Edward Harrison

Weak Consumer Spending - Get Used to It

I have written in the past that I see money printing itself as the actual inflation. The consumer price or asset price inflation is merely a manifestation of that inflation. So, in truth, I am not really trying to have it both ways. I amparsing my words to reflect how people perceive inflation - i.e. as consumer price inflation.

In my view, printing money will always lead to either asset price or consumer price inflation over the medium term. Eventually, that previously non-existent money is going to buy goods or assets. It can't lead to consumer price inflation except through commodities or the currency if capacity is slack as it is right now.

This is why we are seeing a major melt-up in shares and no consumer price inflation to speak of.
On Aug 17 09:46 AM chap08 wrote:

>
>
> "The Federal Reserve can print all the money it wants. But if there
> is little demand for more indebtedness, it is not going to have the
> desired effect of permanently reflating the economy – although it
> can create bubbles."
>
> Much of your article is right, but this is wrong. A few points:<br/>
>
> 1. High levels of indebtedness are not necessary for a well functioning
> economy. We should not be trying to go back there. "Permanently reflating
> the economy" is obviously impossible and not a relevant objective.
>
> 2. The Fed can do a lot more than print money. If it wanted to, it
> could create demand for more debt. This would be easy: just create
> inflation and let interest rates become low or negative.
> 3. If we got stuck in your worlds of Defaltion and Depression, we
> would see money being put straight in to people's pockets through
> money financed tax cuts and asset purchases. This would get people
> spending pretty soon.
> 4. Loose monetary policy does create the risk of bubbles but you
> can't have it both ways. There will not be bubbles if there is no
> expansion in debt.