Thursday, April 17, 2008

Ben's Backstop

My article in the April 7 issue of The American Conservative titled "Papering over the Problem" is available to non-subscribers here. As oil eyes $120 and the Fed makes it clear that's just fine, it gets more relevant every day.


Anonymous NeilS said...

I would be curious to know how the experts divide the increases in oil prices between 1. the decreased dollar, 2. increased risk in the middle east and other areas, 3. increased demand, and 4. other reasons.

4/17/2008 10:39 AM  
Anonymous Anonymous said...

CR, I think you should have thrown a bone to Jimmy Carter, who appointed Volcker and got him started with the necessary "latitude" that you describe him receiving from Reagan.

Carter got blamed for the economy being a wreck, in fact he helped start it towards recovery. No good deed goes unpunished, however.....


4/17/2008 10:27 PM  
Anonymous Mr. Hedley Bowes said...

Read the essay: well done!

4/18/2008 3:29 AM  
Anonymous Anonymous said...

I agree, thanks CR! Just one more reason I keep coming back to this 'blog. The posts are insightful and thought-provoking, and the comments are often interesting as well.



4/18/2008 11:01 AM  
Anonymous Anonymous said...

Inflation is always a monetary phenomenon. Inflation is a built in part of the system. It's the grease that makes things work. Letting debt be repaid in an ever more plentiful amount of money. (I'll stay away from the mine field of strict Austrian School diatribes against fractional reserve banking)

Since about 1980 till 2005 or so most inflation was in asset prices, mainly financial and real estate ones. This was good, for the holders of said assets who just hapend to be those already wealthy or those with a knack for speculating, politely called investing, in them.

Now however the inflation horse has escaped the Wall Street barn and is manifesting itself in commodity speculation and hoarding. It's impossible to quantify how much of the price rises in oil, wheat,rice, uranium or copper are due to speculation. Just know it's a big factor.

The unusual thing is that the US monetary base has been flat for a year and a half. The Fed is not pumping, no matter how many tell you it is, it isn't. (M3 is rising sharply but it doesn't measure only money. M3 includes credit transactions and those are not actually money. Money like perhaps, but not money)

The main driver of monetary expansion globally for the last decade has been the US dollars used to buy foreign goods, particularly Chinese ones. We send a dollar to buy Chen's Widgets. Chen goes to the bank and exchanges them for RNB's. Then the Chinese bank uses the dollar to buy US Treasury and GSE paper.

Do you see something odd in this
$1 in
100 RNB's out to Chen
$1 out to the Treasury who instantly spends it on fuel for the Army, or some such.

This is money creation on a turbocharged scale. This is the engine of the globalization miracle. This is the engine of inflation. All was well and good when stocks and every manner of silly CDO was going up in value. Now that it's real things going up we the people have a problem,

4/19/2008 8:55 PM  
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