In the long-going inflation discussion, I keep hearing the same junk about “currency debasement” and the continual “It’s just around the corner’. I can hardly wait until one of my friends…after being wrong for now five years says “see, I told you so” at the first inkling of a rising, however small, inflation index.
Like a Stu Glazer quote about playing the blues “if you hit a wrong note, just hold it till it gets right”. Fine idea when it’s fun and entertainment, not so at all when setting policy. Dangerous in fact, bad for economic growth, bad for jobs, and clearly we now have proved austerity policies have deepened and prolonged the recession.
Here is a piece from yesterday specifically on the future of inflation. Well done by EconoMonitors’ James Picerno.
“Let’s begin by recognizing the US dollar has strengthened over the last two years. The idea that the currency was headed for the ash heap of forex history looks foolish at the moment. The trade-weighted measure of the greenback against the major currencies has been trending higher since 2011 and is roughly unchanged from the months preceding the start of the Great Recession. So much for debasement.”
To realize the U.S Government post 911 bestowed private domestic policing powers on the 12 Federal Reserve Banks, including the New York Fed. You have to read about it here, just thinking about it makes me sweat. Remember the Fed is not really Federal…it is private. In essence we have the guys who seek market intelligence and make buku dollars every day off market intelligence, security trades, and equity markets policing themselves. Then the high ranking fed boys and girls move off to make the REALLY big bucks with the wall street firms. Suppose there is any insider information going back and forth there? Anyone else perceive a major conflict of interest?
Since yesterdays video about how the Fed makes (literally) money I’ve seen a few questions. On top of recent discussion of how and why we are not seeing inflation…thought I’d bring this recent piece from Barry Ritholtz to the tank. In 2010 Reminder: QE = Currency Debasement and Inflation he points to the long and (then) distinguished list of “experts” who wrote to the Fed Charman claiming how Quantative Easing (QE) would debase the dollar, cause inflation, etc. It is interesting to me how many people I know, smart people to be sure, who believed this…some still do in spite of history proving them wrong.
QE has continued, pumped money into a weak economy creating jobs and keeping the system solvent. Like I said before it is not the best plan, that would have been direct government stimulous out of Congress. But some truely smart people credit QE with keeping us out of a full blown depression in spite of congressional efforts to allow, perhaps even make the economy worse. Yet as Ritholtz makes the point, none of the signitories on this letter, nor the others claiming inflation and currency debasement, have had no concequences in spite of being so wrong for so long. And here’s Krugman’s take, expectedly much more pointed, What to do When You’re Wrong.
Reader comments are interesting. One in particular points to the various signitures “A Who’s who of the right wing, with a strong whiff of dead Rand…”
Yup, and they are just not learning.
Two links to posts here today. First by Ed Dolan: Falling Gasoline Prices bring Inflation to a Four Year Low. See this chart.
Inflation per BLS
Well compare that to what I’ve said here. We see again (and again and again…) the folks yelling inflation have been wrong for years, are still wrong,and I surmise will be wrong over the next few more. It’s really OK to be wrong, after all it’s economics and sometimes things become a bit different than we expect. But truely smart people can usually learn from the mistakes and data. Not everyone.
Todays second winner is a takedown of the inflation hawks claiming the dollar has lost huge value in the past couple years. We know differently. Barry Ritholtz hammers them with facts: Has the Dollar Really Lost 97 Percent of Its Value? in this Bloomberg winner.
“One of the favorite tropes of the “End the Fed” crowd is the “falling purchasing power of the U.S. dollar.” Google that phrase, and you will be rewarded with 91,100,000 results. (drop the “U.S.” and it doubles to 187,000,000 results).
The problem is, nearly all of these arguments are wrong.
As Matt Busigin of Macrofugue points out (echoed by Joe Wiesenthal of Business Insider), measuring the buying power of cash by functionally burying it in Mason Jars in the backyard is a misleading and inappropriate metric.”
But why can’t the wrong at least be quiet for a bit…maybe allow Congress to govern on the data, not the hope of a few.
After all the posturing by the administration, Larry Summers has withdrawn from contention as the next Fed Chief.
Since the beginning, we have lobbied against Summers. Sitting on the Obama Administration he had the apparent leg up. But while more and more information has come out regarding his involvement in banker’s lobbying efforts where Greg Palast uncovered his direct memo regarding deregulating banks, less and less members of the banking committee supported his nomination. As of the weekend, Summers has withdrawn, the President has accepted. It’s not personal, just good.
So what’s next? As I stated here many weeks ago Janet Yellen is clearly the best candidate. Consistent in her projections and very, very right throughout all of this recession and prior. I hope the President makes the right choice this go around.
Actually while I state Yellen is the best choice for Fed Chairman, now we have a bomb dropped on Summers. Greg Palast lays out a compelling case indicting Larry Summers as a key player responsible for the Great Recession. Oh and did I mention the memo. Both secret and authentic– a pdf copy here. Well worth reading and writing your representation.
If you don’t know yet, Summers is the leading candidate for the next Fed Chairman being put forth by the Obama Administration. Hopefully this will change their minds.