I notice today some peripheral hub-bub about wheat prices rising due to bad weather in some far flung place.
This will, naturally, have some consequences for those of us who love Weetabix and brown bread.
(Not to mention the asset-less billions who require wheat to continue living)
There we have inflation without any economic cause; bad weather = reduced crop = higher prices.
One of the the fantasies that the Krugmanites live under is that all economic outcomes have economic causes.
Thus, in their minds, everything can be explained by their models.
QE is no exception.
DP and Yogi have argued that QE is in fact deflationary.
(I notice that Izzy Kaminska on FTAV is also pushing this line.)
From what I can make out the reason for this is not because QE creates money to drive prices up, but because it removes assets from the market, leaving a stable monetary base to pursue a diminishing pool of assets. Thus asset prices rise.
The magic at work here, is that the ‘stable pool of money’ falls in size relative to the ‘value’ of appreciating assets.
This would be similar to asset prices staying the same and the pool of available money contracting; it would appear deflationary.
That this mechanism has essentially the same effect as money printing is ignored - prices of available assets rise.
Thats what QE is and that is what it is for; to inflate asset prices and call it deflation; because whatever happens they cannot countenance asset prices falling and calling it inflation. We are down the rabbit hole here, people.
This is the mendacity and double speak that these people are capable of and intent on.
Whatever happens, gaming the GDP numbers (by trading of higher priced assets within an economy) must take precedence.
Its the illusion of resolution for the plebs, while insolvent banks can trade illiquid and/or underwater assets to clear their books.
I am minded of the idea of relativity in physics, explained to me thus;
You are standing on a train platform.
As a train passes you by, you notice one passenger throw an apple, forwards, the length of the carriage to his friend.
He begins his throw as his position reaches the far end of the platform. His friend catches the apple as his position reaches the opposite end of the platform.
How far was the apple thrown?
Well from their perspective it was thrown 10m, the length of the carriage.
From your perspective, it was thrown 100m; the length of the platform.
This is the problem with QE (and I submit the beginning of the end for Keynesian economics); it is not based on objective fact, it is based on perspective.
The game being played now is to persuade you of one perspective or the other; Beans n’ shotguns or the welfare state?
From what I can see, the outcome is the same.