Skip to comments.ART LAFFER: I Was Wrong About Inflation And The Fed
Posted on 01/03/2014 10:22:34 AM PST by SeekAndFind
Arthur Laffer is a legend in Washington, having been the leading voice on President Ronald Reagan's hawkish Economic Policy Advisory Board.
His "Laffer Curve," which argued that there are diminishing returns after a certain point of taxation, was taken as gospel.
If his views are not quite as frequent a presence in public debate, it's largely because Laffer's pet issues, regulation and taxes, took a back seat during the George W. Bush and Barack Obama administrations.
But Laffer himself still occasionally makes appearances on the public scene.
And in June of 2009, he penned an op-ed warning excessive quantitative easing would inevitably lead to higher inflation and interest rates.
...we haven't ever seen anything like this in the U.S. To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits ...Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn't a pretty picture.
Obviously, nothing like that happened.
In an interview with Business Insider from his office in Tennessee, Laffer admitted that he was wrong. The old maxim that dictates increasing the availability of cash through lower interest rates will lead to higher prices, he said, may need to be reexamined.
"Usually when you find the model this far off, you've probably got something wrong with the model, not that the world has changed," he said. "Inflation does not appear to be monetary base driven," he said.
He's not totally comfortable with what the Fed is doing, however. "Ask me whether inflation represents longer term problem, I think there's a potential there for excess reserves to create problems."
But it now seems impossible to predict.
(Excerpt) Read more at businessinsider.com ...
The rest of the world has too much to lose, and thus has no choice but to play along with the Fed’s scam.
Huh? Then why is everything I’m buying especially food going through the roof?
Western economies right now “need” to deflate. Obama’s policies are forcing the Fed to inject money into the system in a misguided attempt to re-inflate a deflating economy. The longer this goes on the worse the actual deflating correction will be...
The reason we’re not seeing inflation like we should is because people are panicked and not spending. Inflation is defined as too much money chasing too few goods. (Hyper inflation is people bailing out of currency as a store of value and into assets.) Our collective bunker psychology (caused by Obamacare and the job market) is keeping prices lower than they should be. But we do have inflation. I’m sure you’ve noticed in the grocery store. Cars, despite their high cost, are a relative bargain. They haven’t gone up nearly as much as food.
Art’s not ‘wrong’ per se.
It’s just hard to predict when the crash is coming with all the “created” cash being dumped into the economy holding stocks, bonds and real estate (investors) up. Iffen you buy mundane things like “food” and “Fuel”, well—it’s already here.
“Huh? Then why is everything Im buying especially food going through the roof?”
Food and gas (ie. the two things you actually have to buy, ie the two things that actually measure inflation) are specifically excluded from the govt inflation calculation.
Figures don’t lie but liers sure figure.
The contraction in credit reduced the money supply almost as much as the Fed quantitative easing increased it.
If the economy recovers and credit returns then there is potential for inflation. But the FED can sale the bonds it bought on the open market reducing the money supply and keeping inflation largely in check.
Combine that with the fact that the government is probably understating inflation by a couple of percent to avoid having to pay seniors increased social security benefits.
The debt is mushrooming totally out of control and a huge portion of it out of sight and off the balance sheet. The fed is swamping us with phony money, propping up the markets. Obama and the democrats couldn’t care less. Their bubble will burst after they’re gone.
I thought the fact that 80% of the QE money being held by banks as excess reserves had something to do with keeping inflation in check, and when that ends, all bets are off.
Needless to say, excluding food costs from the calculation of inflation is Laff-able. “Food and energy costs are too volatile. Therefore they should not be used to show inflation.”. He he.
Where is the money? That’s what puzzles me.
But inflation can only result from an increase in the money supply.
gawd, is he stuck on stupid?
I don’t really get that either, but the way I understand it, some time ago they stopped including food and fuel when calculating for inflation. Now, having said that, why would that matter? Increasing price of food and fuel SHOULD affect all commodities I would think.
So, bottom line, I have no idea! LOL I guess I need to reread some of Sowell’s books!
Guess Art hasn’t been out to buy bacon eggs & milk lately. The inflation is there on the shelves, not in the stats.
You’re right, of course.
But in the end, the king will be revealed as nekkid.
The part I struggle with is timing...
I would think inflaction is a factor of both money supply and velocity. I think the supply is way up, but the velocity is way down. That is why inflation is not up as much as Carter (but is up much more than the fed admits to).
In a way he is right. Based purely on the vast number of dollars created during the Obama terms of office, we should resemble the Weimar Republic. People should be walking around with baskets of money to buy an apple.
Why isn’t that happening?
I would like to hear more of what Dr. Laffer has to offer on this. I don’t think I agree with the idea that inflation is not monetary base driven. What is apparently happening is massive interference with the markets through manipulation.
What I find most telling is that a real economist, not a government funded university hack, is willing to admit he may be wrong when the real world data does not prove out. Try and get that from Paul Krugman.
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