Q: In the current issue of Forbes magazine, you say we’re in for the biggest bout of inflation we’ve seen since Jimmy Carter’s administration. Inflation is caused by government. So what has the Bush administration been doing wrong?Forbes makes the problem, and the solution, sound pretty straight forward: there is too much money in the system, and here are a couple of time-tested ways to fix it. I assume not everyone agrees with him, else the problem would be solved. (To wit, I think I just heard Glenn Beck say that Alan Greenspan thinks we need to get more money into the system to help grow the economy. So I remain lost on all this.)
A: Well, it did not do anything to shore up the value of the dollar and ask the Fed to cooperate in that. There are various time-tested methods to do that. It all boils down to when you spill something, you soak it up. The Fed could sell bonds that remove excess money from the economy. The Bush administration could work with the G-7 (European countries) to do exchange operations -- you know, buying dollars to shore that up. Our allies would be quite willing to do it. They find the fall of the dollar very disturbing, very disruptive. So you take positive steps.
Anyway, I understand how selling bonds would remove money from the system. I'm fuzzy about Forbes' second suggestion of encouraging exchange operations. Does this mean that we take a large chunk of dollars and exchange them for other currencies? That takes money out of the system, but then what? Do we hold onto the foreign currencies until our dollar recovers and then sell them?
Later in the interview:
Q: There have been Republicans screwing up the economy. What are the chances that either President Obama or President Clinton will fix things right?Again, I'm lost. After making the case that we need to take some money out of the system, Forbes favors tax cuts, which would put even more money into the system.
A: The Democrats will probably make the situation worse, because they believe in tax increases. They want to raise taxes, not cut them, which would make us less competitive, which would hurt job creation and innovation. So they would compound the problem.
I'd sure like to understand all this stuff, so I could at least have an idea of who is making sense. I follow the news closely enough so that I'm aware that an awful lot of the "experts" on other issues don't know what they are talking about. I assume the same is true in economics. I just can't figure out who I should be listening to.