Tags: Rahn | Inflation | economy

Richard Rahn: Common Sense Would Save US From Damaging ‘70s Style Inflation

By    |   Friday, 23 Mar 2012 01:39 PM

Managing the economy with a common-sense approach to family finances could steer the country away from damaging inflation, says Richard W. Rahn a senior fellow of the Cato Institute and Chairman of the Institute for Global Economic Growth.

The government spends 40 percent more than it takes in a month, which any family would know spells disaster, Rahn says.

"Just think of your own personal finances. How many years could you go ahead and spend 40 percent more than you take in? And whether you're an individual, a business or a government, eventually, you are going to be in trouble," he told Newsmax.TV in an exclusive interview.

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Trouble for countries that spend too much can come in many different forms but normally ends up in either default or inflation, and painful austerity measures are called for to remedy economic ills.

The United States can expect inflation, in that it can avoid default by printing its own money to pay its debts.

Most countries default.

"Countries that produce their own currencies the way we do, the most likely scenario is inflation. We saw that in the late 1970s, and at some point it is likely to happen here again. At that point, the value of our purchasing power declines and makes everybody worse off," Rahn says.

"It's cheating, it's stealing from the people, and it's a non-legislative tax increase. Other than that, there's nothing wrong with it."

Excessive regulations can hamper recovery as well.

The Dodd-Frank financial-reform bill aims to curb the financial excesses that threw the country into recession, but too many regulations scare businesses from hiring.

Thousands of pages full of highly detailed dos and don't have too many people worried about compliance, smaller banks especially.

"Let's say you have a small community bank with 25 employees. These bills, the regulations, are thousands of pages, detailed pages. There's nobody at the bank that would have both the time and understanding to understand all of this," Rahn says.

"You could go off and hire all very expensive lawyers and accountants but the small banks can't afford this, and then what that does is drive bank mergers, and we have fewer banks, less competition and we have get into more banks in the too-big-to-fail category. It's stupid policy, Counterproductive policy. Dreadful."

Meanwhile, the economy moves along at a pace barely above idle and not nearly fast enough to make a dent in high employment rates, which are deceptively low anyway.

Headline unemployment rates currently stand at 8.3 percent, an improvement from 2011, when the rate hovered over 9 percent.

While jobs are being added to the economy, 227,000 in February, more and more workers have quit searching for work, millions of them likely.

Those discouraged workers are not counted as part of the labor force, which consists mainly of people out looking but remain jobless.

If the government were to throw the discouraged workers back into the labor force, the unemployment rate would be much higher.

"The unemployment rate doesn't really tell you a whole lot about that because you have all of these discouraged workers. The bottom line is the economy is not growing fast enough to bring the new jobs on rapidly enough to get us up to historic employment levels."

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Friday, 23 Mar 2012 01:39 PM
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