Friday, October 8, 2010
It's coming anyway, but what balls...
Federal Reserve Officials: Americans Are Saving Too Much Money So We Need To Purposely Generate More Inflation To Get Them Spending Again
In an article entitled "Fed Officials Mull Inflation as a Fix", Wall Street Journal columnist Sudeep Reddy described this bizarre new economic approach that some over at the Federal Reserve are now advocating....
"But as the U.S. economy struggles and flirts with the prospect of deflation, some central bank officials are publicly broaching a controversial idea: lifting inflation above the Fed's informal target."
Does increasing inflation as a way to stimulate the economy sound like a good idea to any of you?
These are supposed to be some of the brightest economic minds that our nation has produced.
Unfortunately, it is becoming increasingly apparent that the folks running the Federal Reserve do not have a clue about sound economic policy.
Anyone who lived through the "stagflation" days of the 1970s should know that inflation does not spur economic growth.
But now some of the most prominent Fed officials are publicly proposing that we should purposely generate more inflation so that "real interest rates" (interest rates with inflation factored in) will go down.
For example, during a recent interview the president of the Federal Reserve Bank of Chicago, Charles Evans, made the following statement....
"It seems to me if we could somehow get lower real interest rates so that the amount of excess savings that is taking place relative to investment needs is lowered, that would be one channel for stimulating the economy."
If you truly grasp what Evans is proposing here, your jaw should be dropping.
He is basically coming right out and saying, "Hey, let's go out and crank up the inflation rate so that American consumers will start recklessly spending their money again."
So are Americans really saving too much money?
Of course not.
Just take a look at the chart below.
Americans are actually still saving far, far less than they used to. As you can see from the chart, in the 1960s and 1970s Americans would usually save somewhere between 8 to 12 percent of their incomes.
Today, we are still well below that level. But we have made some progress from the reckless days of five to ten years ago when Americans were living far, far, far beyond their means and basically saving next to nothing....
To read more and to see chart: