the part I like is the dissapointment on your face when they are convinced you didn't hit. Once they see it, they count you out and bet like gangbusters.
Janet Yellen talked about qualitative easing today. Any ideas for her to get the ship right are welcome in this thread: http://www.elitetrader.com/vb/showthread.php?p=3954647#post3954647
Now sub 2% , Yellin says they will aim at 2%. inflation. Be damned the higher prices we continue to pay for most things as personal incomes are a whisper above stagnent. 2% is a policy, rationalized by a simple chart of GDP vs. inflation where GDP rolls off a cliff as inflation approaches zero. Yeah, right, price inflation metrics of 0 to 1% are historically the cause of all past crisis, not fed policy itself. Ominous to me is her statement to the effect where prices may have to be traded off with continued support of employment where eslewhere the 6.5 metric is dropped as a reliable indicator of employmemt. MORE expansion continues and i am sure they will do as much as they possibly can. I just dont see the hawkish, bearish possibly very temporary reaction to todays statement. She talks alot with jaw flapping at 60 mph with gusts up to 90. Nasdaq, smallcap, US companies vs. emerging and interest rate sensitive sectors may be the obvious play. Who shorts US equities?
Morganist, it has been a while, I have been busy and not following these pages...but today I saw you inflation post...sorry for being late to the game. My take on you essay is that you make a fundamental mistake in stating Friedman's position by using only the first clause of his famous quote. His actual full quote is as follows: âInflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in outputâ¦A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability, it will not produce heaven on earth; but it can make an important contribution to a stable economic society.â Milton Friedman, 'The Counter Revolution in Monetary Theory (1970) By including only the notion of an increase in the supply of money and ignoring Friedman's comment about output, you create a false 'straw man' to argue against. The proper understanding of Friedman's position was that inflation is a monetary phenomenon (understand that he means to differentiate 'monetary inflation' from mear price change caused by temporal variation in supply and demand for goods) and that it occurs when the supply of money out paces the demand for money as expressed in the production of goods and services that people wish to buy. The problem with Friedman's formulation is practice was that there was no way to predict or acurately measure demand so the monetarists in practice simply set monetary supply targets without any demand metrics. The more interesting question then becomes, 'what casuses demand for money?' and really what are we talking about when we consider 'money supply' in any case? Here you make another mistake by not including the supply of private credit in your notion of money supply. In our modern fiat based currency paradigm the notions of 'money' and credit are merged. Monetarists coming out of an understanding of money that was based on gold or fixed relationships to a currency based on gold, adobted the classical idea of the 'Quantity Theory of Money,' assuming the supply of money was based on the specie. They did not consider money alternatives and they did not consider that credit itself could function as money. In the modern credit based economy with no objective basis to limit supply of specie, you have to consider 'money supply' as 'private credit supply'. When you do this some notions of the supply of credit and inflation and deflation begin to work again. This is becuase there is a basis for the supply of private credit and that is the value of collateral assets. Private credit formation depends on a consensus view of the future value of collateral assets and it is this future view that limits or encourages the demand and creation of private credit...which is the real money money supply...and it is fiscally driven. The issue of inflation then becomes the relationship between credit creation and the supply of collateral assets. When credit creation begins to exceed asset production then the price of assets increases and this price increase bleeds into the price of all goods and services over time depending on the complexity of the economy and nature of long term contracts in that economy. I think you can see by the way that my comment is developing that I would also say you made a mistake in defining inflation and deflation as simple price change in a basket of goods over time. The issue we wrestle with in talking about inflation is how to distinguish it from mere price change casued by other factors, some of which you identify. In a functioning market economy as shortage of output would drive an increase in production and be self correcting, so that the interim price dislocations should not be confused with 'monetary inflation'. Friedman was trying to talk about 'monetary inflation' not 'price change' so your definition misses his entire point. A supply/demand price change will self correct if the market is allowed to function...a 'monetary inflation' in contrast causes all prices of goods and services to change over time. Basket of Goods doesn't really capture that; there is no concept of credit flows or the supply of collateral assets and if you don't have the proper point of view it is not clear when it is happening why the imbalance of supply of credit and the demand of certain assets and then demand for certain goods and services in occuring. Similarly, your comments about the global nature of output and the idea that 'inflation' should not be confined to ideas about a domestic currency are off the mark. The whole idea of 'monetary inflation' is about a currency...currencies are inherently domestic (while the notion is greatly confused and dysfunctional in the EU). In the U.S. private credit has begun to grow since the financial crises, though slowly, and that growth has been confined to mostly large public companies who have been focused on financial engineering rather that domestic asset production. This is why there has been little inflation. Government spending is allowing consumer demand to languish allong even though aggregate income is stagnant. The unsustainable problem is that the aggregate income is not based on private credit expansion and the creation or maintenance of collateral assets. This is where you and I come from different worlds. Your discourese is firmly based in a demand paradigm. For example, you suggest: "The ability to purchase goods on international markets will be the main factor that determines prices." That is an etirely demand point of view. U.S. prices are low even though the government pumps up money supply becuase we can buy cheap goods from China...so the demand for output that is driven by increase in money supply is satisfied by cheap Chineese goods. In my production based point of view, the issue is the production and maintenance of collateral assets which can be the basis of private credit formation and which will produce increased aggregate income in the process. The inflation issue is not based on the imbalance between disposable income and consumable goods, its based on the rate of private credit formation as limitted by collateral and the effect of that imbalance on the price of all goods and services over time. I did think you essay was well written and consistent within its own logic...but as I suggest in this long comment it is the substance that I disagree with.
The people running the central bank do not understand monetary science. So they twiddle with known adjustments hoping for better results next time. They keep thinking that if they only get smarter and better at reading the future that they'll succeed next time. They don't understand monetary science.