Fuel for an inflationary hellfire

With the advent of TV going into third world countries and lifting expectation of huge swathes of disenfranchised folk, what did the world expect? (Fuel for an inflationary hellfire, March 1).
The third world now want a first world standard of living and TV is fanning the flame. It's inevitable that there will be conflict.

The thrifty and provident generation of my grandparents was pauperised by inflation in the 1960s (Fuel for an inflationary hellfire, March 2). A UK £3400 war bond paying 3.5 per cent had a market value in my grandmother's estate of about £550 in 1975. Then adjust the interest down for inflation. And hack out a chunk for income tax. At the same time, Slater Walker (a flash forerunner of today's creative financial 'institutions') was issuing 1995 unsecured loan stock paying 17.25 per cent. Inflation rewards the guilty and punishes the innocent. How quickly we forget.

The root cause of financial catastrophe is not central bankers (Fuel for an inflationary hellfire, March 2). Our system of democracy allows elections to be won by offering pay-offs to the electorate. This creates long term dependency and socialist government populism. Creeping socialism in the family unit entrenches behaviour whereby whole families only know about work for, or payments from, the government. Success is then a measure of how much can be spent, not saved. This success can be entrenched in society and become a moral dilemma. The stress caused by this "success" is not a route to happiness or family coherence. It leads to other forms of solace often in drugs or beliefs of faith rather than facing the reality of a budget.
By not offering social services a political candidate may never be elected. Enacting those services can bankrupt the economy. Balancing a budget is seen as secondary to getting elected.
Australia is energy rich and has managed to balance social services with revenue. The greening of our energy at great expense is dangerous. It will make feeding the poor unaffordable. The rich will complain, the Greens will blame the rich, the poor will suffer as the nation becomes poorer. The environmental spendathon is being orchestrated by public servants for their benefit. It will impoverish many more than it feeds.
US debt has nothing to do with Alan Greenspan. The United States problem has always been about their inept political system being affected by ego. It is better in the United States to "go to war" rather than solve internal funding issues.
War creates more war and bigger military expenditure. If an enemy cannot be clearly defined a victory is not possible. Better to kill a dictator with a single bullet than hold ground with an army. The worst that dictator can do is kill you first.

This is where the RBA and indeed we Australians are lagging far behind in creative thinking and innovative policy designs (Fuel for an inflationary hellfire, March 2).
It is reported that our big banks have had to borrow heavily from overseas wholesales money markets to use in their Australian lending.
Alternatively, a large part if not all of those borrowings by our big banks could be supplied by the RBA through innovative monetary policies, so to keep the total real money supply (RBA and from overseas lending to our big banks) remain the same and the effects on interest rate would be effective the same. By doing that, however, the interest that are currently paid to overseas lenders are earned by the RBA to increase national welfare.
The RBA had not thought about the FED-style approach from the first place, but has been so slow even after the FED had implemented as well as (the ECB) it. Even now we have not seen any creative thinking or learning from our central bankers, or their policy supporting senior staff.

Tell us how you really feel, Geoff (March 2, 9.36am). All I wanted to add is the effects of inflation are increasing prices caused by debasing the currency.
We are in a deflationary spiral at present, but the Earth can only provide so much, so when all this quantitative easing is chasing finite assets like food, fuel, gold and silver, demand will exceed supply and the price adjusts accordingly.
We are in a bind now as interest rate movements affect many on the margin so that tool to curb inflation is gone. Katie, bar the door.

While the tsunami of money creation has disproved Freidman's theory that 'inflation is always and everywhere a monetary phenomenon', old-fashioned Keynesian theory still points to a massive inflationary outbreak once economies return to full capacity (Fuel for an inflationary hellfire, March 2). On the other hand, economies operating at their production possibility frontier is a problem we'd love to have, even in Australia. The solution would seem to be watchful waiting rather than premature austerity. For Australia, the decline in the terms of trade which has now started will be a factor, although effects via the currency are hard to predict. The gradual decline in house prices seems to suggest no major bubbles, except perhaps in the Australian dollar, which itself is anti-inflationary while it lasts.

So we face the threat of inflation. Big deal (Fuel for an inflationary hellfire, March 2). Have a look back over the past 67 years since WWII. In fact, inflation in the US in 1946 was 19.9 per cent – good way to get the government debt down as a percentage of GDP. I note that Taylor was not reported as offering a solution other than the current money printing.

The other very real factor on the inflationary front lies in the growing prosperity and demographics in Asia (Fuel for an inflationary hellfire, March 2).
Inflation has been controlled in the western world by buying more and more goods from cheap labour countries. First it was Japan, then Taiwan and Thailand, then Korea, and finally the big daddy of them all China. We have had high domestic inflation offset by the reduced cost of imports. All the money printing and credit creation thus did not result in inflation but in current account deficits, the resulting foreign debts and the sell-off of our national resource assets and industries.
The disastrous demographics of the Chinese one child policy are already resulting in severe labour shortages in various parts of China. Rising prosperity and comparatively high wages mean workers not only get paid more but are willing to work less. Simply, the Chinese have worked hard and saved hard while we were being so profligate. Now they want the good life, too.
We are about to import inflation instead of deflation to add to our already substantial domestic inflation of about 6 per cent. Inflation will explode out of control but the system has so much debt in it as a result of 50 years of waste that interest rates cannot now be raised without destroying all the western economies.
'Conflagration' is an excellent choice of word for what is coming.

Robin Ryan (March 2, 11.45am), maybe events have not disproved Friedman's observation so much as required amendment to it (Fuel for an inflationary hellfire, March 2). Friedman did not see the massive China effect coming. He did not see such a vast pool of unused resources and an astute people. So, with free trade philosophies to the fore, the credit creation resulted not in inflation but in production from China. As a result we had CADs and the more cheap imported goods we bought the less was measured price inflation.
So maybe Friedman should have said 'the excess monetary phenomenon will always and everywhere result in either inflation or current account deficits'.
Currently the price in US dollars of high labour input goods ex-China is rising at roughly 15 per cent annually being more or less exactly offset by the rise in the Australian dollar.
Even if the Australian dollar stays at its current elevated level we are faced with 15 per cent imported inflation. A decline will magnify that effect.
There is no (easy) answer to this. The answer lies 50 years back in time.