http://jutiagroup.com/2009/05/15/jim-rogers-on-us-currency-crisis/ Market Jitters & Political Critters Mon, 23 Nov 2009 08:10:17 -0500 http://wordpress.org/?v=2.8.6 hourly 1 http://jutiagroup.com/2009/05/15/jim-rogers-on-us-currency-crisis/comment-page-1/#comment-15315 James Sat, 07 Nov 2009 00:31:05 +0000 http://jutiagroup.com/?p=6347#comment-15315 Those who insist inflation is a result of too much paper chasing too few goods can take a lesson from the curent crises. In spite of increases in the money supply, declining agregate demand due to high unemployment has kept prices down and lower prices are also influenced by cheaper imports. Increased demand creates inflationary pressure and there are two causes. Cost driven inflation, ie., increased wages and costs of production. The second is classical inflation ( too much paper chasing too few goods). Declining agregate demand keeps both these causes of inflation at bay but deflation is a more serious threat then inflation because deflation erodes productivity. It costs $30.00 to get a barrel of oil out of the Albeta tar sands. If oil prices are within the 30.00 range,there is a no incentive to extract oil and this the capacity for any business to survive is dependant on demand. The law of supply and demand cannot be conned. If the current prices of oil are not subject to market discipline, they do not reflect supply and demand and I agree with Profesor Nouriel Rubini, that we are in an asset bubble and like all bubbles they must eventually break. The Banks are not lending; they are hoarding cash. The Tarp funds were supposed to provide the availability of credit to stimulate agregate demand but Banks are using the Tarp Funds for paying huge bonuses. It is clear that Wall street is not reflecting the main street economy. Those who insist inflation is a result of too much paper chasing too few goods can take a lesson from the curent crises. In spite of increases in the money supply, declining agregate demand due to high unemployment has kept prices down and lower prices are also influenced by cheaper imports. Increased demand creates inflationary pressure and there are two causes. Cost driven inflation, ie., increased wages and costs of production. The second is classical inflation ( too much paper chasing too few goods).
Declining agregate demand keeps both these causes of inflation at bay but deflation is a more serious threat then inflation because deflation erodes productivity. It costs $30.00 to get a barrel of oil out of the Albeta tar sands. If oil prices are within the 30.00 range,there is a no incentive to extract oil and this the capacity for any business to survive is dependant on demand.
The law of supply and demand cannot be conned. If the current prices of oil are not subject to market discipline, they do not reflect supply and demand and I agree with Profesor Nouriel Rubini, that we are in an asset bubble and like all bubbles they must eventually break.
The Banks are not lending; they are hoarding cash. The Tarp funds were supposed to provide the availability of credit to stimulate agregate demand but Banks are using the Tarp Funds for paying huge bonuses. It is clear that Wall street is not reflecting the main street economy.

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