The absurdity of the inflation "hawks"

The inflation of the late 1970s brought the reactionary economists into positions of power and influence.  So we are left with an economics profession that is devoted to fighting inflation at the expense of virtually every other economic consideration--especially employment.  Since we now have the situation where deflation, not inflation, is the main problem, the inflation hawks are irrelevant.  But since these clowns know nothing else, we have to listen to them almost every time the economy is discussed.

U.S. Economy: Consumer Prices Rise 0.2% in January

By Timothy R. Homan

Feb. 19 (Bloomberg) -- The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is generating little inflation.

The consumer-price index increased 0.2 percent for a fifth straight month, led by higher fuel costs, Labor Department figures showed today in Washington. Excluding energy and food, the so-called core index unexpectedly fell 0.1 percent, reflecting a drop in new-car prices, clothing and shelter.

Retailers such as Wal-Mart Stores Inc. have reduced prices to lure customers at a time when most employers are reluctant to hire. Restrained inflation will allow Federal Reserve policy makers to keep the benchmark interest rate close to zero to help support the recovery. more

US Federal Reserve - US bank lending falls at fastest rate in history 

Bank lending in the US has contracted so far this year at the fastest rate in recorded history, raising concerns that the Federal Reserve may have jumped the gun by withdrawing emergency stimulus.

By Ambrose Evans-Pritchard, International Business Editor

Published: 8:43PM GMT 17 Feb 2010

David Rosenberg from Gluskin Sheff said lending has fallen by over $100bn (£63.8bn) since January, plummeting at an annual rate of 16pc. "Since the credit crisis began, $740bn of bank credit has evaporated. This is a record 10pc decline," he said.

Mr Rosenberg said it is tempting fate for the Fed to turn off the monetary spigot in such circumstances. "The shrinking in banking sector balance sheets renders any talk of an exit strategy premature," he said.

The M3 broad money supply – watched by monetarists as a leading indicator of trouble a year ahead – has been contracting at a rate of 5.6pc over the last three months. This signals future deflation. The Fed's "Monetary Multplier" has dropped to a record low of 0.81, evidence that the banking system is still broken. more