Wednesday, August 23, 2006

How to inflate

As I said in predictions, I expect to see a few months (no more than six) of depression that trends deflationary (monetarist definition) followed by a couple of years of high but not hyper inflation (still monetarist). The hurdle for that scenario is how to get created money into the hands of the public. Wages are flat, and the public willingness to increase debt (refinance homes, buy more on credit, etc) is just about tapped out.

So far I've come up with two 'broad' options, both with numerous variations.

Method one continues the credit. It's via a 'debt relief act' or instrument or some such. Probably not a tax credit as that's too slow (unless retroactively applied as the previous 'tax rebates' were applied). No, something that says "if you get more credit you get money back". Think of it as an extension of the Discover 'moneyback' method.

The second method was sort of mentioned already. The government goes on a massive spending spree - well, moreso than it has already. It can be for an internal or external critical issue - recovery from Katrina exemplifying the first, and the "great war on terror" the second. Either way, the government gets LOTS of people providing goods and services it needs to "do the job". Preferably in such fashion that they encourage and feed pick and shovel businesses. Ummm, pick and shovel. In mining rush towns, a few miners got rich. But most businesses that supported miners got rich. Sell the pick and the shovel they need but don't have and let the darn fools gamble on finding gold or silver.

I can't break form, I have to use more words (grin). There is a third way - a variation of the second. Instead of contracting for the people, hire them. Increase THEIR wages. How? The fastest and easiest way I know to massively increase the number of government employees is through a draft. That there are numerous painful obstacles to that for the government to do it is a given. I'm just pointing out the technique.

Draft, 'massive rebuilding program', 'massive reaction to external threat', and some sort of debt relief act. Any of those three and it's time for the high inflation - change assets accordingly.

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