7 Comments

Your heterodox view points to the similarities between the Fed and the U.S. Strategic Petroleum Reserve.

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In the heterodox view, is NGDPLT technically infeasible, politically infeasible, or both? NGDPLT would seem to collapse the 2 inflation regimes and constrain Treasury debt (to the extent that more debt would lead to excess NGDP).

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For those interested in the Fed’s impact on inflation I suggest you read Scott Grandis’s blog: http://scottgrannis.blogspot.com/ Happy New Year!

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If " inflation has two regimes.", it should be clear which regime we're now in.

It's not.

Inflation might have two stable, multi-year regimes, but also has, like the moon, two flux states: waxing & waning inflation.

We're now in a waxing inflation state, and will be in such a state until it stabilizes OR starts going down, possibly with up-jerks, in a waning state.

The failure of economists to understand and accurately predict inflation is clear evidence that "Economics" is more an art, or at best social science, and NOT any kind of hard physics/ chemistry like science.

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I would support the view that the FED does not control.

I wonder how much rational choice is the basis for most of the analysis and if so: Is that a close fit with reality?

What would have to happen to give the FED a proper feedback just like a company when e.g. its sales rise or shrink or the product quality is/ is not competitive? Is the lack of direct feedback in combination with hard consequences a key problem of centralized government issued money production?

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"I think of the Fed as just another bank, like Citicorp."

I'm confused by the quoted sentence. Surely Kling knows the following in more detail than I do.

1 Citicorp does not create money in the way the Fed does. (Citicorp, and all banks, does indeed create money by making loans rather than parking their money with the Fed. Via leverage - small reserve ratio - this can be quite substantial.)

2 Citicorp does not determine interest rates at which everyone will loan and borrow in the way the Fed does.

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If government debt fuels inflation the way the money used to, then you should be able to draft a chart correlating issuance of government debt with inflation. The result should show a direct relationship, until the amount of debt issued exceeds some tolerance, above which we get the transition that you postulate. But the period between, say, 2010 and 2018 should show the relationship you claim.

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