Adam Posen is a senior fellow at the Peterson Institute for International Economics , and you can click on that link to learn more about him. Heavy-duty important economist with trans-Atlantic influence. Member of the monetary policy committee of the Bank of England, etc.
Posen spoke on September 28 to the Hull and Humber Chamber of Commerce, and laid out "the case for doing more." See the whole speech here.
For more of what? by whom? Central bankers "in the UK and beyond," should be doing more to promote recovery, and should not concern themselves with the risk of inflation that this creates.
"[P]olicymakers should not settle for weak growth out of misplaced fear of inflation. If price stability is at risk over the medium-term, meaning over the two- to three-year time horizon ... it is on the downside."
That just sounds insane to me. It seems that our economics gurus have uterly lost sight of the most basic facts about the business cycle. Maybe this video will help. Surely recent events have vindicated Hayek's concern about the boom and bust cycle? Those responsible for the bust are always those who stoked the preceding boom.
We're suffering from the hangover from the last boom-bust, and we're reaching for a hair of the dog. Breaking the addiction would be a better plan.
Showing posts with label inflation. Show all posts
Showing posts with label inflation. Show all posts
Sunday, October 3, 2010
Sunday, September 19, 2010
Inflation and the 1970s
In a lazy-Sunday mood, my mind is wandering back to the 1970s, assisted in its wandering by a recent book, RIGHT STAR RISING, by Laura Kalman.
Kalman's book covers the period 1974 to 1980, a period that began with the resignation of Richard Nixon and ends with the election of Ronald Reagan. How did we get from one to another? One might reasonably have suspected, a priori, that Nixon's fdall would signal a leftward move in the country's politics. Why did that not happen? That is the question that fascinates Kalman.
What I have read of her book has forcefully reminded me of the centrality of inflation in the politics of that period: inflation at levels we have not known since, and inflation that came to be taken for granted year-to-year. Ford declared that we could stop it, and introduced ridiculous WIN buttons. The inflationary environment stimulated more serious policy disputes, such as that over common situs picketing.
So let's think about inflation today. With all the "quantitative easing" and stimulus packages of the last couple of years, shouldn't we have expected some of late? Why has it remained so tame in 2010? Here's a take from The Motley Fool back in March.
One reason it has remained tame is simply that other currencies have taken harder hits than the dollar, and this has allowed the dollar to retain its significance as a safe haven. Switzerland, and its franc, has long been considered another safe haven, but its status as such took some hits in 2009, because the Swiss economy is so closely tied to world banking, and banking as an industry was so much under siege. For investors even nervous about Switzerland, the US dollar looked even better. (Sort of like the way the girls [boys, if you prefer!] all look cuter at closing time?)
Of course the safe-haven notion increased demand for the dollar, and the increased demand has kept its value up, i.e. has foiled the forces that would otherwise have pressed for inflation/devaluation.
But I think we've gotten as much mileage out of that as we're going to get, and we may be headed back to the '70s sans DeLorean.
Kalman's book covers the period 1974 to 1980, a period that began with the resignation of Richard Nixon and ends with the election of Ronald Reagan. How did we get from one to another? One might reasonably have suspected, a priori, that Nixon's fdall would signal a leftward move in the country's politics. Why did that not happen? That is the question that fascinates Kalman.
What I have read of her book has forcefully reminded me of the centrality of inflation in the politics of that period: inflation at levels we have not known since, and inflation that came to be taken for granted year-to-year. Ford declared that we could stop it, and introduced ridiculous WIN buttons. The inflationary environment stimulated more serious policy disputes, such as that over common situs picketing.
So let's think about inflation today. With all the "quantitative easing" and stimulus packages of the last couple of years, shouldn't we have expected some of late? Why has it remained so tame in 2010? Here's a take from The Motley Fool back in March.
One reason it has remained tame is simply that other currencies have taken harder hits than the dollar, and this has allowed the dollar to retain its significance as a safe haven. Switzerland, and its franc, has long been considered another safe haven, but its status as such took some hits in 2009, because the Swiss economy is so closely tied to world banking, and banking as an industry was so much under siege. For investors even nervous about Switzerland, the US dollar looked even better. (Sort of like the way the girls [boys, if you prefer!] all look cuter at closing time?)
Of course the safe-haven notion increased demand for the dollar, and the increased demand has kept its value up, i.e. has foiled the forces that would otherwise have pressed for inflation/devaluation.
But I think we've gotten as much mileage out of that as we're going to get, and we may be headed back to the '70s sans DeLorean.
