Counterparties: The Inflation question

By Ben Walsh
May 1, 2012

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As European leaders are being criticized for their austere approach to economic recovery, Fed Chairman Ben Bernanke is similarly fending off critics who believe he’s not doing enough to grow the economy. Europe’s obssed with cuts; Bernanke, the argument goes, is obssessed with inflation.

Remember, the Fed has two mandates: to create “stable prices” (largely, keeping inflation in check) and to help maintain “full employment”. Bernanke’s critics, of late, have accused him of worrying far too much about the former.

And at the heart of the debate is whether a tactic long-taboo to central bankers, inflation, is in fact what the U.S. needs to drive unemployment down. (Think of the effect inflated housing prices could have on unemployment.)

During yesterday’s Paul vs. Paul debate on Bloomberg TV, Paul Krugman again argued that the “notion that wages are fixed and any inflation comes at the expense of workers is wrong. Wages tend to rise faster in an economy that’s doing well.” Ron Paul portrayed any inflationary policies as theft from savers.

Pimco’s Bill Gross took the bond owner’s view and warned that an “ocean” of credit created by central bank policies was also adding to investors’ worries about inflation. Hedge fund manager David Einhornexpressed much the same concern. At the Atlantic, Matthew O’Brien called the inflation threat a “boogeyman” and chalked up fears that inflation is really far higher than official statistics indicate to an “understandable mistake. But still a mistake.”

The Fed’s members themselves don’t agree on how much inflation is right for the economy; Bernanke, for his part, shows no signs of changing his position. – Ben Walsh

On to today’s links:

Extremely Hard Jobs
Become the first Goldman Sachs “social media community manager”! – Finextra

Tax Arcana
Stephen King: Please raise my taxes – The Daily Beast

Hackgate
Rupert Murdoch “not a fit person” to lead media empire – The Guardian

Defenestrations
Even Bank of America’s top moneymakers aren’t safe from the latest round of cuts – WSJ

Wonks
Cutting wages doesn’t help in a debt crisis (just ask the UK) – Interfluidity

#OWS
NYPD raids activists’ homes before May Day protests – Gawker
The Guardian’s excellent #MayDay liveblog - Guardian

New Normal
What happens when U.S. consumers can’t refinance anymore? – Bonddad
Obama’s failed to stop the middle class side he blamed on Bush - Bloomberg

Primary Sources
April’s encouraging ISM report – Institute for Supply Management

Oxpeckers
WashPost acquires Digg’s team – but not its technology – All Things D

Awesome
Thinking in a foreign language leads to more rational decisions – Wired

Financial Arcana
Treasury is considering floating notes – WSJ

Felix
The multimillionaire men of Lehman – Reuters

2 comments

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Safe behind the WSJ’s pay-wall, the floating rate note piece remains a mystery. No mystery, though, that Treasury would issue such notes at this exact moment in history, when it is least advantageous to do so. Par for the course, wouldn’t you say?

Bet it’s being considered because Wall Street wants the notes. That would be par for the course also, right?

Posted by MrRFox | Report as abusive

“Think of the effect inflated housing prices could have on unemployment.”

What does that mean? Where do you stand? Are you a columnist or a journalist? Do you want higher house prices? Krugman did too, back in 2001. It didn’t end well.

And what does this mean:

“At the Atlantic, Matthew O’Brien called the inflation threat a “boogeyman” and chalked up fears that inflation is really far higher than official statistics indicate to an “understandable mistake. But still a mistake.”

REUTERS: Why is Felix Salmon’s face plastered on top of this article as if it’s his? I was about to yell at him.

Posted by AdamSharp | Report as abusive