Thursday, June 10, 2010

Two Points

From the first Mises Daily I ever read:

Mish Should Ditch His Deflation Fears

Mike Shedlock, a.k.a. 'Mish'
Mises Daily: Monday, July 13, 2009
by Robert P. Murphy

We who are advocates of sound, free-market money need to get our story straight. Are we predicting hyperinflation or massive deflation? Personally, I am much more worried about the former problem. Using a recent article by Mish, I hope to show that no one has made a convincing case for falling prices.

Fair enough, story straight. Mish is predicting deflation; Robert P. Murphy is predicting hyperinflation. What to think.... What to think?

Bob Murphy's post is near a year old, and the inflation-versus-deflation question is not yet resolved.

It is some 15 months now since the Fed's trillion-dollar Quantitative Easing event, and the inflation-deflation question is not yet resolved.

It is more than 470 days since the $787 billion stimulus package was signed into law, and the inflation-deflation question is not yet resolved.

It is approaching two years since the TARP was announced, and the inflation-deflation question is not yet resolved.

What to think? I think printing money doesn't cause inflation.

Now wait a minute, you might say. We've been waiting, I reply.

"We'll get the inflation," you say. "We'll get it when the economy recovers. We'll get it when spending picks up again."

And oh, you are right about that. It is the spending that causes inflation, not the printing. Right you are.

Point #1: Inflation is caused by spending, not by printing money.

Item #2: The inflation-deflation question is still unresolved. After all that TARP money, and all that stimulus money, and all that Quantitative Easing money, we still cannot see decisively whether the economy is tipping toward inflation or deflation.

Now, imagine how things would have gone without all that emergency money.

Point #2: Without that money, we would have seen decisive deflation.

UPDATE: Please refer to my follow-up post, The Missing Link. -- Art

No comments: