Posted by
Christianomics on Wednesday, June 13, 2007 4:49:55 PM
China's inflation has recently hit a two year
high, following on India's big inflation problem in
May with the rising Rupee. The trend is that the large overseas economies which used to simply absorb the increases by the Federal Reserve in the US money supply, are now running out of capacity to do that. Now Keynesian economists out there will say that such spending is necessary for the good of our economy, and a part of the abolition of scarcity in our time, but those who recognize that you can never get something for nothing will take a different view.
There appears to be inflation over the horizon, and it's coming our way. While we can continue to benefit from vast and rapidly growing trade with China and India, we can no longer rely on workers there to absorb continuous cost reductions to keep US prices stable. US price stability is going to become more and more dependent upon a contraction of the money supply and a corresponding increase in the quality of future investment. A contracting money supply will induce companies to clean up bad investments brought on by recent artificially low borrowing costs, and will allow the efficiency of US companies to show through in decreasing costs of production. A general rise in US prices may still occur, but allowing the market to adjust by means of accurate signals sent by sound money is the best medicine the market could ever get.