Wednesday, March 18, 2015

My letter to the NY Times re: False love affair with inflation

Re: Asia Rushes to Lower Rates, But Maybe Not Fast Enough by Neil Gough

Dear Sirs:
In the first two short paragraphs of his article Mr. Gough reveals the premise upon which his title depends. Since his premise is faulty, the entire article is faulty. To wit:

"Central Banks across Asia are racing to cut interest rates, but they may not doing it fast enough to stave off economic malaise. The problem is weak inflation...If prices drop too long, companies invest less and people's pay shrinks."

What nonsense; let me count the ways:

1. Inflation (rising prices) destroys consumer purchasing power.
2. Deflation (falling prices) restores consumer purchasing power.
3. Spending is NOT a panacea for economic recovery--savings is.
4. Investment is funded out of savings not spending; therefore, decreased consumer spending and increased savings is the path to economic recovery and future prosperity.
5. Debasing one's own currency does not spur economic growth via increased exports. It merely transfers wealth from savers to exporters and foreign buyers, making the overall economy poorer.

No comments:

Post a Comment