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An Inflation Indicator to Watch, Part 1

An Inflation Indicator to Watch, Part 1

“Inflation is always and everywhere a monetary phenomenon.”
—Milton Friedman

Have you ever questioned Milton Friedman’s famous claim about inflation?

Ever heard anyone else question it?

Unless you read obscure stuff written for the academic community, you’re probably not used to Friedman’s quote being challenged. And that’s despite a lousy forecasting record by economists who bought into his Monetarist methods.

Consider the following:

  • When Friedman’s strict Monetarism fizzled in the 1980s, it was doomed partly by his own forecasts. Instead of the disinflation the decade delivered, he expected inflation to reach 1970s levels, publicizingthat prediction in 1983 and then again in 1984, 1985 and 1986. Of course, years earlier he foresaw the 1970s jump in inflation, but the errant forecasts that came later left him wide open to a “clock twice a day” dismissal.
  • Monetarists suffered an even harsher blow in 2012, when the Conference Board finally threw in the towel on Friedman’s favorite indicator, removing M2 from its Leading Economic Index (LEI). Generally speaking, forecasters who put M2 in their models are like bachelors who put “live with mom” in their dating profiles—they haven’t been successful.
  • The many economists who expected quantitative easing (QE) to wreak havoc on inflation are, of course, on the defensive. Nine years after QE began, core inflation remains below the Fed’s 2% target, defying their Monetarist beliefs.

When it comes to explaining inflation, Monetarism hasn’t exactly nailed it. Then again, neither has Keynesianism, whose Phillips Curve confounds those who rely on it. You can toss inflation onto the bonfire of major events that mainstream theories fail to explain.

But I’ll argue there might be a better way.

…click on the above link to read the rest of the article…

Greenspan Explains The Fed’s Miserable Track Record: “We Didn’t Forecast Better Because We Can’t”

Greenspan Explains The Fed’s Miserable Track Record: “We Didn’t Forecast Better Because We Can’t”

On March 11, the National Archives announced its first opening of Financial Crisis Inquiry Commission (FCIC) records, along with a detailed 1,400-page online finding aid (yes, just the index is 1,400 pages). The records which are available via DropBox, seek to identify the causes of the 2008 financial crisis.

Among the numerous materials are interviews with key players in Washington and on Wall Street, from Warren Buffett to Alan Greenspan. The documents also include minutes of commission meetings and internal deliberations concerning the causes of the financial crisis.

While we admit we have yet to read the several hundred thousand pages released yesterday, here is what has so far emerged as of the better punchlines within the data dump, and it comes courtesy of the man who many believe is responsible not only for the second global great depression (which needs trillions in central bank liquidity to be swept under the rug every day), but for the “bubble-bust-bigger bubble” cycle that was unleashed with Greenspan’s Great Moderation.

Here is Allan Greenspan meeting with Dixie Noonan et al on March 31, 2010:

This is a reason why the Board is getting an unfair rap on this stuff. We didn’t forecast better than anyone else; we regulated banks that got in trouble like anyone else. Could we have done better? Yes, if we could forecast better. But we can’t. This is why I’m very uncomfortable with the idea of a systemic regulator, because they can’t forecast better.

This comes from the person in charge of the most powerful central bank in the world; a world which now is reliant exclusively on central bankers for its day to day pretend existence.

Good luck to all.

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