Inflation and the lessons of the 1970s
According to a calculation by Joachim Fels, managing director of Morgan Stanley, the global weighted average inflation rate will be 5.4 per cent this year, while the global money market interest rate is currently only 4.3 per cent. This means that global short-term real interest rates are negative — at a time when inflation is rapidly accelerating. As monetary policy has been excessively accommodating for more than a decade, inflationary pressures have built up in the global economy. This was concealed initially by a series of asset price bubbles. But when too much money finally stopped chasing too many assets, it started chasing too many goods.
Most of Fisher's speech was devoted to a warning considerably more dire than his inflation fears. "I see a frightful storm brewing in the form of untethered government debt," he said.
ReplyDeleteTaking his audience through the familiar territory of Medicare and Social Security's long-term financial insolvency, he said the long-term fiscal situation of the federal government "could be unimaginably more devastating to our economic prosperity than the sub-prime debacle and the recent debauching of credit markets."
Aside from the straightforward fiscal damage, Fisher said the "dark and dirty secret about deficits -- especially when they careen out of control -- is that they create political pressure on central bankers to adopt looser monetary policy down the road."
And the greater the financial hole of the US deficit, the greater the pressure on the Fed will be to print money to get out of it.
http://www.iii.co.uk/news/?type=afxnews&articleid=6733735&subject=economic&action=article
Print they will is my guess.
Kevin
Kevin,
ReplyDeleteOther than the frightful storm, untethered government debt, something unimaginably more devastating to our economic prosperity, recent debauching of credit markets, and the dark and dirty secret about deficits, we're lookin' really good these days though, lol.
Mishkin to Leave Fed in August, Return to Columbia (Update4)
http://www.bloomberg.com/apps/news?pid=20601103&sid=akxuUT9Fp0b0&refer=us
The departure may create an unprecedented third vacancy on the seven-member Fed Board of Governors this year as the central bank tries to ease the credit crisis.
When the going gets tough, the tough get going.