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CMU, I responded to your post. I can’t believe you have never met these USDA guys. They have been coming to treat my backyard Norway maple for years now — preventitive insecticide. I left a link for you.
I think it really depends. If the Fed prints money, and keeps it in their basement, it doesn’t have an effect. If the Fed then moves it to a bank which, also keeps it in its basement, and doesn’t loan money, still no effect.
I’ve never really understood the nature of money, and I suspect people a lot more expert than me don’t really either.
If there are more dollars in circulation there will be more inflation, either of asset prices or consumer prices. I think the issue is over which it is.
I read an article in favor of QE (in a UK context) by a well known monetarist, Tim Congdon, along similar lines to lech’s point above, though. His argument was that QE was needed because otherwise the amount of money *in ciruclation* (i.e. broad money) would decrease severely because of increased bank capital requirements.
Re foreigners not likeing QE2, please see what I wrote earlier. It forces them into trying to buying dollars to bring down their own currencies or get killed in a trade war where devalued US dollar causes American goods to be unusually competitive.
Re gold being “real” enough, there is now discussion from the World Bank President about the return to some kind of “gold standard”. This is more like an intellectual game — (like Lech throwing out ideas about carbon sequestration) I do not know how it would work exactly (couldn’t work the old way) but as an indicator of sorts about how currencies should be pegged to one another, with central banks engaging in coordinated currency interventions to maintain certain levels. Anyway, people just think that gold is too small and limited an asset and with the growth of the world banking system makes this an anachronism.
The sum and substance of the commentary I heard last night is as follows:
The Fed is not actually trying to cause inflation. The Fed is playing a dangerous game in which it is trying to *convince* people inflation is about to happen, thus causing them to go out and trade in their dollars for goods and services, without actually causing any inflation. The whole thing only works if people are genuinely scared about inflation. The consensus what that yes, people are, so that’s working, so it’s a success so far, and now we get to see if the Fed manages to keep balancing on the razor and drawing people into buying stuff without actually pushing us into inflation. Everyone agreed that deflation is much, much scarier than inflation, and that’s why the Fed is playing this dangerous game.
The foreigners in the room did not like QE2, not one little bit. A smart American asked one of the foreigners what exactly he would have Mr Bernanke do, and then mocked the foreigner’s lack of a real answer.
My observation, which was not actually articulated by anyone who was present, is that if you are buying an asset now because you have been convinced that the Fed is going for inflation, and if the Fed succeeds in walking the razor, and that asset is highly inflated already, you are at risk.
CMU, I responded to your post. I can’t believe you have never met these USDA guys. They have been coming to treat my backyard Norway maple for years now — preventitive insecticide. I left a link for you.
herro?!?!
By etson on November 9, 2010 12:21 PM
I think it really depends. If the Fed prints money, and keeps it in their basement, it doesn’t have an effect. If the Fed then moves it to a bank which, also keeps it in its basement, and doesn’t loan money, still no effect.
I’ve never really understood the nature of money, and I suspect people a lot more expert than me don’t really either.
If there are more dollars in circulation there will be more inflation, either of asset prices or consumer prices. I think the issue is over which it is.
I read an article in favor of QE (in a UK context) by a well known monetarist, Tim Congdon, along similar lines to lech’s point above, though. His argument was that QE was needed because otherwise the amount of money *in ciruclation* (i.e. broad money) would decrease severely because of increased bank capital requirements.
Re foreigners not likeing QE2, please see what I wrote earlier. It forces them into trying to buying dollars to bring down their own currencies or get killed in a trade war where devalued US dollar causes American goods to be unusually competitive.
help!…would someone respond to my beetle forum post?
[Googled “why is deflation dangerous†instead of asking you guys]
Re gold being “real” enough, there is now discussion from the World Bank President about the return to some kind of “gold standard”. This is more like an intellectual game — (like Lech throwing out ideas about carbon sequestration) I do not know how it would work exactly (couldn’t work the old way) but as an indicator of sorts about how currencies should be pegged to one another, with central banks engaging in coordinated currency interventions to maintain certain levels. Anyway, people just think that gold is too small and limited an asset and with the growth of the world banking system makes this an anachronism.
The sum and substance of the commentary I heard last night is as follows:
The Fed is not actually trying to cause inflation. The Fed is playing a dangerous game in which it is trying to *convince* people inflation is about to happen, thus causing them to go out and trade in their dollars for goods and services, without actually causing any inflation. The whole thing only works if people are genuinely scared about inflation. The consensus what that yes, people are, so that’s working, so it’s a success so far, and now we get to see if the Fed manages to keep balancing on the razor and drawing people into buying stuff without actually pushing us into inflation. Everyone agreed that deflation is much, much scarier than inflation, and that’s why the Fed is playing this dangerous game.
The foreigners in the room did not like QE2, not one little bit. A smart American asked one of the foreigners what exactly he would have Mr Bernanke do, and then mocked the foreigner’s lack of a real answer.
My observation, which was not actually articulated by anyone who was present, is that if you are buying an asset now because you have been convinced that the Fed is going for inflation, and if the Fed succeeds in walking the razor, and that asset is highly inflated already, you are at risk.