Opinion

The Great Debate

First exit for the Fed

fed– Agnes T. Crane is a Reuters columnist. The views expressed are her own –

Call it a battle for beginnings and endings, and the Federal Reserve is smack in the middle.

As Fed policymakers convene for a two-day meeting starting on Tuesday, the lines are growing more defined between those who want the Fed to do more to stimulate a still fragile economy, and those who are calling for a defined exit strategy to prevent the global economy from going into an inflation-inducing overdrive.

There’s a way to placate both camps, at least in the near-term, and that’s for Ben Bernanke and his colleagues to retire some of the temporary short-term lending facilities put in place at the height of the financial meltdown last year.

It would show good faith that the U.S. is serious about exiting some of those emergency facilities, and it would give the central bank breathing room to keep its ultra-easy monetary policy in place until it’s ready to call the all clear.

from Felix Salmon:

Another reason why inflation is a good idea

Megan McArdle is unhappy with the state of green consumption:

When I look back at almost every "environmentally friendly" alternative product I've seen being widely touted as a cost-free way to lower our footprint, held back only by the indecent vermin at "industry" who don't care about the environment, I notice a common theme: the replacement good has really really sucked compared to the old, inefficient version.

(Scare quotes Megan's, natch.)

The problem, as Megan admits, is that she's looking at the "cost-free" replacements: the bottom-of-the-line green products which can be used to replace legacy products which are the result of decades of development and economies of scale. It's hardly surprising that these first- and second-generation products can't compete on price.

But my feeling is not that the new products are too expensive, so much as that the old products are too cheap. That's certainly the case with food: chicken, beef, and other corn byproducts -- including the famous high-fructose corn syrup -- are so underpriced that their cultivation is destroying the planet and causing mass obesity.

Let sleeping shadow banking systems lie

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

Rather than vainly trying to refloat the shadow banking system, the U.S. would be better off grappling with the inevitable ultimate solution — debt destruction and inflation.

The common denominator of policies like the Term Asset-Backed Loan Facility (TALF) that was detailed on Tuesday, is that they try to solve fundamental problems with indebtedness by attempting to float asset prices high enough that they are back in proportion with the debt.

Commodities send coded clues on inflation

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –

After an 8-year period of remarkable stability, the ratio between gold and oil prices has broken down spectacularly.

The relative rise in gold is consistent with other indications that the market is bracing for a delayed upturn in inflation between 2010 and 2012.

No alternative to inflation

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –

Every budding economist is taught the distinction between nominal variables (expressed in terms of contemporary cash values) and real variables (adjusted for inflation and expressed in constant-dollars).

An oil price of $50 per barrel in 1980 is not the same as an oil price of $50 a barrel in 2009 because inflation has steadily eroded the purchasing power of the currency in the intervening years. Moreover, economists are taught that real values are more important than nominal ones — because “money is a veil” (to use the phrase of the Austrian economist Joseph Schumpeter).

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