Worried about deflation? Don’t be so stupid

November 21, 2008

Posted by Alister Bull

Highly regarded Federal Reserve historian Allan Meltzer has some sharp words for journalists calling for his views on whether the United States is heading for a Japan-style bout of deflation.

“The last time somebody asked me that question it must have been the fifteenth time that I’d heard it, and I said that it must be the most stupid question I’ve heard in 40 years of dealing with the press,” he told the Cato Institute during its annual monetary policy conference this week.

“It is time that the people talking about deflation go back to school and learned about the difference between maintained rates of change and one-time changes in level,” he lectured the high-powered audience of economists, which included Fed Vice Chairman Donald Kohn and Richmond Fed President Jeffrey Lacker.

Kohn had earlier said that he didn’t see a big deflation risk. Lacker made similar remarks on Friday.

Why all the deflation talk all of a sudden? It didn’t help that U.S. consumer prices tumbled in October. Or that the newest Nobel prize-winning economist, Paul Krugman, used the “D” word in Friday’s New York Times.

Meltzer says forget about it.

“The deflation that we’re going to have, so called, is a decline in oil and food prices. That is a reverse of the increase in oil and food prices. Those change the level of prices, but not the sustained rate of change of prices. Deflation is a sustained rate of change of prices. Just remember the Federal Reserve history: there are six or seven periods when we had deflation. Only one of them was a disaster; the Great Depression.
    “It was a disaster because, while the deflation was going on, the money growth was falling. So the expectation was that the price level would continue to fall. If you looked at the footprints of those recoveries, you wouldn’t be able to distinguish them from any other recovery,” Meltzer said.

Feel better now?

One comment

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Allan Meltzer is ignorent.

The history of the FED is falsified like most of the rest of American history.

The FED (a unconstitutional organization) likes to fool the people and tell them lies. Ofcourse their will be deflation before hyper inflation sets in.

The FED, the FED notes should be abolished and all processes brought back under the Treasury (like JFK tried to do with executive order 11110).

The dollar should be connected again to gold or silver.

And rates should go up to 5% to 10% to compensate the comming hyper inflation.

feel enlightened now?

Posted by Jean Paris France | Report as abusive