Sunday, June 13, 2010
Inflation at Bay
Back in November, I was confidently predicting that oil would be worth $115 a barrel by July 1. This wasn't because I expected a roaring recovery and the great demand for oil that would create. It was, rather, because I expected that the "quantitative easing" of two successive administrations used as stimulus and as a way of resolving a credit crunch, would have its usual effect on wages and prices. The world price of crude oil is set in US dollars, and historically the price is a good proxy for inflation.
We are drawing near that date, and it seems obvious that I was wrong. The price has of course fluctuated since November, but the highest point it reached was roughly $87, in early April. It is presently at $74.
Now, it is my firm belief that there is no difference anywhere that does not make a difference somewhere else. So: what difference somewhere else does this make? An increased quantity of dollars should other things being equal reduce their value relative to goods and services (and other currencies). That in turn should have rendered my prediction spot on.
I think I went wrong chiefly by failing to anticipate the European crisis, especially with the southern tier countries, and the consequent debasement of the euro. This has strengthened the dollar. Not just by definition, if the dollar is measured in euros, but by virtue of a flight to safety.
Even the Iranian central bank, presumably staffed by people who believe the US is the Great Satan, is swapping euros for dollars these days.
Inflation has been kept at bay, but the situation remains extremely worrisome.
We are drawing near that date, and it seems obvious that I was wrong. The price has of course fluctuated since November, but the highest point it reached was roughly $87, in early April. It is presently at $74.
Now, it is my firm belief that there is no difference anywhere that does not make a difference somewhere else. So: what difference somewhere else does this make? An increased quantity of dollars should other things being equal reduce their value relative to goods and services (and other currencies). That in turn should have rendered my prediction spot on.
I think I went wrong chiefly by failing to anticipate the European crisis, especially with the southern tier countries, and the consequent debasement of the euro. This has strengthened the dollar. Not just by definition, if the dollar is measured in euros, but by virtue of a flight to safety.
Even the Iranian central bank, presumably staffed by people who believe the US is the Great Satan, is swapping euros for dollars these days.
Inflation has been kept at bay, but the situation remains extremely worrisome.
Monday, August 4, 2008
Bronco Drilling
Allis-Chalmers Energy has entered into a contract to buy Bronco Drilling, an oil and natural gas drill rig supplier.
Bronco shareholders will get $200 million in cash and 16.85 million shares of ALY's common stock if the deal goes through as planned.
Wexford Capital, which owns close to 13% of the issued and outstanding common stock of Bronco, thinks this is too cheap. On July 29, Wexford partner Arthur Amron, wrote the board of directors of Bronco to explain his own and his colleagues' reasoning.
The history behind this letter makes it of especial interest to me. For as it happens, Wexford created Bronco, in June 2001. Four years later, it kicked its baby out of the nest, into the world, with an IPO at $17 a share.
The IPO price of 2005 was $17 a share??? As it happens, that's about how shares are valued according to the Allis-Chalmers proposal. Anybody who stocked up on equity at the IPO price and now accepts the ALY offer is accepting a nominal value change of just about nothing, and of course a real value change well in the negative numbers, since the 2008 dollar isn't the 2005 dollar.
Glass Lewis, on the other hand, recommends that shareholders vote for the proposed merger, which they think will "create a diversified international oilfield service provider, as well as generate substantial synergies. In addition, our contribution analysis suggests that the financial terms of the agreement are fair for the Company and its shareholders.”
Bronco shareholders will get $200 million in cash and 16.85 million shares of ALY's common stock if the deal goes through as planned.
Wexford Capital, which owns close to 13% of the issued and outstanding common stock of Bronco, thinks this is too cheap. On July 29, Wexford partner Arthur Amron, wrote the board of directors of Bronco to explain his own and his colleagues' reasoning.
The history behind this letter makes it of especial interest to me. For as it happens, Wexford created Bronco, in June 2001. Four years later, it kicked its baby out of the nest, into the world, with an IPO at $17 a share.
The IPO price of 2005 was $17 a share??? As it happens, that's about how shares are valued according to the Allis-Chalmers proposal. Anybody who stocked up on equity at the IPO price and now accepts the ALY offer is accepting a nominal value change of just about nothing, and of course a real value change well in the negative numbers, since the 2008 dollar isn't the 2005 dollar.
Glass Lewis, on the other hand, recommends that shareholders vote for the proposed merger, which they think will "create a diversified international oilfield service provider, as well as generate substantial synergies. In addition, our contribution analysis suggests that the financial terms of the agreement are fair for the Company and its shareholders.”
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