Defending the Dollar

After administering a pro-forma slap on the wrist to Texas Governor Rick Perry for saying that it would be treasonous for Fed Chairman Bernanke to “print more money between now and the election,” The Wall Street Journal in today’s lead editorial heaps praise on the governor for taking a stand in favor of “sound money.”  First there was Governor Palin, and now comes Governor Perry to defend the cause of sound money against a Fed Chairman who, in the view of the Journal editorial page, is conducting a massive money-printing operation that is debasing the dollar.

Well, let’s take a look at Mr. Bernanke’s record of currency debasement.  The Bureau of Labor Statistics announced the latest reading (for July 2011) of the consumer price index (CPI); it stood at 225.922.  Thirty-six months ago, in July 2008, the index stood at 219.133.  So over that entire three-year period, the CPI rose by a whopping 3.1%.  That is not an annual rate, that it the total increase over three years, so the average annual inflation rate over the whole period was less than 1%.  The last time that the CPI rose by as little as 3% over any 36-month period was 1958-61.  It is noteworthy that during the administration of Ronald Reagan — a kind of golden age, in the Journal‘s view, of free-market capitalism, low taxes, and sound money — there was no 36-month period in which the CPI increased by less than 8.97%, or about 3 times as fast as the CPI has risen during the quantitative-easing, money-printing, dollar-debasing orgy just presided over by Chairman Bernanke.  Here is a graph showing the moving 36-month change in the CPI from 1950 to 2011.  If you can identify which planet the editorial writers for The Wall Street Journal are living on, you deserve a prize.

“Mr. Perry,” the Journal continues, “seems to appreciate that the Federal Reserve can’t conjure prosperity from the monetary printing presses.”  A huge insight to be sure.  But the Journal is oblivious to the possibility that there are circumstances in which monetary stimulus in the form of rising prices and the expectation of rising prices could be necessary to overcome persistent and debilitating entrepreneurial pessimism about future demand.  How else can one explain the steady decline in real (inflation-adjusted) interest rates over the past six months?  On February 10 the yield on the 10-year TIPS bond was 1.39%; today the yield has dropped below zero.  For the Journal to attribute the growing pessimism to the regulatory burden and high taxes, as it reflexively does, is simply laughable now that Congressional Republicans have succeeded in preserving the Bush tax cuts, preventing any new revenue-raising measures, and blocking any new regulations that were not already in place 6 months ago.

The Journal concludes:

Merely by raising the Fed as a subject, Mr. Perry has sent a political signal to the folks at the Eccles Building to tread carefully as they conduct monetary policy in the coming months.  This alone is a public service.

Yes, and as I write this the S&P 500 is down 54 points, almost 5%.

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19 Responses to “Defending the Dollar”


  1. 1 Lars Christensen August 18, 2011 at 12:40 pm

    David, the lack of economic inside among the Journal’s editorial writers is shocking. Those of us who truly are Free Market supporters would from time to time look at what the MARKET is telling us. Apparently this is not what the Journal like to do…The MARKET is telling us very clearly that monetary policy is getting tighter and tighter day-by-day: Commodity prices are falling, the stock market is in a free fall, the dollar is strengthening…AND 30y treasury yields are below 1%! It would be interesting if somebody could ask the Journal to explain to us how the MARKET got it so wrong…I have bigger trust in markets than in the partisan editorials of the Journal.

    Here is a suggestion: The Fed should offer to buy every single copy of the Journal for a 1000 dollars a piece every day until 30y yields hit 5%….

  2. 2 David Glasner August 18, 2011 at 12:46 pm

    Lars, good idea except that it would reward the Journal’s stupidity.

  3. 3 Lars Christensen August 18, 2011 at 12:53 pm

    Maybe David, but I would like to hear them argue against that idea;-)

  4. 4 Lars Christensen August 18, 2011 at 12:59 pm

    David, maybe you could edit this article bit – it of course originally appeared in the Journal in 1997: http://www.hoover.org/publications/hoover-digest/article/6549

    You can replace Japan with US. Bank of Japan with the Federal Reserve…I wonder whether the Journal would accept it?

  5. 5 Morgan Warstler (@morganwarstler) August 18, 2011 at 5:04 pm

    David, this is WHY you are wrong:

    http://www.unitedliberty.org/articles/8623-chart-of-the-day-washington-fat-cats-are-getting-fatter

    This is WHY Perry will win:

    http://www.unitedliberty.org/articles/8623-chart-of-the-day-washington-fat-cats-are-getting-fatter

    —-

    See the Republican prescription for saving the economy without printing money is to FIRE all the guys Obama hired as regulators.

    That’s what we call “less regulation” – it’s not a perfect description, but who cares.

    Now let me ask you a question: Do you think America isn’t going to LOVE hearing that the solution to our economic woes is simply to fire all the bureaucrats Obama hired to ruin the economy?

    Or do you think America will want to listen to the public employee economist say what we really need to do is print more money, and not fire all the public employees?

    Hmm let’s go read the comments in Matty’s progressive American Prospect:

    http://prospect.org/cs/articles?article=federal_reserve_swagger

    Yep go read them…

    When PROGRESSIVES don’t want to print money… you are screwed.

