"The US last week showed its first signs of deflation for 55 years, prompting inevitable fears of further deflation in the future. Yet the primary reason for the negative rate of US inflation is the dramatic 30 per cent fall of commodity prices. That will not happen again. ... The unprecedented explosion of the US fiscal deficit raises the spectre of high future inflation. ... There is ample historical evidence of the link between fiscal profligacy and subsequent inflation. But historic evidence and economic analysis also show that the inflationary effects can be avoided if the fiscal deficits are not accompanied by a sustained increase in the money supply and, more generally, by an easing of monetary conditions. ... The broad money supply (M2) is already increasing at an annual rate of nearly 15 per cent. The excess reserves of the banking system have ballooned from less than $3bn a year ago to more than $700bn (Euro 536bn, Pound 474bn) now. ... The Fed is also creating a massive increase in liquidity by its policy of supplying credit directly to private borrowers", Martin Feldstein at the FT, 20 April 2009.
I agree with Feldstein.
2 comments:
Feldstein is so smart...
The 30% commodity fall... yup...
It must make Chairman Bernanke shudder when he reads Professor Feldstein... cause he knows he is right and that he is dragging our nation down a dangerous path...
What kind of brakes you got ZimBen? You have an awfully big printing press... but have you got an equally big vacuum?
From the Telegraph:
"As more and more economies are adopting unconventional monetary policies, such as quantitative easing (QE), major currencies' devaluation risks may rise," it said. The bank fears a "big consolidation" in the bond markets, clearly anxious that interest yields will surge as western states try to exit their QE experiment.
Simon Derrick, currency chief at the Bank of New York Mellon, said the report is the latest sign that China is losing patience with the US and aims to diversify part its $1.95 trillion (£1.3 trillion) foreign reserves away from US Treasuries and other dollar securities.
"There is a significant shift taking place in China. They are concerned about the stability of the global financial system so they are not going to sell US bonds they already have. But they are still accumulating $40bn of fresh reserves each month, and they are going to be much more careful where they invest it," he said.
Post a Comment