Although there were a few Cassandras (including Nouriel Roubini from the interventionist side and Peter Schiff from the hard-money/deregulate side) who had very prescient descriptions of what was coming, generally speaking most economists had no idea just how bad things would be in 2008.I'm guessing Bob is putting himself into the group that missed the very obvious oncoming 2008 crisis. But what is really curious is his current post-crisis commentary. He runs this chart of the monetary base up to May 2010:
Why anyone would run this chart. without major qualifiers, baffles me big time. As any economist who is watching Fed data knows, the monetary base in relation to what entered the economy in early 2010 are two very different things, since major portions of Fed money printing went into excess reserves and didn't impact the economy. Here's the chart on excess reserves through May 2010, the same end point Murphy uses.
And for those who don't think that all those funds flowing into excess reserves didn't have an impact on money supply, here is the erratic quarterly money supply growth with the same May 2010 end point.
Yet, Murphy writes about none of this. He writes as if the monetary base has meaning in and of itself (my bold):
The above picture [the monetary base] isn’t the current one; it shows what the monetary base looked like, as of May 2010. So I’m saying I think most economists had common sense, looked at that chart, and thought, “You know, I just can’t agree with Scott Sumner that that is a picture of the tightest monetary policy since Herbert Hoover. I understand how back in the Depression, M1 and M2 actually fell sharply, and so did prices. But we’ve had rising Ms and CPI since the start of 2009. Sure, CPI growth hasn’t been high by historical standards, but we haven’t had outright deflation. And man, the Fed sure has pumped in a lot of base money. Maybe pushing harder on that particular lever isn’t really the answer. I’m not even sure running up more government debt will help, since we’ve had multiple years of trillion-dollar-plus deficits and that too doesn’t seem to be working very well.”
Murphy completely misses the up and then dramatic downswing in money supply growth because he is looking at only step one of the monetary policy process. It's as though he is putting food in a microwave, pulls it out after two minutes (without putting the power on) and saying, "These microwaves sure aren't what they are all made out to be." Money needs to get into the system, that means it has to become part of required reserves with the banks loaning the money out, the power needs to be turned on if you will. Murphy misses all of this.
But he goes on:
So why the turnaround? I think it’s because guys like Peter Schiff, Marc Faber, and (to a much lesser extent, since I’m not famous) me, were going nuts in 2009 warning everybody about Bernanke’s mad plan to debase the dollar. When our warnings didn’t come to pass, Krugman and Sumner (mostly Krugman) were running victory laps, saying “nana nana boo boo, we were right and the critics are idiots.”Note, again, he fails to mention the unprecedented increase in excess reserves which Schiff and Faber never discussed, either.
Incredibly, Murphy just buys into the argument that "unprecedented money-creation" occurred and didn't cause major price inflation (my bold):
Seeing that unprecedented money-creation didn’t seem to hurt, economists slowly got convinced to give it another try. In this effort, guys like Sumner were instrumental, because he relentlessly used very cogent arguments and data to show why everything made sense, from his perspective.This is simply outrageous. Money supply growth has turned incredibly erratic under Bernanke and his new tools, such as his introduction of interest payments on excess reserves, which is resulting in banks placing a trillion dollars plus into excess reserves, making the system even more erratic. For Murphy to cruise through a post discussing the near meaningless monetary base without its relation to other money elements, including the money supply itself(!) is beyond useless it is terribly misleading, dangerous and he has put a dagger in Krugman's hands during any future debate he has with Krugman.