Thursday, April 7, 2011

The Problem

What is happening is this. The government has been overinflating the money supply through a combination of excessive and continuous deficit spending and policies that allow financial vehicles like those packaging subprime mortgages into higher rated investment vehicles to exist.
At the same time, the government has been selling the debt to foreign countries which has an artificial depressing effect on the inflation rate which would normally rise when the money supply is too high.
To the government, this seemed like an infinite money maker which allows them to spend money like it was air even during the worst of times. We like to blame Wall Street for being richer than us, but this overinflation of the money supply is the fuel that pumps up Wall Street wallets no matter where the government spends the money because it all gravitates to those who attract it the best.
The overinflating money supply is also the reason for the increasing gap between the rich and the poor as the excessive money doesn't have enough economy to be reinvested in to find its way back down the chain. This is why our paychecks aren't getting bigger relatively.
But what is worst of all is that the overinflated money supply is too high to be stably supported by the economy resulting in bigger and bigger bubbles and corrections. Our current economic crisis is just the latest repercussion of this economic death spiral.
There is no short term solution to this. We are beyond the point of getting out of this mess without some serious pain, but if we don't tell the government to stop using this infinite money machine, even to pay for the best of intentions like health care, the long term repercussion will be far worse. In our current trajectory, the next economic correction is expected to surpass the devastation of the Great Depression in both absolute and relative measures.

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