    Now INSTEAD, what you can do is become a radical advocate for firing the public employees, and THEN when you have the right guys listening to you and the hammer is coming down – DC is awash in resumes, ther will be David whispering int he ears of power saying:

    If things slow down, just print more money, then everyone will BELIEVE firing public employees is a giant boom for the economy.

    The question is David, at that point you KNOW Perry will listen – this is the shortest possible path on the table of reality, what are you not taking it?

  6. 6 Jim August 18, 2011 at 5:49 pm

    225.922 CPI NOW; THREE YEARS AGO, 219.133 is a rise of 6.8% vs. the 3.1% you wrote in the second paragraph.

  7. 7 David Glasner August 18, 2011 at 7:54 pm

    Morgan, You are obviously trying to get me to say something bad about Governor Perry, and I am not going to fall into your clever trap. I used to have a left-wing friend who would promise me very sincerely that when the revolution comes he would put in a good word for me. I am sure that I can count on you to put in a good word for me, too, when the time comes. And I give you permission to steal all my ideas shamelessly. I am pretty lucky to be covered on both my left and my right flanks.

    Jim, It always pays to check your math. 225.922 minus 219.133 equals 6.789. 6.789 divided by 219.133 equals (more or less) 3.1.

  8. 8 Lorenzo from Oz August 18, 2011 at 8:25 pm

    Greenspan looks better and better.

  9. 9 Luis H Arroyo August 19, 2011 at 12:30 am

    It is alarming the possibility that a Tea Partian could win in 2012. What would be the consequences? Who whould be nominee to Preside the FED?
    Do yoiu think that they never have been stay so near to the power?
    In any cae they have now got a lot of power

  10. 10 Rhyolite August 19, 2011 at 11:24 am

    Umm…that’s not how you calculate a percent change. The correct calculation is: 100 * 225.922 / 219.133 = 3.1%

  11. 11 Jimmy Jones August 19, 2011 at 10:16 pm

    Morgan, 654,000 public employees were fired last year. Did reducing the govt workforce by 2.4% help the economy? Private sector employment grew 1.7% from 6/10 to 6/11. In 1986, private sector employment grew 1.9%, so we’re almost at morning in America rate of private sector job growth yet unemployment went up.

    http://www.bls.gov/ro6/fax/ces_tx_us_current.htm

    Jan 1987: 82278
    Jan 1986 80671

    http://data.bls.gov/timeseries/CEU0500000001

    (use drop down menu to get to 1986)

  12. 12 Andy Harless August 20, 2011 at 11:38 am

    “…Congressional Republicans have succeeded in preserving the Bush tax cuts…”

    It’s a minor point, but I don’t think this is true. Under current law the tax cuts will expire at the end of 2012. If the Republicans succeed in preserving them it will either be (1) by making some kind of deal with Democrats in the future or (2) by taking over the Senate and the presidency while retaining the House (and then figuring out a legislative procedure that will allow them to avoid a filibuster). Neither of these outcomes is a foregone conclusion.

  13. 13 David Glasner August 20, 2011 at 8:13 pm

    Lorenzo, I am not a fan of Greenspan, but I agree that Bernanke is making him look good by comparison.

    Luis, There’s a great old song (composed by Kurt Weil and Maxwell Anderson) and famously song by Frank Sinatra whose opening line is “It’s a long long time from May to December.” It’s almost as long from August to February, so don’t push the panic button yet.

    Jimmy, Interesting numbers, but I just checked the St. Louis Fed for the unemployment rate in 1986 and it was basically flat as was the unemployment rate from 06/10 to 06/11. So we would need a considerably faster rate of growth in private sector employment than 1.7 percent in any case to get the unemployment rate.

    Andy, Welcome to my blog. You are right, I did overstate my case somewhat. At any rate, if the Republicans agree to any increase in revenues I cannot imagine their doing so except by way of a tax reform that reduced marginal rates across the board.


  1. 1 Everything DOWN, but inflation UP | Historinhas Trackback on August 18, 2011 at 3:41 pm
  2. 2 "Defending the Dollar" | FavStocks Trackback on August 19, 2011 at 1:21 am
  3. 3 Econbrowser: Waiting for the Fed to act Trackback on August 21, 2011 at 10:38 am
  4. 4 Three-Year Inflation Rate is Lowest in 54 Years | YOLO Trader Alerts Trackback on August 31, 2011 at 3:02 pm
  5. 5 Three-Year Inflation Rate is Lowest in 54 Years-Economic News | Coffee At Joe's Trackback on September 7, 2011 at 6:21 am
  6. 6 Waiting for the Fed to act | Econbrowser Trackback on January 25, 2014 at 9:15 am

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About Me

David Glasner
Washington, DC

I am an economist at the Federal Trade Commission. Nothing that you read on this blog necessarily reflects the views of the FTC or the individual commissioners. Although I work at the FTC as an antitrust economist, most of my research and writing has been on monetary economics and policy and the history of monetary theory. In my book Free Banking and Monetary Reform, I argued for a non-Monetarist non-Keynesian approach to monetary policy, based on a theory of a competitive supply of money. Over the years, I have become increasingly impressed by the similarities between my approach and that of R. G. Hawtrey and hope to bring Hawtrey's unduly neglected contributions to the attention of a wider audience.

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