Why I think QE will create inflation and why it is qualitatively different than credit expansion

Meredith Whitney has come down hard on the municipal bonds and she is getting a lot of heat from others, including David Rosenberg.  But even if she is wrong, bonds of all sorts are bad investments because the US dollar is going to hell in a hand basket.  But what about shrinking credit which causes deflation?  I am no economist but here is why I think QE causes inflation while credit expansion is less inflationary:

Inflation is caused by too much money supply chasing too few goods.  Money supply can be created through credit expansion or through QE.  Credit expansion results in the creation of goods and services such as building of houses and manufactured goods, for every time a business borrows, its creates more real wealth in the form of its products.  Every time a home owner buys a house with a mortgage, the demand for new housing goes up and it results in larger supply of homes, i.e., more goods.  Thus, though credit expansion can obviously create bubbles, it also results in the increase of goods and services.

QE, quantitative easing, or the monetization of debt results in a disproportionate demand for goods and service without the creation thereof.  This is because the US federal debt is being monetized, and the US government in turn gives the money to government workers, pensioners, social security, welfare, food stamps, etc.  I.e. to people who increase demand without increasing the quantity of goods and services.  This increased demand, too many dollars chasing to few goods, devalues the dollar.

And this is why I think that QE leads to inflation and why it is much worse than credit expansion.

While helping the poor, remember to be human

[Originally posted here: While helping the poor, remember to be human]

Steve Hays recently wrote a post analyzing Peter Singer’s (the infamous advocate for infanticide) arguments about poverty. To briefly sum it up: Singer argues on a strictly utilitarian principle that every dollar earned beyond what someone absolutely needs should be given to the poor. No doubt, even if we haven’t read Singer’s arguments, many readers of this blog will have heard this logic expressed by a well-intentioned person at some point in their travels.

Now, Steve already replied along some lines, focusing partly on biblical principles and partly on ones of common sense, that would problematise Singer’s argument. But I wanted to suggest another possible line of response.

Stuart Brown (M.D.) and Christopher Vaughan have written a book about the function of play in the life of human beings (with some mention of its presence in other species as well), arguing about how important it is for human flourishing. They even spend time showing that some business managers have recognized this fact of human nature and have incorporated it into their businesses in some way or another, to good benefit for productivity.

These facts about human nature, then, would seem to suggest another problem with Singer’s position. For, if as all business-people know, “time is money”, by Singer’s logic, we should never spend any time playing. Yet, Brown and Vaughan have shown that play is necessary and beneficial for psychological flourishing and for productivity. The unavoidable conclusion from their work is that, in some sense, human beings need to spend some of their resources on play, rather than only charity, to be the best people they can be. Thus, Singer’s logic will inadvertently, if obeyed, lead to people being less helpful for the poor than they would be if they behaved more like human beings, and less like machines for helping the poor.

And in case the true darkness of such a Singerian ethically pure world escapes anyone, consider what Brown and Vaughan say:

The ability to play is critical not only to being happy, but also to sustaining social relationships and being a creative, innovative person.

If that seems to be a big claim, consider what the world would be like without play. It’s not just an absence of games or sports. Life without play is a life without books, without movies, without art, music, jokes, dramatic stories. Imagine a world with no flirting, no day-dreaming, no comedy, no irony. Such a world would be a pretty grim place to live.