We used to have fun commenting about the bond market, including Treasuries, Mortgages, Municipals, and Corporates. But that was before the dark times. Before deleveraging. Contact the Author: accruedint at gmail.com
Thursday, April 26, 2007
Please read this post...
... from Economist's View. It is a very good explanation of what inflation actually is and isn't from a monetary policy makers prospective. If you care at all about the Fed, read and understand.
4 comments:
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Funny then that the Fed stopped recording M3--the broadest measures of money supply always correlated best with inflation.
ReplyDeleteIf this is the case, and a great deal of borrowed money is, right now, being taken off the table, perhaps forever, then we face a deflationary future, do we not?
ReplyDeleteIn addition, the euro, currently breaking through the roof of currency trading, cannot last for long in a deflationary environment. It will fall when fewer dollars are available to chase it, will it not?
These are important questions, the answers to which I do not know.
You say in an earlier post that the world is awash in liquidity.
ReplyDeleteHence, there is no risk (whatsoever) of deflation, correct?
I am genuinely confused.
Vivek:
ReplyDeleteI think the "M" stats became misleading. Most monetarists now agree that actually measuring the money supply is next to impossible, due in part to cash held by foreigners for currency management.
Anon #1:
I have to ask someone who understands monetary theory better than myself to answer that question. I know that if we have one agent borrowing less (say, home owners) and another agent (say, corporations) borrow proportionately more than there can't be a net effect. By all accounts, corporate borrowing is relatively low right now.
As far as the euro, that would all depend on whether the same conditions are persisting in that market as well. Better to ask www.dismally.com.
Anon #2:
Don't think there is any risk of deflation immediately. But if we were to move in that direction for any reason, it would be harder to fight.