What would you rather fight, Inflation or Unemployment? I would fight inflation.

[Big Blue Machin]

I would choose inflation because it is the smartest way to fight both of them. Inflation causes unemployment. If the inflation rate is high then businesses have to cut their losses and fire people. Lower inflation makes the businesses more confident and they hire more workers.

Fighting unemployment would cause a deficit. Spending money isn't the answer. Example is the Trudeau era, (I know there was a recession at the time). More spending equals more inflation which causes unemployment.

 

[Big Blue Machin]

No one has a second opinion or a different opinion on this issue?

 

[5stringJeff]

BBM, I agree with you.

 

[Big Blue Machin]

That's it?

 

[Markainion]

That's it?

BBM you really seem to want an answer to this, so here it goes. In most situations fighting inflation is wiser than fighting unemployment, but in times of deflationary pressures fighting unemployment is the smartest choice.

Example. Do to the current situation in the global economy, deflationary pressures have been greater than inflationary pressures, that why the Bush administrations spending hundreds of billions of dollars on military and security contracts which creates jobs, have had little to no effect on inflation. In fact inflation has been very tame during Bushes reign despite a massive increase in government spending. This is only possible do to inflationary pressures from Bush’s spending countering deflationary pressures from the global economy, resulting in mild to low inflation that we have had the past few years.

 

[Big Blue Machin]

The problem is that Bush won't cut spending.

 

[5stringJeff]

The problem is that Bush won't cut spending.

Unfortunately, he hasn't in the first few years. The FY06 proposed budget freezes spending levels for most domestic programs, and only increases the military budget (since we're fighting a war and all).

 

[Big Blue Machin]

He's doing what Ronald Reagan did, freeze or cut spending on social services, ctting taxes, and spending everything on the military and defense.

 

[Markainion]

He's doing what Ronald Reagan did, freeze or cut spending on social services, ctting taxes, and spending everything on the military and defense.

Personally I think it is smarter for a government to spend money on security and military services and research than welfare checks, they both stimulate the economy but one results in advances in technology and helps defend the country.

If you want to help the poor the government will be better of focusing on education, immigration policies and trade imbalances. Spending money for equality with out changes the factors that create inequalities result in just a waste of money.

 

[Big Blue Machin]

Personally I think it is smarter for a government to spend money on security and military services and research than welfare checks, they both stimulate the economy but one results in advances in technology and helps defend the country.

If you want to help the poor the government will be better of focusing on education, immigration policies and trade imbalances. Spending money for equality with out changes the factors that create inequalities result in just a waste of money.

I wasn't implying anything. I was just saying the truth.

 

[Huckleburry]

I would fight unemployment. The Phillips relation demonstrates a inverse relationship between employment and inflation. Your earlier statement that inflation causes unemployment is both theoretically and empirically incorrect. Moreover inflation is generally countered with monetary policy making it the province of the independent federal reserve. Strickly speaking the government can really only affect unemployment, with inflation (as demonstrated by the phillips relation) being a function of government policy.
Now to adress spending decisions. Empricall evidence as shown that defense spending as the least expanisionary effect when compared to other spending projects. If the goal is to bolster the economy then Mr. Bush would be better off to spend on social programs and domestic improvement projects as they are proven to have the greatest multiplier effects.
Cheers Huck

 

[Big Blue Machin]

But if you spend more, and increase a deficit, the value of your currency goes down which also means that the cost of living goes up (ie inflation :duh3: ).

 

[Markainion]

But if you spend more, and increase a deficit, the value of your currency goes down which also means that the cost of living goes up (ie inflation :duh3: ).

BBM being a Canadian I am wondering why you care so much about the US affairs? Second your understanding of economics is very basic, foreign perception of countries ability for economic growth has always matter more than budget or even trade deficits.

Being a Canadian all asks you a question, why do most investors in the world think that the US is a very good investment? Why do they believe in the US way of doing business versus often their own countries and foreign neighbors in Asia and in Europe? Being not from the US I would think you would have a better idea about this than I do.

 

[gonegolfin]

that why the Bush administrations spending hundreds of billions of dollars on military and security contracts which creates jobs, have had little to no effect on inflation. In fact inflation has been very tame during Bushes reign despite a massive increase in government spending.

Stepping away from the focal point of this thread for just a second ... I am one that feels very strongly that inflation is not tame and has not been tame for some time. Yes, the numbers that get reported by the media are consistent with the low inflation mantra that is being espoused. But I think that when you dig down into how these numbers are being put together (this goes back many years) and what the "indicators" are including/excluding, it is a case where the entire story is not being told.

In short, for several decades we (and other major nations) have executed rather inflationary policies coupled with the continued and purposeful debasement of currency.

These are a couple of reasons why I am extremely concerned over the Dollar long-term as well as the world's fiat currencies.

 

[gonegolfin]

But if you spend more, and increase a deficit, the value of your currency goes down which also means that the cost of living goes up (ie inflation :duh3: ).

