A new gold standard?

Discussion in 'Politics & Religion' started by Ricter, May 22, 2012.

  1. Ricter


    Why Two Percent Inflation Targeting Is The New Gold Standard

    By Matthew Yglesias
    Posted Tuesday, May 22, 2012, at 3:21 PM ET

    "One of the curious elements of the politics of monetary policy is that even though monetary stimulus often seems very politically fraught and people at times profess to believe that it's impossible, everyone seems to agree that exchange rate policy works. And indeed this is one reason that small open economies such as Switzerland, Sweden, and Israel all managed to weather the crisis relatively well. Instead of a huge collective national freakout in which they revisited the first principles of short-term macroeconomic stabilization policy they devalued their currencies. Even crisis-ravaged Iceland has managed to use devaluation to bounce back. And from time to time various officials have talked about "currency wars," implicitly acknowledging that large countries too have the ability to bolster their economy through currency devaluation. So maybe everyone just needs to devalue their currency, right?

    "The problem, as Paul Krugman points out, is that this is mathematically impossible.

    "But a basically parallel situation arose during the Great Depression. The trick in that case is that since when the Depression started currencies were pegged to gold, each individual country could devalue its currency by leaving the gold standard. So even though it was logically impossible for every country to devalue its currency relative to other currencies it was possible for each currency to devalue relative to gold.

    "Scott Sumner, discussing other matters, observed that in some respects the practice of imposing a two percent ceiling on consumer price inflation resembles the operation of the interwar gold standard.

    "I would say the analogy carries over to this target as well. The dollar, the euro, the yen, and the pound can't all get cheaper relative to each other but they can all become cheaper relative to the CPI basket. Which is a long way of saying that if you believe one country with a large output gap can increase real output by devaluing its currency relative to other currencies (which everyone seems to) then you ought to believe that the large depressed economies of the world can collectively boost their real ouput by relaxing the inflation target."


  2. So let me get this straight: even paul krugman understands
    1) Competitive devaluation won't help any nation on the whole.
    2) It universally screws everyone who isn't the first pig at the trough of inflationary fiat money.
  3. Lucrum


  4. Ricter


    Two replies I cannot see. Do I dare log out and look? Do they contain ad hominem arguments? : )
  5. I dont think so . . . this is one , and the other is from lucrumb posting some obscure article about the Bank of England without any comment.:(.
  6. 377OHMS


    Guess you have PhoenixTrader and Lucrum on your ignore list.

    Perhaps you have me on ignore as well.

    I'm not being critical about using the ignore list, I use it myself.

    I disagree with almost every philosophical or political assertion you've ever posted here but you've not made my ignore list because you always debated effectively and many times have supporting facts, figures or articles that you cite. Its fair to say that on occasion you've altered my outlook on certain subjects.

    I don't remember either of those two guys doing anything that merits them being on your ignore list but maybe I missed some posts.
  7. This title goes a long way towards illuminating the problems we see with govt balance sheets around the globe.

    They have taken what once was a literal meaning that worked successfully (the gold standard) and substituted an impostor figurative meaning (govt fiat target) and pretended they are the same.
  8. Tsing Tao

    Tsing Tao

    The flaw in the original article is that 2% inflation cannot be maintained, nor can the statistics that pretend inflation is just 2% be trusted.

    If the government actually came up with a consistent measure of inflation that truly and accurately represented consumer prices (with food and energy) then you could begin to go down this route. Without considering food and energy, it's asinine.
  9. Ricter


  10. Tsing Tao

    Tsing Tao

    Have been looking at that for a while. It's a much better indicator. But you won't see the Fed or Krugman calling attention to that.

    Careful, Ricter. You're in danger of losing your Keynesian Cult Card.
    #10     May 23, 2012