Thursday, July 19, 2007

Bernanke's Transparent New Clothes

Once again, Doug Noland over at Prudent Bear has hit the nail on this head with this commentary on 7/14/07.

dollar
[Thanks to surpluselectron.com for the image. We may see some of those on the street some day pretty soon, if the dollar keeps falling like this.]

I'll quote him, because he says it as well as anybody:

'I’ll plead once again that the issues of “money”, Credit, and inflation are much too vital to the long-term health of free-market democracies to be left to a select group of policymakers and “ivory tower” dogma. I would instead argue that it is imperative that citizens become sufficiently educated on the perils of Credit inflation, financial excess, and unsound “money.” This would provide our only hope against the inflationary tendencies of politicians, the Fed, and the Financial Sphere – tendencies that turn highly toxic when mixed with high octane contemporary “money.” ...

"Dr. Bernanke states that, “undoubtedly, the state of inflation expectations greatly influences actual inflation and thus the central bank’s ability to achieve price stability.” He then reiterates the commonly accepted view that - because of the Fed’s ongoing commitment and success in fighting inflation - inflation expectations “have become much better anchored over the past thirty years.” Well, this may have been somewhat the case for a period of time, but it is foolhardy to believe it holds true these days. After all, seemingly the entire world prescribes to the view of ongoing asset and commodities inflation. And these expectations - in conjunction with liquidity and Credit abundance – provide one of the more highly charged inflationary backdrops imaginable....

'...the Fed can continue to downplay asset and commodities inflation at our currency’s peril. Both may be exerting only modest pressure on “core” consumer price indices these days, but such a narrow-minded focus completely misses the point....

'...a policy of pegging short-term rates with promises of fixating two eyes on “core” CPI and no eyes on asset prices/Credit/or speculative excess has been fundamental in nurturing history’s greatest Credit Bubble. Or, from another angle, relatively stable consumer prices have ensured runaway Credit inflation and speculative asset Bubbles.'

Right on, Doug.

See my previous post about the present situation, and this one about inflation and the mishandling of the word.

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