It turns out if you rapidly and massively increase the money supply by cutting interest rates 125 basis points in 8 days, you should expect inflation. Maybe that Milton Friedman guy was onto something when he said:
It really does feel as if 2008 is 1971 over again. Except without the Montreal Expos and their amazing tricolor caps.
Edited to add: Daniel Gross at Slate.com has a terrific take on the situation in The Toddler Economy:
Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output.Greg Ip of the Wall Street Journal reports:
The Fed has long looked at the difference between yields on nominal Treasurys and inflation-protected Treasurys (TIPS) for a sense of what investors expect inflation to be. The difference is the so-called “breakeven” rate — the inflation rate that equates returns on the two. The Fed also tries to strip out near-term inflation disturbances related to fluctuating energy and food prices by looking at what the market expects inflation to be starting five years from now and running for the next five years (i.e. from 2013 to 2108). This is the “five-year, five-year forward” breakeven rate.H/t: Greg Mankiw.
Since Chairman Ben Bernanke signaled the Fed would subordinate inflation to economic growth worries on Jan. 10, expected inflation by this measure has climbed from 2.4% to 2.6%, according to Barclays Capital. It jumped an especially sharp 0.05% the day of his surprise, 0.75-point cut on Jan. 22, and another 0.02% yesterday on the followup 0.5-point cut.
It really does feel as if 2008 is 1971 over again. Except without the Montreal Expos and their amazing tricolor caps.
Edited to add: Daniel Gross at Slate.com has a terrific take on the situation in The Toddler Economy:
Yet in these turbulent times, Wall Street traders are behaving like toddlers. They're staging public tantrums, screaming and yelling and writhing on the floor until they get what they want. Since the markets began to buckle last summer, what traders want is interest-rate cuts and other government measures to bail out banks from reckless lending and disastrous investment decisions. In response, Federal Reserve Chairman Ben Bernanke has done what any exhausted parent does when a child screams for three hours straight: He gave in. In the past two weeks, the Fed cut interest rates sharply twice, taking the Federal Funds rate down from 4.25 percent to 3 percent.
Comments
Actually, if the Fed prints another billion dollars, and gets a billion dollars worth of bonds in exchange, the the Fed’s assets would have risen in step with its liabilities, and there would be no inflation. Inflation only results when money outruns the Fed’s assets.
More at http://www.csun.edu/~hceco008/realbills.htm
What assets????
Money Just Doesn’t Work Any More.
“IF WE DON’T HAVE A PLANET WITH TREES TO LIVE ON THERE WILL BE NO ECONOMY, NO FOOD AND SOME PRETTY TERRIBLE OUTCOMES.” Lisa P, Melbourne.
Does money buy us freedom, or houses or health or anything, as the Politicians would have us believe? Why do we have to work for years to pay off mortgages because we borrow some money? What if money was the cause of the problem, and not the solution?
The Creator made a wonderful planet for us to play, create and evolve on. Planet Earth is an abundant place. With the Sun providing energy for us, one could say that Earth is Infinitely Abundant. We really lack for nothing. Abundance just is!
But, we stuffed up big time. We created money. God didn’t create it. We humans did. And we did it badly. We all know that our current economic system is TOTALLY man made. Designed by humans. And that money is totally created and destroyed by banks – created from thin air. It is not even backed by gold or silver anymore.
We are suffering. The planet – our home – is suffering. Pretty soon, we will have poisoned it so much it will not be able to support us.
So, what happened? We have been told over and over and over again that having money is a good thing. That money is a form of stored energy, or wealth. Or that we need money to exchange goods with each other. But, let’s step back a bit and look at money as a way to divide up the natural abundance we all have. To separate us from our abundance.
How can this be?
Let us consider that all things on the planet are free. Remember, God didn’t invent money – we did. By using our free natural resources, we can create electricity, or telephone systems, or hospitals. All that is required is the idea, and manpower. Both of which are free. Money doesn’t run hospitals – humans do. Money doesn’t run telephones – humans and computers do. Money doesn’t run anything. Humans do.
Money is simply a catalyst. It helps things happen. It is a convenience.
But money shouldn’t tell us how to run our lives. The profit motive must not put money before humans. Companies should not exist to merely make profit, but to create a better world. Banks must stop charging interest on what is created from thin air – money. Growth needs be curbed – we just don’t need a new mobile or whatever every 6 months.
Make no mistake; the planet is being poisoned by greed. Gandhi said: “There is enough for all, but not enough for one greedy man.”
The Money Game was invented by humans to divide us. It is time for the Rules to be changed, so that Money works for all of us. By all means create money from thin air, but use it for constructive purposes. The Commonwealth Bank used to create money to build Roads, Telephones, Electricity and so on. It charged minimal interest. Now private banks do the same job and charge much, much more in interest. Let’s change back to that system – for the common good, which includes the planet.
It is insanity that we are working harder and harder just to feed the money system. It is insanity that the system we designed is chewing up the earth’s resources at an ever increasing rate.
It is insanity that we are allowing the system we humans designed to destroy and enslave us. It is insanity that we are all our time “making money”, instead of fixing our planet.
What would it take, whoever wins power, to please throw away whatever beliefs you have about the “isms”, open your minds to new ideas, and let’s create a system that puts the planet and humans first?
Remember that thoughts become things, and whatever we can think of, we can create. We create our lives by our thoughts, so choose wisely. Think abundance, not restriction. And let us all have fun during our time on the planet.
Written Clement Clarke, Perth, November 13, 2007
Posted Feb 08, 2008
Clement,
Your comments are, Theoretically Correct, except there is a Fly-in-the-Ointment named satan. He has changed the
Creator’s “price Tag” of a perfect world into a GREEDY one. The world’s problems, be they in the Financial,the Environmental, or Human world are all caused by GREED, which was not created by the Creator but by man trying to be the one on the top of the manure pile!!! Until the Human Race realizes this we will continue trying to climb up the manure pile.
The creator created a free world and free resources, yes. But how do we use those resources to best effect?
THAT’s why there’s money, and THAT’s why there’s economics.