Wednesday, November 10, 2010

It's Going to be Tough Picking This Year's Gold Hater of the Year

The race was really between Joe Weisenthal and Nouriel Roubini, but now Daniel Gross pipes up to tell us there is no inflation. He barely mentions gold in his column, but his confused take on money supply and inflation is enough to put him in the race.

To launch his attack, what great economist does he go after? Er uh, Sarah Palin.

He writes:
A few points worth noting on why Palin is wrong. First, she falls into a common debater's trap of misdirection. She pointed to an article talking about something that might happen in the future as evidence to something she said had already happened.

But then he does the same thing. He writes:
In the past two years, the Federal Reserve has injected huge amounts of cash into the economy, boosting its balance sheet from about $800 billion before the crisis to about $2.3 trillion today. At every step of the way, bond market vigilantes, gold bugs and other analysts have warned that doing so would ignite (high) inflation like we haven't since the 1970s. But instead we got (low) inflation like we haven't seen since the 1960s.

What's the misdirection here? He writes about the monetary base as though it has the same impact as the money supply. Over a trillion dollars of the money Gross is referring to is sitting in excess reserves, it never got into the system.

But he uses the monetary base number  to "deduce":  Well, the money injection didn't do anything last time, so it isn't likely to do so this time:

Inflation has fallen sharply since Bernanke began expanding the Fed's balance sheet. In the past 12 months, the consumer price index has risen by just 1.1 percent. Will increasing the size of the Fed's balance sheet by a mere $75 billion per month for the next eight months turn the U.S. into Zimbabwe? It's possible, but not likely.

A mere $75 billion of high powered money per month! A mere! This guy thinks big.

It also appears he is calling for the Fed to print money to boost the price of flat-screen televisions.
..Palin, like many of us, suffers from what might be called "selective inflation detection disorder." Consumers notice and feel the pain when costs of important, frequently bought goods, like milk or gas, rise sharply. But we tend to ignore prices that are falling. Go to The Wall Street Journal's website today, for example, and you'll see an article documenting the sharp fall in the prices of flat-screen televisions in the past year...

Not even Krugman and Bernanke have taken the deflation debate to the level of citing falling flat-screen television prices as a deflation problem, and stating we need money printing to boost the price of flat-screen televisions!

Yes, Weisenthal and Roubini have competition.

1 comment:

  1. Sorry but that monkey Jon Nadler at Kitco has all of them beat.

    This jackass has been calling for Gold to crash since $500.