Bundesbank starts thinking about allowing higher inflation within Germany and the Eurozone to help the rebalancing of competitiveness of the periphery. This is the first sign of economic sense prevailing over popular ideology and rhetoric.
A more in-depth look at the wording suggests maybe the move is rather smaller than I first thought, although it is still a move.
Piet, a reader who comments from time to time on this blog, hasn’t enjoyed what I’ve said about the economy recently. I’ve tried really hard, entirely ineffectively it seems, to answer his points and tease out exactly where his real problems lie.
This post by Paul Krugman talks exactly to “Piet’s views” – the deep-seated emotional views and ideologies that “must” make sense without the careful thought, analysis and model-building required. The same views that have proved almost completely ineffective at predicting anything so far.
Lots of people declared that they “just couldn’t believe” that huge budget deficits wouldn’t drive up interest rates, that “printing” lots of money wouldn’t cause runaway inflation, that slashing government spending wouldn’t have a positive effect on confidence. We know how that has turned out.
Paul doesn’t talk in this post about those who then start changing the facts that don’t agree with their views. “Inflation must be high because the Fed is printing money, but inflation isn’t high, therefore the measure of inflation must be wrong.” – even though multiple independent measures suggest the same level of inflation.
Or should that be Austrians? It’s looking pretty bad for Europe.
Paul Krugman debates Ron Paul on live TV. Ill-advised or not, it is interesting to see their different takes go head to head. I’m not sure either really puts their points across very well, but I was a little surprised to see the vitriol in the comments of the YouTube video against Paul Krugman. Ron Paul clearly has a strong support base.
If you listen carefully, you won’t hear Ron Paul address any of the fundamental economic issues caused by the Gold Standard, you will hear him disagree with Milton Friedman and you will hear him use more emotive please than even Paul Krugman. Krugman, on the other hand, uses a mixture of emotive pleas with overly complex ideas and probably entirely misses his audience.
Simple fact is, a little inflation and currency depreciation would go a long way to fixing the structural problems with the US economy AS WELL as the defiicent-demand cyclical problems.
Watch the video.
Chavez has instituted price controls in Venezuela. So now it’s hard to find flour. And toilet paper. It’s only not laughable since these policies are affecting everyday Venezuelans and damaging the economy, which is the last thing a slightly wobbly South American economic and political setup at the moment.
Specifically, I said:
Prediction: If the US debt is downgraded in the next 6 months, yields won’t increase by more than 0.2% 6 months after the downgrade. In other words, there might be a small, temporary uptick, but within 6 months yields will have returned to below 0.2% above the day before downgrade.
S&P downgraded the US a few days later on 5 August. Yields on 10 year US bonds were 2.56%, Currently, US 10 year yields are just below 2.00%. Clearly, 6 months after the downgrade (and at every point in between) US yields have stayed low, well below the upper limit of my prediction.
If you were still listening to the “obviously” right concerns over high inflation from quantitative easing and relaxed monetary policy in the middle of a huge liquidity trap and massive reduction in private spending, it’s time to reset your views.
Really Stagnant Inflation and even Genuine Deflation are part of the US economy now. Where is the hyperinflation?
! is the mathematical symbol for “not”, in case you were wondering.
The US Fed is trying to counter deflation risks by committing to low interest rates for longer. This is a good idea, but such a pity it’s so late. The real question is whether the Fed has sufficient credibility in this statement to counter the massive credibility they created around controlling inflation “no matter what”.
This is progress.