Inflation and Manufacturing Capacity

[sbehrens]

Hello everyone,

I've been trying to figure something out for a while now and I'm hoping someone here can help me. I understand that most people consider QE to be a bad thing because it devalues the currency and can lead to inflation and all that jazz. But wouldn't core inflation only occur if we are utilizing all of our manufacturing capacity?

Our current capacity utilization is 77 percent while some other economies operate at 85 without inflation. I understand that the fed will probably reduce the level of QE in the future in response to increasing economic strength. Why not use QE much more aggressively and only reduce it in response to high inflation? There will be more money in circulation but factories could simply manufacture more goods to meet demand. Prices would not necessarily rise until manufacturing fails to meet demand, at which point the QE could be slowed. When we are at a higher capacity utilization, businesses will expand to meet future demand and QE can continue. It seems like a fast way to grow the economy.

Also, legal issues aside, why wouldn't it work for the US to literally print money to pay some of its debt while capacity utilization is low?

 

[william the wie]

Q1 because the US is about the only major country without a VAT it is the major importer of used capital equipment. So US investment is low-balled two ways: imports are subtracted from GDP and VAT is subtracted from exports so our investment purchases are subsidized by foreign taxpayers. Therefore net US investment is way higher than what is reported and this means that we can and do export unemployment at higher rates than we do employment through outsourcing. This is why we are doing better than the rest of the world in real terms.

Q2 This is what QE is all about. Between VAT discounts on imports, UE in Europe and deflation in the Far East and energy production the Fed can't get ahead of imported deflation without dropping real wages in the crapper.

 

[EdwardBaiamonte]

I understand that most people consider QE to be a bad thing because it devalues the currency and can lead to inflation and all that jazz. ?

actually QE is the national policy so most economists don't think it is wrong. Also, the policy calls for no inflation and all that jazz so I have no idea what your premise is.

 

[EdwardBaiamonte]

This is why we are doing better than the rest of the world in real terms.

too stupid!! because we don't have a VAT tax on used capital goods??? Show us some evidence or admit to being a slow liberal