Korea has joined the parade of European governments that are inflating. The U.S. leads the parade.
The U.S. has just been through a period in which the banking system multiplied credits enormously. The credits (loans) did not have sufficient values behind them in the form of home values or the ability of borrowers to service the loans. The same goes for credit card and other kinds of loans. The U.S. government also issued enormous amounts of debt that lack sufficient backing, because its taxing power has not risen compared to its debt increases. The entire economy’s excessive use of credit showed up in the enormous balance of payments deficit.
The result has been a fall in the value of the dollar, that is, a general rise in prices in the economy which is painfully obvious to all shoppers. This credit orgy is now over and the usual result is upon us, a softening in prices, a flaccid economy, and recession.
As when France issued more assignats, governments of the world are following Zimbabwe’s lead and issuing more notes than ever. This has done little so far, but it may cause a temporary revival lasting 4-6 months as my median guess. However, worldwide inflation will also revive. This will lead to yet another leg of the downturn. The governments will be helpless to stop it. We may see a lot of suffering and a lot of Zimbabwes.
5:19 am on October 20, 2008