Markainion is correct when he says that perception w/respect to the ability for economic growth is key. It is key in driving and sustaining investment. And deficits do matter as well, eventually, as they can help change that perception (among other things). But some key elements you are missing with respect to what causes a declining currency are the inflationist policies of the government(s) themselves, as well as the continued and purposeful debasement of currency. Disastrous effects can result (and historically have).

 

[5stringJeff]

Stepping away from the focal point of this thread for just a second ... I am one that feels very strongly that inflation is not tame and has not been tame for some time. Yes, the numbers that get reported by the media are consistent with the low inflation mantra that is being espoused. But I think that when you dig down into how these numbers are being put together (this goes back many years) and what the "indicators" are including/excluding, it is a case where the entire story is not being told.

In short, for several decades we (and other major nations) have executed rather inflationary policies coupled with the continued and purposeful debasement of currency.

These are a couple of reasons why I am extremely concerned over the Dollar long-term as well as the world's fiat currencies.

Welcome, gonegolfin. I think there are a few of us who are wary of the current fiat currency system in America. Have you read "The Creature from Jekyll Island?"

 

[gonegolfin]

Welcome, gonegolfin. I think there are a few of us who are wary of the current fiat currency system in America. Have you read "The Creature from Jekyll Island?"

Thanks gop_jeff. No, I have not read it. I think I will have to check it out. Thanks for the tip.

 

[Markainion]

These are a couple of reasons why I am extremely concerned over the Dollar long-term as well as the world's fiat currencies.

If you have read some of my earlier post, you would know that I share your concern about American future with respect to its currency value. The point I was trying to make on this tread was not to jump to conclusion that budget deficits automatically result in currency devolution. Economic is one of those subjects that rack your brain, because it is so complicated, and even I often forget a dynamic that goes into it.

I watch Warren Buffet on CNBC about a week ago talk about the future of American currency, if you don’t know he has for a while express concern about the future of our currency. But even he said that it would likely take four to five years to see a negative effect on the US currency. The reason is simple it would take a major chance in foreign perception to deflate our currency. Even then the US may change enough to satisfy foreign demands and keep the US currency strong for a long time. I try not to make negative assumption about the future with out strong proof that it will happen.

As for the actually inflation, for those that don’t know (I am not assuming that you don’t) the PPI is calculated by a large array of products. If Washington has selected the wrong products to evaluate inflation with then that another issue. If their gage on inflation is wrong, then most economic data is wrong as well.

 

[gonegolfin]

If you have read some of my earlier post, you would know that I share your concern about American future with respect to its currency value.

No, sorry I have not. I just found this forum. I do look forward to your posts.

The point I was trying to make on this tread was not to jump to conclusion that budget deficits automatically result in currency devolution.
Economic is one of those subjects that rack your brain, because it is so complicated, and even I often forget a dynamic that goes into it.

Indeed. I was going off on a bit of a tangent and not addressing the original poster's question nor the main line of your response.

I watch Warren Buffet on CNBC about a week ago talk about the future of American currency, if you don’t know he has for a while express concern about the future of our currency.

Yes, Buffet has been a dollar bear for a little while now.

But even he said that it would likely take four to five years to see a negative effect on the US currency. The reason is simple it would take a major chance in foreign perception to deflate our currency.

Most of the experts that I respect tend to agree that it would likely take at least three years and as much as a decade to begin seeing serious problems.

But I do not think the reason is simple. You are right in that one key element would be a major change in foreign perception relative to the dollar and our economy. I think you have already seen some flight from the dollar and I think there is a good chance it will continue. But I also think there are other significant things at play. Such as the world governments selling off their gold reserves in order to depress the price of gold (keep a lid on it) and keep their fiat currencies up.

Even then the US may change enough to satisfy foreign demands and keep the US currency strong for a long time. I try not to make negative assumption about the future with out strong proof that it will happen.

As for the actually inflation, for those that don’t know (I am not assuming that you don’t) the PPI is calculated by a large array of products. If Washington has selected the wrong products to evaluate inflation with then that another issue. If their gage on inflation is wrong, then most economic data is wrong as well.

Yes, this is my point. Not only have they selected the wrong products (or more accurately, they have left out extremely important ones) with which to evaluate inflation, they have done so purposefully.

 

[Huckleburry]

Are you all suggesting a return to a Bretton Woods style exchange system? You are talking about the dangers of the current world system yet you are all being rather vauge. If we are to have a debate some specifics would be nice. Which goods should be included in the calculation of inflation? Which should not? Why is the US currency at risk? This is not mere semantics but rather the missing the ingredient to a spirited debate.
I look forward to your reply.
Huck.
Ps.
Big Blue Machin,
I made no comment on the size of the deficit. Merely that a well known and well proven economic relation-the phillips relation-proved your conclusion to be quite misguided. Nothing more, nothing less.