Wednesday, January 28, 2009

Here is where We are at.

Should WE prepare for Inflation or Deflation. This article basically suggests that Inflationary factors are relatively constant within the financial crisis, while Deflationary threat reflects only modeling chaos rather than a shortage of funds. It is a sentiment with which I agree. Almost all economic models are devoted to the detail of performance, in order to attain accuracy. Skewed patterns of illiquidity will always present extreme results; it is a question of containing magnitudes in proper forum. Inflationary factors are always based upon maintaining Profitability within Business enterprise, and quick to rise under threat (businessman and employee like to maintain consistency of Dietary programs). Flushing the system with Cash will have predicable economic consequences down the Road, though Short-term values of extra Cash does little to stimulate in the absence of Consumer Demand.

William Shughart explains the Situation rather effectively. Nothing substitutes equitably for Consumer Demand, and Public expenditures does not generate sizable Consumer Demand (I estimate only about 7 Cents for every Public dollar spent on infrastructure, and I will be slaughtered for that assessment). The only effective Consumer Demand stimulus remains outright Welfare payments, and this program holds great danger for proper economic signaling within the economy. Any Economist has to remember that the Public Sector is a lousy Purchase Consumer in comparison to almost any element of the Private Sector; this due to the lack of sustained Sales, and thereby the established economic system Profits distribution system (the Public Sector always assuming the ability to organize such a distribution system effectively).

D.W. MacKenzie takes the traditional Conservative route of promoting Tax Cuts in a very effective Read. I do not agree with this Consensus, though, for a number of reasons. The last Boom was based upon extreme Profit ratios for Business, with an oversupply of low-Cost Labor to generate Consumer Demand. The Business structure failed in that there was an oversupply of Labor, inducing an excess Labor Cost throughout the Private Sector; the whole inflating Resource Costs without proper Product Price reduction. The truism exists that Business Profits should have been halved, while Labor Costs had been reduced by around my estimate of 13%. The Labor Costs actually absorbed the natural Business Profits, while the Product consumption generating the Business economic Profits was actually unfunded; consider the rapid increase in Consumer Debt. Normal economic constraints will have to be reestablished for the Decline to reverse. lgl

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