December 19, 2010

TIGHT BORDERS, TIGHT TRADE, TIGHT MONEY AND DERIVATIVE FRAUD:

Disinflation denial (The Money Illusion, 12/18/10)

One recent theme has been the supposedly unreliability of the core inflation rate, which is now below 1%. Critics (and cartoon bunnies) point to the fact that food and energy are an important part of the average American’s budget. When it’s noted that even headline inflation is barely over 1%, the attention turns to other prices. For instance, Congressman Ryan has recently argued that the Fed should focus on commodity prices. My initial reaction is to say “Yes! Let’s focus on commodity prices! Commodity prices are the best way to tell if money is too easy or too tight.” Think I’m being sarcastic? Then you are in for a surprise.

Before continuing, I’d like to remind readers that in late 2008 you could count on one hand the number of economists (in the entire world) claiming monetary policy was very tight. So let’s take a look at the change in commodity prices in late 2008:

That’s right, commodity price indices fell by more than 50%. That’s Great Depression-style deflation. And where was Congressman Ryan when the Fed was engineering one of the greatest deflations in world history? I don’t recall him or any of the other inflation hawks calling for easier money. But maybe I missed something. If so, I hope my readers will dig up all the stories of conservatives demanding easier money in the fall of 2008. In any case, it’s good to know that whereas back in late 2008 I was almost all alone in viewing money as being extremely tight, I now have the vast right wing conspiracy on my side.


Looking to the gold bugs for common sense is futile.

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Posted by Orrin Judd at December 19, 2010 9:18 AM
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