No, Rick Santorum, We Don't Need a Little Inflation

Tom Woods, New York Times bestselling author of Meltdown, replies to Rick Santorum's claims that gold doesn't prevent price inflation and that we need inflation in order to prosper. http://www.TomWoods.com

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[VaudevilleVillain]

Santorum disliked this video.

[aaaaaaaaaa8920]

Santorum is a complete idiot. It is embarassing!

[pipem4n]

Excess reserves, debt levels? It's going to be a tsunami, and I wouldn't count on deflation of credit to occure - that would require responsible government - won't happen.

[Fernando Pietramala]

Santorum's Catholic approach to the political and secular discourse is quite stale. Woods' is much more to invigorating; his agenda (perhaps as a Catholic as well --- you will have to ask him) is remarkable. If Rothbard is right that inflation is "an insidious form of taxation", and, to speak bluntly, "theft" of a most insidious kind, then why aren't there Catholic theologians in Catholic institutions attacking Keynesian economics on the basis of the comandment, "thou shalt not steal"?

[leomeyer11]

excellent work tom

[PissedFechtmeister]

Exactly. We're in a liquidity trap and Bernanke's only solution is to create liquidity. This is like sinking in quicksand and trying to get out by flailing about wildly.

[M Lawson]

To add to that, QE3 probably won't work in "increasing the supply of money" either because I think banks are in a place where they don't trust the situation at the moment so they will stick with low risk-low reward bonds and things of that nature. It won't really spark velocity and help the economy and I'd predict it will continue to stagnate, but it could always be worse (Greece/Spain etc.) *shrug*

[M Lawson]

We've seen the Fed increase reserves that banks had the ability to lend out, but instead we see banks de-leveraging and paying off debts. The money supply won't increase if banks are sitting on the reserves, because as you know, the Fed does not really "print money" anymore, just expands credit. They're trying to create "a little" inflation and this has been stated by both Paul Krugman and Ben Bernanke.

[PissedFechtmeister]

However we've seen the FED triple (quadruple?) the money supply over the past few years without a similar increase in prices, even adjusting for the government cooking the CPI books. Money supply is just one of many factors that determine price inflation.

[M Lawson]

In regards to inflation I've always held two Milton Friedman statements to be very true in that 1 - "The rate of inflation at any point is 'largely' a function of what happened to the supply of money in the two years prior" and 2 - "The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy."

& I consider myself more Rothbardian but Milt was important as well

[PissedFechtmeister]

Adam Smith, in Wealth of Nations, points out that the supply of gold increases by about 2% per year on average. A gold standard certainly doesn't mean that the supply of money is constant. Inflation is neither inherently good nor inherently bad and the same holds for deflation. The supply of money, like the supply of any other commodity, needs to change according to market needs.

[Kroban3]

I have a question. With either a fiat currency or a gold backed currency, how does one know when to put more money into the economy so as to prevent inflation or deflation? And with a gold-backed currency, is it true that you would have to acquire more gold to back a greater amount of currency? I'm not totally sold on going back to a gold-backed currency. With a fiat currency it matters who controls it and how much they print.