Tuesday, November 9, 2010

More Krugman Desperation

Paul Krugman continues to comeback to the inflation/deflation debate. This is a sure sign that he knows he hasn't gotten close to making his case.

In his most recent post he runs this chart:

He leads into this chart with this comment:
For everyone who thinks that we should view commodity prices as the right measure of inflation: they’re very, very volatile. Here’s the annual rate of change in the IMF commodity index over time.
Uh, no kidding Paul. Commodities are volatile, but what does that have to do with the the trend. Here's the chart of the CRB over the same period as Krugman's volatility chart:

As for the dip during the recent recession, Krugman plays gotcha:
So, were all the people screaming about inflation now screaming about deflation a year and half ago? Why not?
I don't know about others, but I was warning that commodities were headed lower. Indeed, in November of last year, I recommended a short on oil. I only turned bullish on commodities (and the stock market) once it became clear that Bernanke was going to go nuclear with the money supply.

In short, a volatility chart doesn't mean a damn thing. And as far as my case, I don't shout inflation day in and day out, but I do know when it is coming, given Fed money printing and the likely change in the demand to hold cash (It will drop dramatically from an "overbought" position). This is how you analyze and follow the economy, not, a la Krugman, by pulling some data out of the air that has no theoretical basis for being introduced into the argument other than the chart looks like it backs up your case.

I continue to expect Krugman, within six to twelve months to have serious egg (and much more expensive egg, btw) all over his face.


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