The best way I could describe the problems that we face here in this country, as well as the problem the Federal Reserve faces, is that we are indeed between a rock and a hard place because we have a serious problem but we don't talk about how we got here. We talk about how we're going to "patch it up". The bubble has been burst - we saw what happened after the Nasdaq bubble burst and we don't ask how it was created and then we had a housing bubble and it's deflating and it's spreading.
Yet nobody says, "Where does it come from?" and what is the advice that you generally get? Inflate the currency. They don't say "inflate the currency", they don't say "debase the currency", they don't say "devalue the currency", they don't say "cheat the people who have saved", they say "lower the interest rates". But they never ask you and I never hear you say, "the only way I can lower interest rates is I have to create more money".
...
Unless we get down to the bottom of it and define what inflation is and not look at only prices... this was taught by the free market economists all through the 20th century, they said, "Beware, they will increase the money supply but they will make you concentrate on prices and they will give you CPIs and PPIs and they'll fudge those figures and they'll talk about wage and price controls to solve our problems".
We ignore the fundamental flaw and that is that not only have we had a subprime market in housing, the whole economic system is subprime in that we have artificially low interest rates. And it wasn't under your tenure in office - it's been going on for ten years or longer and now we're bearing the fruits of that policy. A one percent interest rate and that's not a distortion? Instead of looking at consumer prices, that nobody in this country really believes, we need to talk about the distortion, the malinvestment, the misdirection, the bad information that is gotten from artificially low interest rates.
Well said Ron! (hat tip to Tim Iacono)
5 comments:
wait, so...help me out. Are you or are you not in favor of gold standard'ing the U.S.? When you're underinformed, satire is easily missed. I realize that RP didn't say anything about the gold standard in this piece, but afaik, he is in favor of that, and I see it as underlying some of his 'devalued currency' talk.
no, not in favor of gold std. but I am on record as arguing that Greenspan's easy money policies have a lot to do with the financial problems we currently face, so I especially like the last paragraph of the quote. Gold std. to draconian for me though.
I'd be fine if the Fed actually strictly followed Taylor's version of the Taylor Rule.
To Wit:
"The Taylor rule is a modern monetary policy rule proposed by economist John B. Taylor that would stipulate how much the Federal Reserve should change the interest rates in response to real divergences of real GDP from potential GDP and divergences of actual rates of inflation from a target rate of inflation." (wikipedia)
All of this begs the two central questions--what is the target rate of inflation and the output gap, and how far are we from them? As monetary policy operates with long and varying lags, can this really deliver what you wish? Moreover, who gets to pick the target rate of inflation?
So I am not sure what "strictly following the Taylor Rule" actually means.
I said "Taylor's version of the Taylor rule" which would mean inflation coefficient of 1.5, output gap coefficient of .5, target inflation of 2%, output gap determined via Hodrik-Presoctt filtering, target real interest rate of 2%. I guess I'm letting John Taylor pick the target rate of inflation.
sorry, that should be Prescott, not Presoctt.
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