ALL BLOG POSTS
Scott Sumner once wrote "I’ll die a happy man if my gravestone reads: Scott Sumner: Devoted his life to blogging on Hetzelian ideas." I think that is pretty telling of the importance of Robert Hetzel's influence on the thinking of Market Monetarists like Scott Sumner, Marcus Nunes and myself.
The debate over the latest policy actions from the ECB has once again reminded me about one of the oldest failures in monetary debate - the confusion 0f money and credit. This has been very visible in the discussion about monetary policy over the past six years both in Europe and the US.
The ECB is very eager to stress that the monetary transmission mechanism in some way is broken and that the policy measures needed is not quantitative easing, but measures to repair the monetary transmission mechanism.
Here is some good news for the blog readers, but some bad news for the UK government - my friend Giles Wilkes has left the UK government and is now back in the real life and more importantly he is back blogging. I highly recommend to everybody to follow Giles' blog Freethinking Economist - A voice of reason against illiberal nonsense.
Earlier today I put out post with 'one graph' illustrating just how much behind the curve the ECB is in terms of needed monetary easing. At the core of that blog post was a graph of the 'price gap'. I defined the price gap as the percentage difference between the actual price level (measured with the GDP deflator) and a 2% path.
For the past soon 15 year I have followed the economic development in Poland very closely and have visited the country very often. I have come to love the country and the Poles so I rejoice these days as Poland celebrates the 25 year anniversary of Poland's first (partly) free election on June 4 1989. The democratic revolution opened the floodgates for free market reforms across the former communist countries in Central and Eastern Europe.
The ECB is today widely expected to introduce a number of measures to ease monetary conditions in the euro zone and it seems like the ECB is finally beginning to recognize the serious deflationary risks facing the euro zone.
Over the past week we have had reports of the deteriorating state of public finances in France and particular the drop in tax revenues. It seems like Hollande's steep tax increases are not bringing in any extra revenue. President Hollande has been hit right in the face by the Laffer curve.
Recently there has been a debate about whether low interest rates counterintuitively actually leads deflation. Narayana Kocherlakota, President of the Minneapolis Fed, made such an argument a couple of years ago (but seems to have changed his mind now) and it seems like BIS' Claudio Borio has been making an similar argument recently. Maybe surprisingly to some (market) monetarists will make a similar argument. We will just turn the argument upside down a bit. Let me explain.