candidates. by UncleSim (1 articles, 0 quicklinks, 0 diaries, 512 comments [74 recommended, 3 rejected]) on Monday, Oct 20, 2008 at 7:04:14 PM (0+)
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not the brand, but the producer ....
As are so many others who criticize 'fiat money', Mr Roberts seems unaware of the most important factor of all - it is not the type of money that counts, fiat or gold-based, but who is creating, and thus controlling, that money. When you have private banks creating money out of thin air, and their primary purpose is private profit and maxing that profit through speculation, you are going to have all of the problems you see today, all related to creating much too much money, most of it for purely speculative purposes, and with one and only one result completely inevitable as the amount of money far outstrips any hard asset value money must be based on. Gold is subject to the same problems - even if money is pegged to gold, the pegging rate must be adjusted from time to time, so the same issue of control of the value arises. What is needed is an open, democratically controlled money system, loosely tied to something like the actual value of hard assets in the country, in which true representatives of 'we the people' control the money supply and everything else in a true democracy, and we create money based on the principle of a stable economy, not on creating speculative money for gamblers to play with. That we currently have a government controlled by the banks and related people does not invalidate this fact, it just means we have more work to do than simply stabilizing the money supply - getting Democracy in our countries. More detail here about the money stuff - BANKETEERING http://www.rudemacedon.ca/lgi/banketeering.html . First we take back our brains, then we go for the country. by siamdave (4 articles, 0 quicklinks, 1 diaries, 85 comments [3 recommended, 0 rejected]) on Monday, Oct 20, 2008 at 10:49:00 PM (0+)
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Reply: where inflation came from.
Let's see, Hank Paulson stops being a private banker at Goldman Sacks and becomes a public banker at the US Treasury. Suddenly he becomes all-knowing, and dedication to the public takes over from greed. The Federal Reserve is not the private bank that some people think. The President appoints the chairman and every member of the governing board. by paul roberts (0 articles, 0 quicklinks, 0 diaries, 60 comments [14 recommended, 0 rejected]) on Tuesday, Oct 21, 2008 at 7:35:51 AM (0+)
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