The amount of money that is entering the system and the speed at which it is happening is unprecedented. Money and credit are going vertical. I actual had to change the”Y” axis on most of my graphs to make the numbers legible.
It is difficult for me to see how this does not result in massive price inflation.
Remember, the CPI and other economic data are backwards looking. This shutdown is going to show a collapse in the CPI and other economic activity. We are going to see high unemployment and bad housing data for the next few months. But we should not be fooled by these backwards looking indicators. This is not like any other financial crisis where we see a slow down in money and credit followed by a bust. This is the result of a goverment lock-down of the economy.
There is going to be lots of talk about how high inflation can not occur in a weak economy with high unemployment. The trade-off doctrine between inflation and employment was based on the “Phillips curve,” a curve invented decades ago by A.W. Phillips. This idea should have been blown to smithereens in the 70’s where we had both high unemployment and inflation. Even a few months ago we had low inflation and low unemployment. But the Federal Reserve and financial news pundits still talk as if it is real. Even a simple look at past data would show it is incorrect.
Here is Rothbard on the Phillips curve:
Phillips correlated wage rate increases with unemployment, and claimed that the two move inversely: the higher the increases in wage rates, the lower the unemployment. On its face, this is a peculiar doctrine, since it flies in the face of logical, commonsense theory. Theory tells us that the higher the wage rates, the greater the unemployment, and vice versa. If everyone went to their employer tomorrow and insisted on double or triple the wage rate, many of us would be promptly out of a job. Yet this bizarre finding was accepted as gospel by the Keynesian economic Establishment.
By now, it should be clear that this statistical finding violates the facts as well as logical theory. For during the 1950s, inflation was only about one to two percent per year, and unemployment hovered around three or four percent, whereas later unemployment ranged between eight and 11 percent, and inflation between five and 13 percent. In the last two or three decades, in short, both inflation and unemployment have increased sharply and severely. If anything, we have had a reverse Phillips curve. There has been anything but an inflation-unemployment tradeoff.
This bizarre theory is still taught and believed by most economist. It appears that bad ideas never really go away.