Quote:
Originally posted by Connect_the_Dots
Unrestrained spending WILL cause the price of imported goods to rise (and eventually the price of domestic goods too). Not all price increases occur in all segments of the economy at once.
It usually occurs something like this:
Loose monetary policy (i.e. artifically low interest rates) makes too much money available. This creates false signals in the market regarding current (and future) demand and current production. This causes businesses to invest in riskier projects (i.e. with a longer production cycle) because the rosier outlook now appears to justify it. As whatever is being produced nears the end of the production cycle, businesses discover that the anticipated inputs that are needed at the end of their production cycle are not there (or at least not at the prices they anticipated). They then bid up the prices for these last links in their production chain which raises prices. Since the aniticipated demand is no longer there, this will eventually result in a recession/correction and prices (and output) will fall to lower levels. This is what happened in the dot-com boom, telecom boom, railroad boom etc. etc. etc.
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Now I'm really confused. What you describe here seem to be your view of the effects of monetary policy, not unrestrained spending, right?
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