Pentonomics – A Bad Tradeoff

March 3, 2011 at 9:19 PM

This morning’s data proves yet again that if you borrow and print a massive amount of money you may perhaps, however temporary, get a little bit of economic growth, but you’re 100% sure to get a whole lot of inflation.

Today we saw an uptick in The Institute for Supply Management’s index of non-manufacturing businesses, which increased to 59.7 last month from 59.4 in January. We also witnessed the number of initial applications for unemployment insurance payments fall by 20,000 to 368,000 last week. These numbers are better, but they sure do come with a huge trade off. Surging commodity, food and energy prices mean that you may have to take a Rickshaw to your new part-time job and can probably only afford to eat ketchup during your lunch break.

The United Nation’s Food Price Index hit its second straight record last month, surpassing the highs seen in 2008 when prices sparked riots in several countries. Those riots were driven by rising grain costs and record low inventories, much like we have today. The U.N.’s FAO economist Abdolreza Abbassian said global food prices are likely to remain close to record highs, adding that jumps in the oil price could have a bigger impact on grain markets, which have seen benchmark U.S. wheat prices surge 60% YOY to March.

Of course, if the Fed keeps on printing and the government continues to spend we will see diminishing growth, higher debt levels and even more inflation. Such will be the consequences of not accepting the well deserved recession the U.S. earned back in 2008. It’s just a bad tradeoff to temporarily avoid a recession just to bring about a longer term depression.