The Biggest Danger! Too Much Sarcasm!

Biggest danger of mortgage crisis: Deflation

Yes, there is great risk that our dollars might buy more stuff. We need to act quickly to ensure that our dollars buy as little stuff as is humanly possible.

Should the government fix the mortgage mess?

Oh man, I thought this was going to be a great heckle but I misread it. I thought he said, "Did the government fix the mortgage mess?" That would be fraud. That's like paying a boxer to take the fall. Like that's going to happen! Hahaha! Um, why isn't anyone laughing with me? Why am I suddenly alone? Hey, you guys don't think the government really did fix the mortgage mess, do you? Gosh, I could hear a pin drop right now. I hope it wasn't the one that just popped the bubble.

There could be another reason for more government intervention down the road. We need to think beyond the mortgage crisis and consider the greater danger of deflation.

Um, forgive me if I am wrong but isn't government intervention the kind of thing that tends to prevent deflation? Psssttttt... think helicopters.

Deflation happens when consumer prices decline over time.

That's news to me. I've just created a new spreadsheet that tracks deflation vs. prices declining over time and I must admit he has a point. There does seem to be a high correlation there.

Bernanke happens to be an expert on the Great Depression and deflation.

What makes someone an expert on the Great Depression? I know what it takes to be an expert auto mechanic. You have to repair cars over and over again. How many Great Depressions has Bernanke worked on? Will he get better at with practice? Let's hope so!

In a November 2002 speech, Bernanke said he didn't think deflation could happen here for two reasons: the resilience of the U.S. economy and the Federal Reserve system itself.

My money is on the latter, literally. It keeps dropping into my backyard, presumably from some sort of helicopter.

I am not convinced the United States has the tools to prevent or cure deflation. But it's worth the risk to try something sooner when it has a chance of success.

I say double the money supply right now and put this risk to bed. My plan won't require helicopters. I call it the two-fer plan. You take a dollar bill into the bank and they hand you back two. You won't be encouraged to keep doing it though. You'll have to sign a form stating that you won't do it again with the new dollars you are given. I'm picturing some sort of "no documentation" type form. We don't want to push too many people away from the banking system with needless paperwork. I think it is best to mostly rely on the honor system.